China’s economic statecraft in the Taiwan Strait

ABSTRACT

Economic statecraft is the use of economic tools to achieve political goals. This article assesses China’s economic statecraft toward Taiwan and argues that its efficacy appears limited. I identify from the literature three causal mechanisms by which economic ties can be converted into political influence: leverage creation, interest transformation, and identity formation. I propose an analytical framework that incorporates the three causal mechanisms and conceptualizes the effectiveness of economic statecraft as an outcome of the strategic interactions between the sender’s strategies and the target’s countermeasures. Ultimately, the political impact of economic statecraft depends not just on how the sender deploys carrots and sticks but also on how the target government responds to external influence attempts.

Acknowledgement

Earlier versions of the article were presented at the Annual Meeting of the American Political Science Association (2021), the “Democratic Governance in Taiwan” conference at University of South Carolina (2021), and “Taiwan in a New Era” conference at Illinois State University (2017). I thank Chien-pin Li, Wen-chin Wu, Xinyuan Dai, two anonymous reviewers, and editors of Asian Security for comments and suggestions.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

¹ Shelley Rigger, The Tiger Leading the Dragon: How Taiwan Propelled China’s Economic Rise (Lanham, MD: Rowman & Littlefield, 2021), 88–89.

² Henry Farrell and Abraham L. Newman, “Weaponized Interdependence: How Global Economic Networks Shape State Coercion,” International Security 44, no. 1 (2019): 42–79.

³ Andreas Fuchs and Klann, Nils-Hendrik, “Paying a Visit: The Dalai Lama Effect on International Trade” (October 19, 2010). Center for European Governance and Economic Development Research Paper No. 113. Available at SSRN: http://ssrn.com/abstract=1694602 or http://dx.doi.org/10.2139/ssrn.1694602.

⁴ Jamil Anderlini and Clare MacCarthy, “China Snubs Norway in Visa Reforms,” Financial Times (December 6, 2012).

⁵ John Pomfret, “China Wielding Power with ‘Rare Earths,’” Washington Post (September 24, 2010).

⁶ Andrew Higgins, “Dispute Between China and Philippines Over Island Becomes More Heated,” New York Times (May 10, 2012).

⁷ Yan Zhuang, “Sailors Stranded for Months as China Refuses to Let Ships Unload Australian Coal,” New York Times (December 26, 2020).

⁸ Gustavo A. Flores-Macías and Sarah E. Kreps, “The Foreign Policy Consequences of Trade: China’s Commercial Relations with Africa and Latin America, 1992–2006,” The Journal of Politics 75, no. 2 (2013): 357–371. See also Georg Strüver, “What Friends Are Made of: Bilateral Linkages and Domestic Drivers of Foreign Policy Alignment with China,” Foreign Policy Analysis 12, no. 2 (2016): 170–191.

⁹ Evan S. Medeiros et al., Pacific Currents: The Responses of U.S. Allies and Security Partners in East Asia to China’s Rise (RAND Corporation, 2008), 239. Quoted in Scott L. Kastner, “Buying Influence? Assessing the Political Effects of China’s International Trade,” Journal of Conflict Resolution 60, no. 6 (2016): 980–1007 at 984.

¹⁰ Daniel W. Drezner, “Bad Debts: Assessing China’s Financial Influence in Great Power Politics,” International Security 34, no. 2 (2009): 7–45.

¹¹ Kastner, “Buying Influence.”

¹² David A. Baldwin, Economic Statecraft (Princeton, N.J: Princeton University Press, 1985), 13–14.

¹³ Daniel W. Drezner, “The Trouble with Carrots: Transaction Costs, Conflict Expectations, and Economic Inducements,” Security Studies 9, no. 1–2 (1999): 188–218.

¹⁴ Scott L. Kastner and Margaret M. Pearson, “Exploring the Parameters of China’s Economic Influence,” Studies in Comparative International Development 56, no. 1 (2021): 18–44 at 27.

¹⁵ Joanne Gowa, Allies, Adversaries, and International Trade (Princeton, NJ: Princeton University Press, 1994); Scott L. Kastner, Political Conflict and Economic Interdependence across the Taiwan Strait and Beyond (Stanford, Calif.: Stanford University Press, 2009), 13–18.

¹⁶ Miles Kahler and Scott L. Kastner, “Strategic Uses of Economic Interdependence: Engagement Policies on the Korean Peninsula and across the Taiwan Strait,” Journal of Peace Research 43, no. 5 (2006): 523–541.

¹⁷ Kastner and Pearson, “Exploring the Parameters of China’s Economic Influence,” 25–27.

¹⁸ Rawi Abdelal and Jonathan Kirshner, “Strategy, Economic Relations, and the Definition of National Interests,” Security Studies 9, no. 1–2 (1999): 119–156 at 120; James Reilly, China’s Economic Statecraft: Turning Wealth into Power (Sydney: Lowy Institute for International Policy, 2013), 9; and Kastner, “Buying Influence.”

¹⁹ Robert S. Ross, “On the Fungibility of Economic Power: China’s Economic Rise and the East Asian Security Order,” European Journal of International Relations 25, no. 1 (2019): 302–327 at 306.

²⁰ Jonathan Kirshner, “Political Economy in Security Studies after the Cold War,” Review of International Political Economy 5, no. 1 (1998): 64–91.

²¹ Both quotes are from Flores-Macías and Kreps, “The Foreign Policy Consequences of Trade,” 358–359.

²² William J. Norris, Chinese Economic Statecraft: Commercial Actors, Grand Strategy, and State Control (Ithaca, NY: Cornell University Press, 2016).

²³ Ibid., 23.

²⁴ Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley and Los Angeles: University of California press, 1945); Kirshner, “Political Economy in Security Studies after the Cold War”; and Kastner and Pearson, “Exploring the Parameters of China’s Economic Influence,” 28.

²⁵ Hirschman, National Power and the Structure of Foreign Trade, 29. See also Jonathan Kirshner, “The Consequences of China’s Economic Rise for Sino- U.S. Relations,” in China’s Ascent: Power, Security, and the Future of International Politics, ed. Robert S. Ross and Zhu Feng (Cornell: Cornell University Press, 2008), 242.

²⁶ Kastner, Political Conflict and Economic Interdependence across the Taiwan Strait and Beyond, 111. In the early 1990s, for instance, the US Clinton administration linked improvement in China’s human rights records with the annual granting of most-favored-nation status. American business groups, concerned that such a linkage would reduce their profit margins, set out to lobby the administration to change course, prompting President Clinton to delink the two issues. David M. Lampton, “America’s China Policy in the Age of the Finance Minister: Clinton Ends Linkage,” The China Quarterly, no. 139 (1994): 597–621.

²⁷ Abdelal and Kirshner, “Strategy, Economic Relations, and the Definition of National Interests,” 120–121; and Kahler and Kastner, “Strategic Uses of Economic Interdependence.”

²⁸ Risa A. Brooks, “Sanctions and Regime Type: What Works, and When?” Security Studies 11, no. 4 (2002): 1–50 at 6.

²⁹ Jean‐Marc F. Blanchard and Norrin M. Ripsman, “Asking the Right Question: When Do Economic Sanctions Work Best?” Security Studies 9, no. 1–2 (1999): 219–253.

³⁰ Gary Clyde Hufbauer et al., Economic Sanctions Reconsidered, 3rd ed. (Washington, DC: Peterson Institute for International Economics, 2007), 166; and Brooks, “Sanctions and Regime Type.”

³¹ Audrye Wong, “How Not to Win Allies and Influence Geopolitics: China’s Self-Defeating Economic Statecraft,” Foreign Affairs 100, no. 3 (May/June 2021): 44–53.

³² Kastner and Pearson, “Exploring the Parameters of China’s Economic Influence,” 29–30; Alexander Wendt, “Collective Identity Formation and the International State,” American Political Science Review 88, no. 2 (June 1994): 384–398.

³³ Barry Buzan, “From International System to International Society: Structural Realism and Regime Theory Meet the English School,” International Organization 47, no. 3 (1993): 327–352; John G. Ruggie, “Continuity and Transformation in the World Polity: Toward a Neorealist Synthesis,” International Organization 35, no. 2 (1983): 261–285; and Wendt, “Collective Identity Formation and the International State.”

³⁴ Bruce M. Russett and John R. Oneal, Triangulating Peace: Democracy, Interdependence, and International Organizations (New York: Norton, 2001), 130.

³⁵ Kirshner, “Political Economy in Security Studies after the Cold War,” 71–72; Kirshner, “The Consequences of China’s Economic Rise for Sino- U.S. Relations,” 242–243.

³⁶ Joseph S. Nye, Bound to Lead: The Changing Nature of American Power (New York: Basic Books, 1990), 31; Kirshner, “Political Economy in Security Studies after the Cold War,” 71–72; Kastner and Pearson, “Exploring the Parameters of China’s Economic Influence,” 29.

³⁷ Kastner and Pearson, “Exploring the Parameters of China’s Economic Influence,” 29–30.

³⁸ Most of the literature focuses on economic sanctions, yet there is no consensus on their effectiveness. Scholars disagree over defining and measuring “success,” ruling out alternative explanations, the stakes involved, and the problem of selection bias. Regardless of their effectiveness, policymakers frequently employ sanctions in international politics. Gary C. Hufbauer, Jeffrey J. Schott, and Kimberly A. Elliott, Economic Sanctions Reconsidered: History and Current Policy (Washington, DC: Institute for International Economics, 1985); Robert A. Pape, “Why Economic Sanctions Do Not Work,” International Security 22, no. 2 (Autumn 1997): 90–136; and Daniel W. Drezner, “The Hidden Hand of Economic Coercion,” International Organization 57, no. 3 (2003): 643–659. See also David A. Baldwin, “The Sanctions Debate and the Logic of Choice,” International Security 24, no. 3 (1999): 80–107.

³⁹ Baldwin, “The Sanctions Debate and the Logic of Choice,” 100.

⁴⁰ Pape, “Why Economic Sanctions Do Not Work,” 93.

⁴¹ Kastner and Pearson, “Exploring the Parameters of China’s Economic Influence,” 36.

⁴² Chung-min Tsai, “The Nature and Trend of Taiwanese Investment in China (1991–2014): Business Orientation, Profit Seeking, and Depoliticization,” in Taiwan and China: Fitful Embrace, ed. Lowell Dittmer (Oakland CA.: University of California Press, 2017), 133.

⁴³ Rigger, The Tiger Leading the Dragon.

⁴⁴ Hu Jintao, “Let Us Join Hands to Promote the Peaceful Development of Cross-Straits Relations and Strive with a United Resolve for the Great Rejuvenation of the Chinese Nation,” December 31, 2008. https://china.usc.edu/hu-jintao-let-us-join-hands-promote-peaceful-development-cross-straits-relations-and-strive-united

⁴⁵ ”Full text of Hu's report at 18th Party Congress,“ China Daily (November 18, 2011). https://www.chinadaily.com.cn/china/2013npc/2012-11/18/content_16261308_11.htm

⁴⁶ Shelley Rigger, Why Taiwan Matters: Small Island, Global Powerhouse (Lanham, MD: Rowman & Littlefield, 2011), 160.

⁴⁷ Murray Scot Tanner, Chinese Economic Coercion against Taiwan: A Tricky Weapon to Use (Santa Monica, CA: RAND Corporation, 2007), 3–4.

⁴⁸ Both quotes are from Richard C. Bush, Uncharted Strait: The Future of China-Taiwan Relations (Washington, DC: Brookings Institution Press, 2013), 64.

⁴⁹ Richard C. Bush, Difficult Choices: Taiwan’s Quest for Security and the Good Life (Washington, DC: Brookings Institution Press, 2021), 233–234.

⁵⁰ Bush, Uncharted Strait, 141.

⁵¹ T.J. Cheng, “China-Taiwan Economic Linkage: Between Insulation and Superconductivity,” in Dangerous Strait: The U.S.-Taiwan-China Crisis, ed. Nancy Bernkopf Tucker (New York: Columbia University Press, 2005).

⁵² Investment Commission, Ministry of Economic Affairs, ROC, http://www.moeaic.gov.tw. Although China accounts for a large percentage of Taiwan’s outbound investment, Taiwan is far from being the largest investor in China. According to one estimate, Taiwan shared only about 15 to 17% of China’s total inward FDI in 2008. Daniel H. Rosen and Zhi Wang, The Implications of China-Taiwan Economic Liberalization (Washington, DC: Peterson Institute for International Economics, 2011), 32.

⁵³ Mainland Affairs Council, Liang’an jingji tongji yuebao (Cross-strait economic statistics monthly), No. 336 (2021).

⁵⁴ Bush, Uncharted Strait, 149.

⁵⁵ Rigger, Why Taiwan Matters, 128.

⁵⁶ Hirschman, National Power and the Structure of Foreign Trade, 14.

⁵⁷ Kastner, Political Conflict and Economic Interdependence across the Taiwan Strait and Beyond, 52–58; and Cheng, “China-Taiwan Economic Linkage,” 102–103.

⁵⁸ Cheng, “China-Taiwan Economic Linkage,” 103, 111.

⁵⁹ Kastner, Political Conflict and Economic Interdependence across the Taiwan Strait and Beyond, 60–74.

⁶⁰ Chi-hung Wei, “China’s Economic Offensive and Taiwan’s Defensive Measures: Cross-Strait Fruit Trade, 2005–2008,” The China Quarterly 215(2013): 641–662 at 646.

⁶¹ Ming-sho Ho, Challenging Beijing’s Mandate of Heaven: Taiwan’s Sunflower Movement and Hong Kong’s Umbrella Movement (Philadelphia, PA: Temple University Press, 2019).

⁶² Sophia Yang, “Tsai speaks of 4 core elements for cross-strait relations,” Taiwan News (January 21, 2016), https://www.taiwannews.com.tw/en/news/2871703.

⁶³ Richard Bush calls Beijing tactics “coercion without violence,” Bush, Difficult Choices, 229.

⁶⁴ Ibid., 229–245.

⁶⁵ Ibid., 66.

⁶⁶ Ibid., 234–235.

⁶⁷ Notably, Australia, anxious about Chinese influence, also passed a law in 2018 banning foreign interference in domestic politics. Damien Cave and Jacqueline Williams, “Australian Law Targets Foreign Interference. China is Not Pleased,” The New York Times (June 28, 2018).

⁶⁸ Bush, Difficult Choices, 243.

⁶⁹ CTi is owned by the Want Want China Times Media Group, founded by a Taiwanese businessperson with ties to Beijing. Between 2006 and 2008, the firm bought two TV stations (CTI and CTi-TV) and the China Times newspaper in Taiwan. In a May 2019 meeting with Taiwanese media executives, Wang Yang, a member of the CCP Politburo Standing Committee in charge of the united front, reportedly revealed Beijing’s intention to influence Taiwanese public opinion through the media: “As we want to realize peaceful unification, one country, two systems, we need to rely on the joint efforts of our friends in the media. History will remember you.” Quoted in ibid., 237.

⁷⁰ Wing-Wah Law, “Education Reform in Taiwan: A Search for a ‘National’ Identity through Democratization and Taiwanisation,” Compare: A Journal of Comparative and International Education 32, no. 1 (2002): 61–81 at 74.

⁷¹ In the meantime, through military threats, Beijing seeks to prevent Taiwan’s de jure independence. Beijing’s threat of war has kept most Taiwanese voters and political parties from choosing outright independence. Brett V. Benson and Emerson M. S. Niou, “Public Opinion, Foreign Policy, and the Security Balance in the Taiwan Strait,” Security Studies 14, no. 2 (April-June 2005): 274–289 at 286; Yuan-kang Wang, “Taiwan Public Opinion on Cross-Strait Security Issues: Implications for US Foreign Policy,” Strategic Studies Quarterly 7, no. 2 (Summer 2013): 93–113 at 99–100.

⁷² Tanner, Chinese Economic Coercion against Taiwan, 100.

⁷³ For instance, Shu Keng and Gunther Schubert point out that 70% of China's core industrial exports in the IT sector are foreign-invested, 70% of which were owned by Taiwanese, and of China’s 20 largest foreign currency-generating export companies in 2003, six were Taiwanese-invested. Taiwanese companies helped promote research and development (R&D), train China’s engineering elites and designers, and hone the managerial skills of Chinese businesses. “Thus, if economic restrictions are put in place against Taiwan, the consequences for China’s overall development would be rather severe.” Shu Keng and Gunter Schubert, “Agents of Taiwan-China Unification? The Political Roles of Taiwanese Business People in the Process of Cross-Strait Integration,” Asian Survey 50, no. 2 (2010): 287–310 at 300.

⁷⁴ Norris, Chinese Economic Statecraft, 126–127.

⁷⁵ Bush, Difficult Choices, 234.

⁷⁶ Tsai, “The Nature and Trend of Taiwanese Investment in China (1991–2014),” 145.

⁷⁷ Rigger, The Tiger Leading the Dragon, 189.

⁷⁸ Kastner, Political Conflict and Economic Interdependence across the Taiwan Strait and Beyond, 44–45; Cheng, “China-Taiwan Economic Linkage,” 104.

⁷⁹ Douglas B. Fuller, “The Cross-Strait Economic Relationship’s Impact on Development in Taiwan and China: Adversaries and Partners,” Asian Survey 48, no. 2 (March/April 2008): 239–264 at 246; Bush, Uncharted Strait, 49; Gunter Schubert, Rui-hua Lin, and Jean Yu-Chen Tseng, “Taishang Studies: A Rising or Declining Research Field?” China Perspectives, no. 1 (2016): 29–36 at 31, n14.

⁸⁰ You-tien Hsing, “Social Entrepreneurialism and Social Media in Post – Developmental State Taiwan,” in Taiwan and China: Fitful Embrace, ed. Lowell Dittmer (Oakland, CA.: University of California Press, 2017), 176–177.

⁸¹ Tse-Kang Leng, “Cross-Strait Economic Relations and China’s Rise: The Case of the It Sector,” in Taiwan and China: Fitful Embrace, ed. Lowell Dittmer (Oakland, CA: University of California Press, 2017).

⁸² Douglas B. Fuller, “The Increasing Irrelevance of Industrial Policy in Taiwan, 2016–2020,” in Taiwan During the First Administration of Tsai Ing-Wen: Navigating in Stormy Waters, ed. Gunter Schubert and Chun-yi Lee (New York: Routledge, 2021).

⁸³ Gunter Schubert, “Assessing Political Agency across the Taiwan Strait: The Case of the Taishang,” China Information 27, no. 1 (2013): 51–79.

⁸⁴ Tanner, Chinese Economic Coercion against Taiwan; Keng and Schubert, “Agents of Taiwan-China Unification;” Schubert, Lin, and Tseng, “Taishang Studies”; and Rigger, The Tiger Leading the Dragon, 126.

⁸⁵ Schubert, Lin, and Tseng, “Taishang Studies,” 33.

⁸⁶ Tsai, “The Nature and Trend of Taiwanese Investment in China (1991–2014),” 144.

⁸⁷ Norris, Chinese Economic Statecraft, 125.

⁸⁸ Stan Hok-wui Wong and Nicole Wu, “Can Beijing Buy Taiwan? An Empirical Assessment of Beijing’s Agricultural Trade Concessions to Taiwan,” Journal of Contemporary China 25, no. 99 (2016): 353–371. This large-N study refutes Norris’ assessment that China’s fruit offensive “seems to have been effective at destabilizing the Chen administration.” Norris, Chinese Economic Statecraft, 156.

⁸⁹ Shu Keng, Jean Yu-Chen Tseng, and Qiang Yu, “The Strengths of China’s Charm Offensive: Changes in the Political Landscape of a Southern Taiwan Town under Attack from Chinese Economic Power,” The China Quarterly 232(2017): 956–981 at 978.

⁹⁰ Chia-Chou Wang, “Primordialism, Instrumentalism, Constructivism: Factors Influencing Taiwanese People’s Regime Acceptance of Mainland China’s Government,” Journal of Contemporary China 27, no. 109 (2018): 137–150.

⁹¹ Douglas B. Fuller, “The Drift: Industrial Policy under President Ma,” in Assessing the Presidency of Ma Ying-Jiu in Taiwan: Hopeful Beginning, Hopeless End?, ed. André Beckershoff and Gunter Schubert (New York: Routledge, 2018).

⁹² Bush, Difficult Choices, 251.

⁹³ Schubert, Lin, and Tseng, “Taishang Studies,” 35.

⁹⁴ Election Studies Center, National Chengchi University, https://esc.nccu.edu.tw/upload/44/doc/6960/People202012.jpg.

⁹⁵ Constructivists recognize that social interactions may sometimes reinforce existing identities, not transform them. Frequent interactions that challenge existing identities can lead to “perceptions of threat and these may cause resistance to transformations of the self and thus to social change.” Alexander Wendt, “Anarchy Is What States Make of It: The Social Construction of Power Politics,” International Organization 46, no. 2 (Spring 1992): 391–425 at 411.

⁹⁶ Bush, Uncharted Strait, 92.

⁹⁷ Rising Taiwanese identity and declining support for unification does not mean that Taiwan voters are opposed to cross-Strait economic exchanges. In 2018, Han Kuo-yu campaigned on closer economic ties with China and won the mayorship of Kaohsiung (he lost his presidential bid in 2020 and was subsequently recalled from the mayorship). Han’s populist rise was mainly due to voter concerns about income insecurity and his promise of economic security by trading with China. Yet whether the “Han Wave” is a one-off event or augurs a future trend remains to be seen. See Wei-Ting Yen, “Labor Market, Economic Insecurity, and Populism in Taiwan,” Taiwan Journal of Democracy 17, no. 1 (July 2021): 161–189.

⁹⁸ Bush, Uncharted Strait, 69–71.

⁹⁹ Bush, Difficult Choices, 152.

¹⁰⁰ Baldwin, “The Sanctions Debate and the Logic of Choice,” 100; and Kastner and Pearson, “Exploring the Parameters of China’s Economic Influence,” 36–38.

Additional information

Notes on contributors

Yuan-Kang Wang

Yuan-kang Wang is Professor of Political Science at Western Michigan University. He is author of Harmony and War: Confucian Culture and Chinese Power Politics (Columbia University Press, 2011). His research focuses on historical China’s foreign relations, U.S.-China relations, and Taiwan security.