Chinese economic statecraft. An illiberal actor in a (more) liberal global economy: who is changing who?

The concept of economic statecraft is usually deployed to explain the ways in which states use economic means to attain foreign policy goals. In studies of China, while it is indeed used in this way, economic statecraft has been expanded to cover other forms of international economic interactions, including at times the investment activities of non-state actors designed to attain commercial objectives. This extended usage of the concept can in part be explained by assumptions and/or misunderstandings of the nature of Chinese international actors, and their relationship with the state. It also raises questions about whether economic statecraft entails something more than the normal day-to-day business of macroeconomic policy-making. But more than anything, it reveals a deep-seated distrust of Chinese ambitions, with interim commercial objectives – even when pursued by non-state actors – perceived as being part of a broader strategy of making China ever richer and stronger, and thus better able to pursue other goals intended to alter the nature of the global order. As one response to these perceived challenges is to offer national companies various forms of support and protection to fend off unwanted Chinese attention, it could be that one of the consequences of China’s integration into the liberal global economy is to make parts of that economy less (neo)liberal than before.


On the face of it, the argument that China is using economic statecraft to further its national strategic goals is one that is hard to refute. China quite simply does indeed seem to be using economic means to gain political and strategic goals. But once you go beyond this headline “common sense” assumption – and actually not very far beyond it in some cases – then the extent to which the concept of economic statecraft is really helpful in understanding Chinese actions and intentions becomes more questionable. Despite attempts to establish a clear definition of what Chinese economic statecraft entails,[1] and to distinguish it from other forms of international economic activity,[2] there is still a tendency to assume that all that is done by Chinese economic actors overseas is being directly driven by the state to attain state objectives, and thus forms part of this statecraft. While this is understandable, it is also not always particularly helpful.

Perhaps, understandings of the nature of Chinese Outward Foreign Direct Investment (COFDI) have been overly influenced by the first wave of significant outward flows in the early years of the millennium.[3] This established a vision of large state-owned enterprises (SOEs) investing in energy and other resource projects in developing economies, and often in places where other investors either would not or could not go. Even then, not all of what was subsequently controlled by Chinese companies was sent back to China for strategic reasons. And projects were often actually initiated by companies for commercial reasons rather than by the state for strategic ones.[4] But state objectives clearly played a part, and large SOEs and state banks were the dominant actors. These actors and objectives are important today, too. And the idea of a concerted state effort to attain national goals has if anything been further enhanced by the way in which the Chinese leadership has promoted its ambitions and grand projects. But now large SOEs have been replaced by locally owned and private enterprises as the majority overseas actors,[5] and overseas tertiary sectors in Asia, North America and Europe have become the main targets of Chinese investment activities by companies that are largely driven by commercial objectives. Sometimes these enterprises are acting on behalf of the state, undertaking projects that would not be pursued by private economic actors just seeking market access and profits. But often they are not. There is also plenty of evidence to suggest that these companies are not just doing things from their own narrow parochial interest, but that they are also doing things that the Chinese state does not always want them to do. This is exactly why new regulatory changes and guidance were introduced in 2016 and 2017 to prevent some forms of COFDI that were deemed to be harming Chinese national interests and objectives.[6]

Indeed, much of what has concerned those who are concerned about COFDI results from the fact that Chinese companies are now free to do what companies from other parts of the world have been doing for many years. We have been able to watch in real time the granting of the sort of freedoms for economic actors to act – and not just overseas – that their counterparts in other countries have long taken for granted. So somewhat ironically, when the Chinese state implements the very liberalising reforms that so many external actors have long hoped for and promoted, this then is considered as an exercise in economic statecraft in itself.

It might seem odd to refer to not doing something as an exercise in statecraft; particularly when it was the actual prior prevention of outward flows that was comparatively abnormal, rather than the subsequent allowance of them. At first sight at least, this looks like the abandonment of some of the tools of statecraft rather than the deployment of them. However, the state’s action in deciding not to do all the things it did had real global significance, resulting in significant impacts on financial flows. And it is not a case of the state completely abandoning its control once and for all. Liberalising reforms are typically partial, and as the example of the 2016-17 clampdown clearly shows, they are reversible; the parameters of the permissible not only can be but actually have been restricted again after an initial widening. As such, while thinking of the strategic partial removal of state controls as economic statecraft might indeed be a bit odd, it is also probably correct too.

The key here is that while individual investors have considerable freedom to pursue their own commercial objectives, this freedom is not absolute. It remains dependent on these quasi-independent economic actors doing what the state wants them to do; perhaps not on an individual micro level, but certainly collectively. The Chinese money that has been invested overseas could not have been invested without the deliberate liberalization of China’s outward investment regime by the state. It first facilitated and then encouraged companies to “go global” (through a range of measures) because going global was seen as being beneficial to these economic actors themselves. More important, though, the commercial gains that these companies would make at the enterprise level cumulatively benefit to the Chinese economy as a whole and increase its relative comprehensive national power. It did not happen by accident, but because the state wanted it to happen.

Was the consequent boom in investment a direct result of state policy? Yes. We can even say that it was a consequence of a new strategic approach to foster COFDI. Was it designed to attain a state goal? Yes. Increasing the competitiveness, technological base and profitability of Chinese companies was seen as being not just beneficial to them but to the Chinese economy as a whole (just as it is for many, if not all, states). Was it all directly controlled by the state to attain strategic goals? Clearly not. Some of it at least was seen by the very same state that facilitated it as not just unhelpful, but actually downright detrimental. This is why there has been a rethink of the type of investment projects that should be encouraged along parts of the Belt and Road, with an increased emphasis on the “high-quality” of projects rather than the number and overall value of them.[7] It is also why investment in overseas real estate, sports, and entertainment areas were blocked with the introduction of the new investment guidance regulations in 2017.[8]

So, if a quasi-independent actor does things in the pursuit of narrow or parochial commercial objectives, but at the same time this contributes to the attainment of state goals, should this be considered as the manifestation of statecraft? If the answer is yes, then it is an affirmative answer that needs to be qualified in four ways. The first is the importance of thinking about how different types of international actors utilize the policy framework that is provided by the state to pursue their own interests and goals. In particular – but not only – the way in which liberalization of the COFDI regime has been utilized by different local governments and by enterprises connected to local governments points to the significance of disaggregating the state itself (and state intent and objectives). Surely there is some sort of difference between this kind of international action and things that are done more clearly in response to state direction in the search of strategic goals. This suggests the need for a differentiation in terms of thinking about who is considered an agent of different types of economic statecraft, and which goals they are prioritising.

Second, as the example of the re-introduction of restrictions shows, you only know that something is deemed to be harming national interests or not after the event. The parameters are changed retrospectively, so what at the time was assumed to be evidence of state intent only becomes evidence of something else later on.

The third takes us back to the question of state action and inaction. In short, in creating the overarching policy framework within which these international economic actors operate, do we have to be able to identify something more than just “normal” macroeconomic policy (whatever that might mean) for it to be considered as statecraft? A proactive attempt to shape the nature and direction of COFDI rather than just allowing it to happen?

Fourth, and perhaps most important, is whether this is economic statecraft at all or just economic policy. Economic statecraft is usually thought of as something that is deployed to attain political and foreign policy goals. The economic is an immediate means of generating the desired political/foreign policy outcomes. What we often seem to see in the Chinese case – particularly but not only when it comes to interactions with the West – is something different. It is more often a case of economic tools being used as a means of attaining economic goals. This would not normally be considered to constitute economic statecraft at all. Neither would it typically result in concern in the country being invested in. To be sure there might be questions about job losses and hollowed out economies. But this is very different from the fundamental concern about the future nature of the world order that a number of Chinese investment projects seem to generate.

This is because these economic goals and commercial objectives of individual investors are often parsed as being interim objectives. They are seen as becoming a means in themselves of building a more powerful China. Moreover, it is not just the idea that China is trying to gain some sort of economic advantage and leadership, but that this economic advantage will be used to pursue other ends as well; that it might be used to disadvantage others or even bring about more fundamental global change. This means that the conception of what constitutes economic statecraft in the Chinese case becomes somewhat different from the concept as understood when it comes to the study of other countries. Immediate commercial goals and objectives are perceived as having a broader longer term political utility in the attainment of other goals in the future. And, typically, these are thought of as being if not benign, then not beneficial goals for other (particularly Western) states. The commercial is deemed to be inherently political, and what would be left for students of management and business strategy to study when it comes to investment from other countries is deemed a core international relations issue when it comes to financial flows from China. Chinese companies and individuals involved in investing overseas might think that they are just trying to gain commercial goals, but their actions are parsed as ultimately contributing to something else as well.[9] In the process, the conception of what constitutes economic statecraft and what it is meant to achieve becomes somewhat stretched to accommodate these conceptions of the more general consequences of an ever more wealthy and advanced Chinese economy.

If this sounds like just an academic question and an issue of semantics, it is not. If you are a commercial actor that is subject to an approach from a Chinese counterpart, does the potential strategic advantage that China as a country and the Chinese state might gain come into the decision-making process at all? If the assumption of political disinterest is correct – even just some of the time – then the task of thinking about the wider strategic consequences of overtly commercial actions does not fall on the corporate actors involved in the actual transactions. Instead, it falls on policy-makers in recipient states. In addition to thinking of the strategic consequences of any individual transaction, they are also better placed to consider the aggregate consequences of the totality of transactions and interactions within their jurisdiction; both for the home economy (e.g.: hollowing out certain sectors, creating dependencies and technological and/or supply chain vulnerabilities in key sectors) and for China.

If governments try to prevent Chinese takeovers that make financial sense for the companies involved, then (for some of the more neoliberal minded ones at least) they do things that run against their supposed guiding philosophies and theories. This is exactly the situation that European Union Commissioner for Competition, Margrethe Vestager, found herself in during the Spring of 2020, in proposing ways that EU member states could protect key national actors from being purchased by overseas state-related companies. A person whose job is in part to prevent state aid propping up uncompetitive economic entities ended up promoting various forms of such aid, including potentially partially nationalising companies to keep them out of foreign hands.[10]

There has been a lot of discussion about whether China is exporting its model of political economy. The focus has typically been on the extension of the model – whatever that might actually be – to other developing economies. But it might be the case that a more direct challenge to the dominance of neoliberal capitalism (if not to capitalism per se) comes from the way in which more liberal actors respond to the challenges of a less liberal – or should we just say illiberal – actor operating within their liberal economies. They are being forced to act less liberally than they might otherwise want to act to meet the challenge of a perceived illiberal actor operating within their midst.

It would be entirely wrong to say that an inward turn towards economic nationalism is just a result of China’s international economic presence. However, it seems to have played at least some role in thinking about how to protect “national assets” given uneven playing fields. For some in the liberal tradition (and some constructivist thinkers too), the whole point of engaging China and drawing it in to the existing international system was that this would make “them” more like “us”.[11] Ironically (again) one of the consequences of this engagement might be that more liberally inclined policy-makers decide to become less liberal themselves.


[1] See for example Norris, W. (2016) Chinese Economic Statecraft: Commercial Actors, Grand Strategy and State Control, Ithaca, Cornell University Press.

[2] Macikenaite, V. (2020) “China’s economic statecraft: the use of economic power in an interdependent world”, Journal of Contemporary East Asia Studies, online first, 1-19.

[3] There was of course investment prior to this. But it is instructive that full national statistics were only collated and published from 2003 (for the previous year’s activity).

[4] Downs, E. (2007) “The Fact and Fiction of Sino-African Energy Relations”, China Security, 3(3): 42-68.

[5] In 2019, they accounted for a mere 11 percent of COFDI into Europe. See Kratz, A., Huotari, M., Hanemann, T., and Arcesati, R. (2020) “Chinese FDI in Europe: 2019 Update”, Merics, 8 April, available online

[6] For an overview of the evolution of COFDI policy and its consequences, see Breslin, S. (2021) China Risen, Bristol, Bristol University Press (Chapter Four).

[7] This was the key message of “The Second Belt and Road Forum for International Cooperation” in 2019. Details available online

[8] The State Council of the People’s Republic of China (2017) “Guanyu jinyibu yindao he guifan jingwai touzi fangxiang de zhidao yijian” [Guiding opinions on further guiding and regulating the orientation of overseas investment]’, 4 August, available online. Although formally restricted rather than banned outright, “no new projects” were recorded in these areas in 2018. See Ministry of Commerce, PRC (2018) “MOFCOM Department of Outward Investment and Economic Cooperation comments on China’s outward investment cooperation in 2017”, 18 January, available online

[9] Which, if true, means that it does not really matter who is doing the investment and for what reason. So, the first of these four conclusions may become less important in the process.

[10] See Espinoza, J. (2020) “Vestager Urges Stakebuilding to Block Chinese Takeovers”, Financial Times, 12 April, available online

[11] For a good overview of the “socialization” debates, see Feng, H. and He, K. (2017) “China’s Institutional Challenges to the International Order”, Strategic Studies Quarterly, 11(4): 23-49.

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