Countering China’s coercive diplomacy: prioritising economic security, sovereignty and the rules-based order

What’s the problem?

The People’s Republic of China (PRC) is increasingly using a range of economic and non-economic tools to punish, influence and deter foreign governments in its foreign relations. Coercive actions have become a key part of the PRC’s toolkit as it takes a more assertive position in international disputes and seeks to reshape the global order in its favour.

This research finds that the PRC’s use of coercive tactics is now sitting at levels well above those seen a decade ago, or even five years ago. The year 2020 marked a peak, and the use of trade restrictions and state-issued threats have become favoured methods. The tactics have been used in disputes over governments’ decisions on human rights, national security and diplomatic relations.

The PRC’s tactics have had mixed success in affecting the policies of target governments; most governments have stood firm, but some have acquiesced. Undeniably, the tactics are harming certain businesses, challenging sovereign decision-making and weakening economic security. The tactics also undermine the rules-based international order and probably serve as a deterrent to governments, businesses and civil-society groups that have witnessed the PRC’s coercion of others and don’t want to become future targets. This can mean that decision-makers, fearing that punishment, are failing to protect key interests, to stand up for human rights or to align with other states on important regional and international issues.

What’s the solution?

Governments must pursue a deterrence strategy that seeks to change the PRC’s thinking on coercive tactics by reducing the perceived benefits and increasing the costs. The strategy should be based on policies that build deterrence in three forms: resilience, denial and punishment. This strategy should be pursued through national, minilateral and multilateral channels.

Building resilience is essential to counter coercion, but it isn’t a complete solution, so we must look at interventions that enhance deterrence by denial and punishment. States must engage in national efforts to build deterrence but, alone, it’s unlikely that they’ll prevail against more powerful aggressors, so working collectively with like-minded partners and in multilateral institutions is necessary.

It’s essential that effective strategic communications accompany all of these efforts.

This report makes 24 policy recommendations. It recommends, for example, better cooperation between government and business and efforts to improve the World Trade Organization (WTO).

The report argues that a crucial—and currently missing—component of the response is for a coalition of like-minded states to establish an international taskforce on countering coercion. The taskforce members should agree on the nature of the problem, commit to assisting each other, share information and map out potential countermeasures to deploy in response to coercion.

Solidarity between like-minded partners is critical for states to overcome the power differential and divide-and-conquer tactics that the PRC exploits in disputes. Japan’s presidency of the G7 presents an important opportunity to advance this kind of cooperation in 2023.
 

Introduction

We treat our friends with fine wine, but for our enemies we have shotguns.
—Gui Congyou (桂从友), former PRC Ambassador to Sweden, 2019¹

The PRC’s use of economic and non-economic coercive statecraft has surged to previously unseen levels,² as the Chinese Communist Party (CCP) more aggressively pursues its ‘core interests’, or bottom-line issues on which it isn’t willing to compromise.³ Those tactics have increasingly been deployed in reaction to other states—especially developed democracies—when they make foreign and security policy decisions that displease the CCP.

Coercive diplomacy encompasses a range of ‘grey zone’ or hybrid activity beyond conventional diplomacy and short of military action. It’s ‘the use of threats or negative actions to force the target state to change behaviour’.⁴ Much of this is economic coercion—the weaponisation of interdependence in goods and services trade and investment. The use of punitive actions to coerce sits alongside the positive inducements also used to influence as part of a carrot-and-stick approach to foreign relations. The exploitation of economic leverage is often accompanied by other coercive tools as part of a multidomain effort to influence a target. This includes cyberattacks, arbitrary detentions and sanctions on individuals.

The PRC’s use of coercive statecraft presents a particular challenge, as its authoritarian governance allows it to harness a range of malign tactics as part of its broader strategic efforts to reshape the existing global order in its favour. As a hybrid threat, this coercive conduct is often used in a way that exploits plausible deniability and a lack of democratic and market-based restraints. The PRC’s coercive behaviour is rarely formally or clearly declared; nor does it necessarily rely on legitimate legal authority.

While other states, including developed democracies, have and use coercive powers, the nature, scale and intent of the PRC’s conduct pose a distinct threat to the rules-based international order.

The PRC’s use of these tactics is weakening the rules-based, liberal international order. While the methods don’t always cause significant economic harm or succeed in immediately changing a target state’s policy, they have done so and have caused other harms, for example by encouraging an environment of self-censorship and promoting a culture in which policymakers avoid public discussions or advancing policy development in certain areas. Another harm is the disruptive nature of the information environment surrounding the PRC’s coercive actions, which places enormous pressure on politicians and decision-makers (including because some commentators question what ‘concessions’ a government will make to potentially unwind the PRC’s punitive measures).

Some states are nonetheless making difficult decisions in defiance of the PRC’s tactics, which alienate policymakers and populations. However, the PRC’s tactics are probably also functioning as a highly successful signal for many countries, especially developing states, deterring them from making decisions that could provoke PRC aggression. This means that states are compromising important decisions with implications for the international order, human rights and national security.

The main analysis in this report is based on an open-source dataset of examples of coercive diplomacy. The dataset draws on information from news articles, policy papers, academic research, company websites, social media, official government documents and statements made by politicians and business officials. The research team gathered as many examples of coercive diplomacy as could be identified publicly from 2020 to 2022. This carries forward the methodology used for ASPI’s 2020 report, The Chinese Communist Party’s coercive diplomacy.⁵

In relying on open-source research and mostly English-language sources, this approach does carry limitations. This isn’t intended to be an exhaustive or comprehensive documentation of coercive diplomacy across the world. There will be cases of coercion that have remained private,⁶⁶ and there may be publicly known cases not captured, especially in countries where English-language reporting is unavailable. This dataset has been compiled to identify trends in the PRC’s use of coercive diplomacy and insights into how and where it operates and how it can be better countered.

In addition to this dataset, the report overviews the PRC’s strategic outlook and analyses a series of in-depth case studies of PRC coercion: Australia, Lithuania and the Republic of Korea. We also conducted modelling of the economic impact of simulated coercive restrictions against those states and analysed the information environment surrounding the actual cases of coercion that they have experienced. The report then concludes with our policy recommendations.

1. ‘How Sweden copes with Chinese bullying’, The Economist, 20 February 2020, online. This is a reference to ‘My motherland’, the theme song of a Chinese movie about the Korean War. See Fan Anqi, ‘China warns “irretrievable consequences”, “unbearable price” amid US’ Taiwan remarks swings’, Global Times, 24 May 2022, ↩︎
2. Fergus Hanson, Emilia Currey, Tracy Beattie, The Chinese Communist Party’s coercive diplomacy, ASPI, Canberra, 1 September 2020. ↩︎
3. For more on China’s core interests, see Appendix 2. ↩︎
4. See Ketian Zhang, ‘Chinese non-military coercion—tactics and rationale’, Brookings, 22 January 2019. ↩︎
5. Hanson et al., The Chinese Communist Party’s coercive diplomacy. ↩︎
6. For example: Primrose Riordan, ‘China’s veiled threat to Bill Shorten on extradition treaty’, The Australian, 5 December 2017, online; Fergus Hunter, ‘Australia abandoned plans for Taiwanese free trade agreement after warning from China’, Sydney Morning Herald, 24 October 2018. ↩︎