Chapter 4. Theoretical Reflections
4.2 Economic Attraction
Through testing Hypothesis 1 in Chapter 2, this study found that China’s economic
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attraction did not play the expected role of sensitivity as Keohane and Nye argued. In examining how quickly changes in Beijing resulted in changes in Manila and Hanoi, and how costly the effects were, this study finds a sensitivity of economic attraction in both the Philippine and Vietnamese cases. Although China shares economic benefits with the two countries, benefits originating from commercial cooperation cannot spill over to territorial sovereignty issues. Referring to the existing literature, other than the Philippines’ and Vietnam’s vital economic and security interests in the South China Sea, other reasons to explain why economic instruments do not decrease the possibility of conflict are as follows.
First, the pro-American political attitude in the Philippines plays a key role in Manila’s decision making. The Philippines fears that China will use economic attraction as leverage to pull Manila from Washington (H. Zhao, 2013). The distrust escalated as the Chinese economic power gradually projected its regional influence. To better adjust to China’s rising, Manila is eager to take action to maintain the status quo (Hong, 2012, p.87). Second, Filipinos criticised Arroyo’s soft decisions in the South China Sea disputes as well as a number of China’s corrupt investments. In addition, many family businesses and oligopolistic firms refuted the facilitation of an FTA with China, causing the Philippines to be less eager in appealing China’s support, to protect their original business benefits. Third, scandals in some infrastructure partnerships with China produced a negative image of China’s economic diplomacy.
In the Vietnamese case, Premier Tan Dung Nguyen warned that Hanoi should concerned about the serious degree of economic interdependence with China. Vietnam depends on the trade imbalance, such as the trade deficit, for economic development. To avoid increasing of both degrees of sensitivity interdependence and vulnerability interdependence, Vietnam positively manages its relations with the major powers and attempts to offset China’s economic impact. Reflecting Keohane and Nye’s concept of asymmetric economic interdependence which explains Vietnam’s case:
If one actor can reduce its costs by altering its policy, either domestically or internationally, the sensitivity patterns will not be a good guide to power resources (Keohane & Nye, 2001, p. 10).
Second, as Vietnamese academia has observed, China’s economic diplomacy aims to use its advantage in labour-intensive industry and its endowment of natural energy resources.
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Vietnam’s problems of unemployment and technological backwardness have not been improved and irreparable environmental damage has been caused (Ha & Do, 2008).
In summary, a clear concept appears between the two cases. When China manipulates asymmetric economic interdependence, it does not consider the importance of building mutual trust. Historically speaking, before pushing its charm offensive, China used to use military power to acquire its position in South China Sea disputes. For example, the cases of Fiery Cross Reef in 1988, the Paracels in 1994, and Mischief Reef in 1995. Together with the fear of a rising China, negative perceptions have long been rooted in Manila and Hanoi.
Furthermore, both countries acknowledge that China’s economic diplomacy of going out is meant to stabilize its economic position through the use of foreign markets and resources.
Ostensibly, China’s economic attraction is altruistic, but in actuality it is self-serving.
If a government seeks to make a gain on issue X by linking it to issue Y, it is in effect exchanging some of the good involved in issue Y for that in issue X (Keohane & Nye, 2001, p. 275).
We can use this concept to elaborate on China’s behaviour: Beijing aims to achieve its political purpose in the South China Sea by linking it with sharing economic benefits (jing ji fa zhan hong li,經濟發展紅利) with the Philippines and Vietnam. The relationship between territorial disputes and economic attractions implies an exchange. Using Keohane and Nye’s framework, the relationship between economic interdependence and the power of persuasion is designed to probe specific issues. Because the South China Sea disputes involve challenges to sovereignty, they may be beyond the scope of Keohane and Nye’s framework. Hence, this study provides some views to supplement the existing literature. Despite Beijing’s superior position in the relation of asymmetric economic interdependence, the stronger party cannot eliminate anti-China concerns when significantly using economic instruments. This study infers that trust may be one of factors that links economic power with asymmetric interdependence. The stronger party should improve its relationship with peripheral countries by building trust, gradually removing its image of a threat and improving bilateral relations.
The trust factor can be a linkage to effectively formulate sensitivity interdependence and vulnerability interdependence, transform economic power into the potential for more leeway in political issues, and finally achieve the preferred outcomes of the stronger party.
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59 4.3 Economic Coercion
In testing Hypothesis 2 in Chapter 3, this study found that China’s economic coercion of the Philippines and Vietnam did not make both countries compromise in South China Sea disputes. Because the charm offensive did not work as anticipated, China altered its policy from providing economic attraction to employing economic coercion. However, under the concept of vulnerability interdependence, economic coercion does not transform into payment to make both countries consider potential economic losses.
Reviewing Keohane and Nye’s framework of asymmetric economic interdependence, the emphasis is placed on vulnerability interdependence.
Policymakers and policy analysts, however, must examine underlying patterns of vulnerability interdependence [emphasis added] when they decide on strategies…. Coherent policy must be based on an analysis of actual and potential vulnerabilities [emphasis added]. (Nye & Keohane, 2001)
Although China’s economic coercion in handling South China Sea disputes did not achieve its preferred outcomes for either the Philippines or Vietnam, this study found that Beijing demonstrated clever political manoeuvring to separate economic coercion into substantive and symbolic measures during the Scarborough Shoal standoff with the Philippines. This provided a new lens to observe China’s economic influence. Substantive measures of coercion cause actual and immediate loss to the weaker states; symbolic measures anticipate future losses. The former includes limited imports, cancelled tourism, and decreased investment; symbolic measures include coercion, which causes an expected loss. For example, China refused the participation of the Philippines in the 10th CAEXPO, which caused Manila to lose some commercial opportunities. China’s employment of symbolic measures implied a punishment strategy. This trend shows Beijing’s peripheral governance strategy has moved beyond commercial implications and serves the purpose of political friendship (Yang, 2014).
The peace and stability of the South China Sea concerns regional development and prosperity and the well-being of the people, hence serving the common interests of all the countries in the region (Wenweipo, 2014).
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From the statement by Chinese Vice Premier Zhang Gaoli at the CAEXPO, Beijing’s response to Manila also transmitted a clear warning signal to other claimants such as Vietnam. Reviewing the HYSY-981 oil rig incident, anti-Chinese protests generated bad influence of Vietnamese investing environment. It also made Hanoi take a cautious attitude in handling the protests. In fact, room for generating compromise did exist with Vietnam.
The CAEXPO case represents China’s strategy of creating close relationships. For Beijing, if the Philippine president attended CAEXPO in China without revoking the arbitration, then Aquino III would represent the disharmony of cooperation between China and ASEAN, no matter whether he states this opinion publicly or not. Beijing does not want to see Aquino III challenging the core interests of the South China Sea. This incident demonstrates that China was more confident in dealing with peripheral relations. In addition, China gradually lost its patience with Aquino III’s administration. In the future, Beijing may use this case as a template to manage peripheral relationships. If other countries challenge Chinese national interests, they will be denied Beijing’s agenda of commercial cooperation (Yang, 2014).
This study suggests some implications behind Beijing’s manoeuvred gradations of economic coercion. Taking substantive measures is a double-edged sword; it not only hurts Chinese entrepreneurs investing in the Philippines but also produces a negative international opinion of China and the image of a Chinese threat. Both substantive and symbolic measures generate similar effects: coercion generates loss avoidance effects in the very short run that are insignificant in the long run, as shown by the Philippine case. Considering Manila’s higher degree of sensitivity interdependence, China did not need to manipulate substantive measures towards the Philippines.
According to Professor Shicun Wu, Dean of South China Sea Institute of Oceanology, China takes different measures against the Philippines and Vietnam. For Manila, using economic measures is preferable; towards Hanoi, Beijing prefers negotiation (Huaxia, 2014).
Thus, China uses different strategies to make the Philippines and Vietnam avoid payments, considering their potential vulnerability. First, considering their history of bilateral disputes, a negotiating channel exists between Sino–Vietnamese authorities. In addition, referring to Vietnamese media, their report signal that Hanoi controlled news disclosures to ease tensions.
Hence, communications cost less than economic coercion from Beijing’s perspective. Second, if Beijing treated Hanoi as it does Manila, it may cause the two states to cooperate in
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protesting against China, and may even initiate international opinions that do not conform to China’s interests.
4.4 Modification
Keohane and Nye developed the concept of asymmetric economic interdependence in 1977. They posited that sensitivity interdependence is closer to asymmetric economic interdependence; however, vulnerability interdependence plays a critical factor for a country that takes responsive action. The study finding does not meet with the assumption of neoliberal institutionalism: both sensitivity interdependence and vulnerability interdependence do not lead to compromise in political issues.
This study observes that economic attractions cannot achieve political purposes if they are missing a trust factor as a linkage. Zhao Hong suggests that to move beyond South China Sea disputes, Beijing, Manila, and Hanoi should focus on how to increase their mutual trust and strengthen economic cooperation, to replace the use of tough measures or military power (H. Zhao, 2013).As Duartea and Davies (2004) stated, trust was not affected directly by the level of power asymmetry but rather by the way power was used, either coercively or noncoercively, raising or lowering trust. Trust was found to mediate the effect of how power is used on an agent’s perception of cooperation, satisfaction, and conflict, emphasising the pivotal role of trust in understanding the behavioural aspects of channel (Duartea & Davies (2004, pp.2-3). Rubin and Brown (1975) hypothesised that equal power and high-trust situations would induce participants to choose more cooperative strategies and to attain more satisfactory outcomes than low-trust or unequal power situations. As Davidson, McElwee, and Hannan (2004) stated, the effect of a power differential was direct and not based on an increased use of a particular conflict resolution strategy. These results suggest that enhanced trust might be considered one marker of success for conflict resolution training in a particular social context, such as the workplace (Davidson et al., 2004). This study thus suggests that a trust factor may be the linkage between economic attractions and political purposes, as a supplement.
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Figure 4. Modification of the Analytical Framework: Economic Attraction.
In addition, economic coercion can be separated into substantive and symbolic measures when taking actual and potential vulnerability interdependence into account. This study suggests two new models of economic attraction and economic coercion as follows (Figures 4 and 5). Establishing mutual trust is the very basis of the linkage between economic attractions and preferred political outcomes. Under dispute situations, providing economic attraction generates persuasion. As tensions escalate, employing economic coercion considers actual and potential vulnerability interdependence to manipulate substantive or symbolic coercion. This finding provides new lens of observing how China manipulates its economic influence.
In dispute
Strong Economic
Attraction Weak
Calculation of Gain
Compromise Trust
Persuasion
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Figure 5. Modification of the Analytical Framework: Economic Coercion.
Tension escalated
Strong
Symbolic Economic
Coercion Weak
Consideration of Loss Substantive
Economic Coercion
Compromise
Payment
Payment
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64 Chapter 5. Conclusion
This study uses the concept of asymmetric economic interdependence and observes how Chinese economic power generated effects leading the Philippines and Vietnam to compromise in South China Sea disputes between 1997 and 2013. Beginning from China’s charm offensive, Beijing acted as a friendly ambassador during the Asian financial crisis.
Since then, China’s economic diplomacy has become increasingly stronger. Although China constructed economic ties with Southeast Asian countries, South China Sea disputes continued to flare. China used economic coercion in dealing with the Scarborough Shoal standoff with the Philippines in 2012. However, this did not resolve tensions. Observing China’s use of both economic attraction and economic coercion in handling territorial disputes, there have been some changes in its economic coercive measures.
5.1 Research Findings
5.1.1 Trust Linkage
This study suggests the trust linkage as a supplement to the original framework. Without trust to link economic interdependence and political purposes, China’s economic attractions failed to make the Philippines and Vietnam compromise, regardless of the tension situation.
Main reasons why economic instruments cannot yield the power of persuasion and avoidance of payment were summarized. Without taking trust into account, China could miscalculate the degrees of sensitivity interdependence and vulnerability interdependence in dealing with the Philippines and Vietnam.
For weaker parties, it is preferable to gain economic attractions, but this is insufficient to justify themselves for compromising in territorial disputes. In other words, considering the sensitivity, economic attractions provided by Beijing did not generate the power of persuasion in South China Sea disputes. In the relationship between economic coercion and avoidance of payments, China’s economic coercion did damage the two states’ interests in the short term but did not generate enough influence for the two states to compromise to sovereignty issues.
The threat of a rising China has deep roots in Southeast Asia. With these negative perceptions from historical experiences, it is difficult for Southeast Asian countries to link China’s economic diplomacy with positive intentions. China may create bona fides with the
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Philippines and Vietnam by providing economic attractions; however, China has also had wars with these two countries. In particular, economic instruments are a direct way to affect people’s livelihoods. If the weaker is affected the more, it makes the weaker fear the more.
Therefore, the stronger party should cultivate bilateral relationships by building mutual trust.
By examining South China Sea disputes, this study found that neither economic attractions nor economic coercion generated effects that achieve political purposes, because of a lack of mutual trust.
5.1.2 Symbolic Measures Provides a New Lens for Observation
This study found that China has resumed her economic coercive behaviour and demonstrated that Beijing has accumulated enough confidence to handle sovereignty challenges. With China’s economic power growing rapidly, its neighbouring countries would pay a higher cost if they do not comply with China’s demand. Hence, China is more likely to use symbolic measures more frequently than substantive measures.
In particular, with the assertion of Xi Jinping, China now plays a smart economic game with great strategic significance. Following China’s concept of comprehensive national security, Beijing has proposed several plans of economic development, including an updated version of CAFTA, a “diamond ten years,” the 21st Century Maritime Silk Route, the Asian Infrastructure Investment Bank, and the Eurasian Economic Union; nearly every country hopes to nurture its economy together with burgeoning Chinese opportunities. Clearly, ideas similar to China’s charm offensive may play the dominant role in economic diplomacy and serve as economic instruments in realizing the concept of comprehensive national security.
China’s charm offensive in economic diplomacy demonstrates the transformation of Beijing’s concept of national security. With China’s national power continuing to grow, its political strategy in dealing with territorial disputes changes. Dating back to 28 November 2014, the first time Xi hosted the Central Committee on Foreign Affairs Conference, which is detrimental to China’s peripheral diplomacy reveals China’s new direction. Xi emphasized that during this period of strategic opportunity, China’s is to move from economic cooperation towards economic security. Economic development is crucial for the development of a state; economic construction is the only way to achieve a peaceful rise with low risk. Hence, China should embrace new specialties and trends when the tides of national security change. In addition, China should maintain its goal of comprehensive national
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security. That is, economic integration is China’s bargaining chip in negotiating security and cooperation, and connecting external security issues (Guo, 2015, p. 81).
5.2 Future Research Agenda
This study mainly explores China’s economic power in handling South China Sea disputes with the Philippines and Vietnam in the framework of asymmetrical economic interdependence. Because of time limitations, this study did not cover certain dimensions in the research process. For instance, from the perspective of regional economic integration, the role of the CAFTA and its implications for sensitivities and vulnerability to South China Sea tensions could be another aspect to examine. In addition, this study selected two Chinese economic coercive measures, interference in fishing and oil exploitation, are limited. The effect of other economic coercive measures should not be overlooked
The complexities of South China Sea disputes require multiple research methods to cover the topic comprehensively. This study examined the disputes from the lens of economic security. International politics and defence strategies are other essential perspectives that can be considered in the future. Furthermore, another limitation of this study is that it neglects to discuss other economic powers, such as Japan and the United States. Their aid and funds may generate a trade-off effect to China’s.
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