Initiative for U.S.-China Dialogue on Global Issues

Eleanor M. Albert: Today we are joined by William Piekos, a nonresident fellow with the Atlantic Council’s Global China Hub. He earned his Ph.D. in political science from the University of Pennsylvania, where his research focused on alignment policies in Southeast Asia, U.S.-China competition for influence, and Indo-Pacific security issues. Previously, he was a nonresident WSD-Handa fellow at the Pacific Forum and worked at the Council on Foreign Relations and the U.S.-China Economic and Security Review Commission.  

Will, welcome to the show. It's a real treat to have you on, not just as a fellow scholar, but also as a friend of mine, so welcome.

William Piekos: Thank you. I really appreciate you having me on.

Eleanor M. Albert: I always like to start these conversations to have a personal tone to them, and so I wanted to see if you would give a brief rundown of how you came to study China and U.S. alliances with Southeast Asia, and then subsequently, economic coercion. What's your so-called China story?

William Piekos: I'm half Chinese, but I didn't use the language growing up, and so I studied it in high school and college; I studied abroad. That was how I became interested in China. I was always also interested in foreign policy and what was happening in the world. Studying Chinese foreign policy was a natural fit for me.

After working at the Council on Foreign Relations, I decided to pursue a Ph.D. I thought it important to have a theoretical framework for all the substantive knowledge of China that I had put together. My initial idea was to study spheres of influence, the Cold War idea that the U.S. and Soviet Union were splitting up the world into different camps. In thinking about applying that framework to U.S.-China strategic competition, it's less clear-cut. That's where I turned to alignment as really the concept that I focused on. China doesn't have any alliances.

In the dissertation, I argue that secondary states make these decisions based on the use of coercion and inducements, which impact the domestic political prospects of the regime or individual in power. I decided to focus on Southeast Asia because it's a region where there have been decades of U.S.-China competition. China has only been a global power to some extent, to the degree it is now, for less time than the U.S., certainly. Southeast Asia is an area where there has been a lot of dynamism, changes in alignments, and different policies.

In pursuing this line of research, I saw many changes in alignment related to economic developments, the provision of inducements, reactions often to the use of coercion. For me, the Atlantic Council project on investigating China's use of economic coercion was something of a natural fit.

Eleanor M. Albert: That provides a great backdrop, and I want to dig a little deeper into the ideas around economic coercion. You mentioned this project you were working on—you just released a report about this.

First, I think it'd be great to ground our discussion [by] defining what economic coercion is, before we apply it to the case of China, and the places in which this is happening. Economic coercion as a concept, what is it?

William Piekos: Excellent question. Economic coercion is one actor's use of threats or actions against economic engagement—trade, investment, financing—to force another actor to do something it would not otherwise do, to instill a change in policy and behavior. When China is upset with Australia for its calls for an investigation into the origins of COVID[-19], China imposes restrictions on trade of various goods—coal, wine, barley, and other goods—to try to get Australia to change its behavior, to stop calling for this investigation.

I would note that coercion is very difficult to study. All sides of the equation have incentives to hide what they're doing. China has incentives not to publicize, or to obfuscate what it's doing so that it doesn't instill some sort of reaction from the United States, or other actors to be wary of China in this regard. For the target, they don't want to be seen acquiescing to China, or any major power.

I should also note that the sender can have multiple goals in its coercive action. It's really important in studying coercion to try and identify what the policy change that the sender is trying to achieve. But the sender can also be seeking to punish the target state. It can be signaling to third-party states that they should not take a certain action, that China is resolved around this issue. It could also be that China wants to protect domestic economic interests or national champions.

This idea of tying coercive action to a specific policy demand or request also highlights some of the issues in differentiating commercial and strategic interests. Again, relating specific to China, even in a state capitalist system, corporate entities have commercial interests. They want to make money. Even state-owned enterprises are not always willing or able to simply work at the [Chinese] Communist Party's behest. This is an important distinction to make in part because in confronting Chinese economic coercion, or economic coercion writ large by any country, we need to focus on where risk actually lies, to U.S. interests and those of our allies. Making this distinction allows us to not focus on all Chinese economic engagement across the board because that is not in U.S. interests or our allies, and it's certainly not going to play well abroad in countries that are less invested in U.S.-China strategic competition.

Eleanor M. Albert: It seems to me that intent is a very important aspect of this definition and whether it can be actually identified as such. If you talk about all the different goals that economic coercion can have, that's a spectrum. Who are the actors driving those specific goals? It might be a bit more nuanced.

I want to shift us to understanding the tools through which China does some of this. Any major economic power is going to have potential tools for coercion. So, I am wondering how a strong economic power exerts or leverages economic coercion. And then is China's version of economic coercion unique or particularly different from, say, another major power?

William Piekos: The broad tools, trade restrictions, are certainly something that we see a lot. Sanctions regimes from the West are commonly used coercive tools. Investment restrictions, popular boycotts, administrative measures. This is something China has used. Sanitary or phytosanitary measures. Limitations on tourism is another that China has used.

China often uses more informal measures, and this allows China to deny that it's resorting to using economic pressure, [and] certainly allows Beijing to avoid legal challenges. The informal, non-transparent measures that China often uses also allows Beijing to have more direct control over the use and retraction of these coercive measures. I think that makes the informal nature of limitations on tourism or popular boycotts attractive.

The focus of my recent Atlantic Council report is on Chinese corporate entities, which I think are, in particular, an attractive mechanism for China because it allows for plausible deniability. It can say that the corporate entity is taking this action because Chinese consumers do not like what the target country is doing, and not because the Chinese state or some national level agency is telling this entity to take that action.

Eleanor M. Albert: Can you give an example of that?

William Piekos: In the Australia example, the NRDC...

Eleanor M. Albert: The National Development and Reform Commission.

William Piekos: NDRC, National Reform and Development Committee, told specific companies to stop trading in coal with Australia. This eventually became a wholesale informal ban, but this is one example of a national level agency telling a specific Chinese company, or a set of Chinese companies, to stop doing trade in a specific good. To be clear, this is something we're seeing more often, but it is not the most common use. To broaden it out though, Chinese economic engagements around the world depend on these entities. So that's where we need to be thinking about risk and exposure.

Eleanor M. Albert: I had a conversation with people and they used examples as it relates to Taiwan, using food, sanitary issues, or any type of pests that could be identified around certain imports and using that as the rationale for blocking something. But that still is contingent on the corporate entity choosing to enforce that directive.

So, I want to unpack more about the corporate entities and ask you to talk a little bit about who are these entities. Are there certain types of corporate entities in the Chinese state capitalist system that are more likely to be actors on behalf of the state?

William Piekos: State and owned enterprises are where we should start any of these discussions. They are, of course, linked directly to the Chinese Communist Party and the government, and so we should be generally skeptical of what they're doing.

With private businesses, this is an issue that we're seeing come to the fore more with Xi Jinping in power going on a decade. He has instituted a number of controls that go beyond what they were previously. "Go out and make money” is no longer really what we're seeing to the same extent. We're seeing party committees in businesses that have an amount of control over strategic decisions that was not previously the case.

Again, I think that we should be skeptical of these companies, but also skeptical that the Chinese state has the power or the interest to direct all of their decisions. A lot of these companies have commercial interests at stake. But that's where it's incumbent on researchers [and] policymakers to take an interest in where the risk and vulnerability actually lies. What industries should we be paying attention to?

Looking at past cases of economic coercion, first talking about the countries that have been targeted, generally we see Western-aligned developed democracies as being the targets—Lithuania, South Korea, Australia, of course.

Then thinking about the industries that are targeted, we see industries that are strategically important to China are targeted much less. So, high-tech companies have largely been absent from Chinese coercive attempts. But they do target politically, domestically important industries in the target [state]. This is where I think we can really make distinctions about where these entities are operating and which industries we should be thinking about.

In the report, I have five factors that I focus on in assessing this vulnerability. To lay them out here: first, the level of dependence on China in the target industry and country; the presence of non-Chinese alternatives in the target country; the substitutability of goods and services for China; the strategic importance of an industry for China and the target country; and domestic political attitudes toward China in the target country.

Part of this discussion is that dependence is something that policymakers have been very focused on. High levels of dependence certainly can lead to vulnerability, but it's not the only factor that we should be thinking about.

Something in particular that led me to this conclusion is that largely absent from our catalog of Chinese coercive targets are countries in the Global South who are much more dependent on China, do not have a diverse set of trade partners the same way that many of the other targets have, and so are less able to divert away from Chinese economic engagement.

Eleanor M. Albert: That's fascinating. I think the concept of dependence and those five factors that you laid out illustrate that dependence can mean a lot of different things. We tend to assume that it's just a sheer numbers game: what's your proportion of trade or investment coming from China? But a lot of it could be much more dependent on sectoral importance for an economy.

I wanted to talk about this Global South connection. There are a lot of debates right now in the United States and particularly in the EU about being mindful and aware of foreign investment and business dealings with China. That, I think, has taken quite a bit of time for us to get to that place. We're talking about developed countries with significant capacity to build up knowledge and processes internally that can help us be better informed about these relationships and the linkages with China. There's the language of decoupling and de-risking.

I'm curious from the Global South perspective, from some of your research, how receptive are countries in the Global South to these concerns when there are these issues of dependence. What are the types of demands that they have for being able to confront these realities with more awareness?

William Piekos: My research has shown that they're generally not particularly receptive to calls from the United States to stop engaging with China economically. And this is, I would say in large part due to the fact that there is a perceived lack of options coming from the United States, Western institutions, corporate entities. To a great extent, these Chinese projects, even though there are many problems with them, many of which have been called out—there's debt traps, there are environmental, social, governance (ESG) issues, lack of transparency around contracts, all of these issues. At the same time, these projects are meeting real needs. Even when they're the pet project of some leader, a port development can have real economic benefits to developing countries.

That's where I think the United States [and] EU can do more. This is where the Partnership for Global Investment in Infrastructure from the G7 is important. The EU Global Gateway, the Indo-Pacific Economic Framework from the United States, these are all important steps in that direction.

I also want to say that it's not necessary that Western countries and institutions replace China, or the Belt and Road Initiative projects, these massive infrastructure developments. That’s not what the goal should be. Western institutions and countries have processes in place for transparency in contracts or due diligence or these ESG issues, all of which benefit these developing countries and are desired to a great extent.

Obviously, there are some countries that fall outside this. [In] the Global South, there's a great variety across the spectrum in what they want and governing styles. This isn't going to work everywhere. But even in Myanmar, the [U.S.] State Department had a project that helped them renegotiate a contract with China. If a country like Myanmar, under the junta, a few years ago is willing to accept that kind of assistance, I think that there is going to be a wider market for it. That's definitely a place where the United States should be taking a lead.

Eleanor M. Albert: I'm curious about areas where there's perhaps more susceptibility sector-wise to some of these coercive measures. You mentioned ports and trade measures that are taking place on certain important goods for both China or for a particular country. Port development has been a big thing that China has done. Are port developments one of the big places that we should be concerned about this, or does that fall in the more strategic industry that China wouldn't want to perhaps muddy or contaminate with its image? I wonder if there's any research that you've done that looks at comparative cases of some of these port projects.

William Piekos: Port projects and ownership of ports are definitely an area that we should be concerned about. Most of the discussion recently has been around dual use—the military use of some of these commercial projects by China.

There is a low risk of that happening in my mind, but I think the larger issue is one of economic security, that through these port projects, through the large state-owned enterprises such as COSCO—China Ocean Shipping—that China can control the flow of goods and can decide, in essence, the winners and losers.

This was a concern in Croatia. Nearby is the port of Piraeus in Greece, where COSCO has an ownership stake. Piraeus is somewhat unique in that COSCO owns the port authority, which is different from other port considerations. But in the region, Croatia was convinced by U.S. calls not to allow for Chinese conglomerate to invest, in part because there were concerns that the Chinese companies just wanted to invest in order to prevent others from gaining access to it. This is where I think a lot of our concerns should be, about how China can use its very large market share in the flow of goods and these logistics networks, to decide who is going to benefit from them.

Trade diversification is key. An area where—to return to the Global South—and what the U.S. and others can do, is suggesting trade diversification for important goods; that would benefit these countries. We shouldn't just tell them seek trade diversification, but what measures, whether that's trade agreements or helping find other avenues for supply chains, whatever it may be, I think that's an area of value added.

I want to return to one point about high-tech goods. That's not an area where we've seen a lot of coercive attempts. Part of that is because China is behind on some of these issues. They need semiconductors from the United States and Western companies. That is part of the reason that I think it's less of a concern, at least for the moment.

Eleanor M. Albert: And the coercion happens in a different direction. The concerns about coercion are more about the corporate entity and its relationship to the state in the Chinese context, not so much about the third-party actor or international partner in another local context. That coercive relationship is more contained within China's own domestic system. It’s not that there isn’t coercion taking place, it’s just perhaps [that] the level of coercion, where it's taking place, is a little bit different.

William Piekos: The other follow-up there is that Huawei or ZTE or these other large technology companies have large stakes in the Global South. That doesn't necessarily breed coercion because China doesn't want to bring attention to the amount of power and market share that it has. But, it does lead to influence. These companies, as part of the state capitalist Chinese system, have the ability to suggest to local governments what they're looking for. That is certainly a concern, but it is not coercive necessarily, at least in the terms that we're talking about now.

Eleanor M. Albert: Right. And it's also not to say that China is the only large actor with large firms who have sway and influence in parts of the Global South.

To conclude, I wanted to get, from your vantage point, who are the stakeholders who need to be most aware of potential Chinese economic coercion? A lot of business dealings take place at the corporation-to-corporation, or corporation-to-subnational actor level in some of the economic partner states.

Who are the stakeholders who need to build up a knowledge base of how to track relationships with corporate Chinese entities? And what are some of the best practices that you would recommend when trying to evaluate an economic relationship with a Chinese entity?

William Piekos: To be honest, all countries and companies should be concerned about their level of exposure. If we look at the different trade relationships that China has used in its coercive attempts, it can be high levels of dependence, it can be low levels.

Look at Lithuania, little exposure, at least at the outset, to the Chinese economy. But China was still willing to use what influence it had. It thought to use German companies and their relationships with Lithuanian companies to coerce a change in Lithuanian policy. In that respect, I think any exposure to Chinese economic entities is important to take note of because they can and have been used.

Again, that doesn't mean that we should counsel a complete decoupling. That is wholly unrealistic and counterproductive in many ways. A lot of these Chinese entities want to make money, similar to other corporate entities across the board.

At the same time, we should be thinking about what types of countries have been targeted in the past. Past cases can certainly tell us a lot: Western-aligned, developed democracies that then challenge China on national sovereignty, territorial integrity, the role of the CCP. There are a certain set of issues that China is very sensitive to.

Eleanor M. Albert: Core interests, which have a loose flexibility to where they can apply.

William Piekos: Very much so. And they've been increasing to some extent. Xi Jinping is getting more assertive on a lot of these issues and is willing to go out on a limb. This is not a reason that any country shouldn’t take an action that they think is in their national interest or the best interest of the world, human rights, any of those issues. But it's something that we should be aware of. That's something where I know that the United States took action in favor of Lithuania, offered some trade remedies for the actions that China was taking. That's important to consider and continue.

Looking forward, the United States and the EU have a capacity to investigate these entities and their reach in ways that other countries do not necessarily have the ability to do. That is information that we should be sharing, across the board.

There'll be disagreements. What is coercion? There'll be discussions around that. But baseline, it's important to know what the exposure is. Part of that is actually learning where does this reach potentially lead to vulnerability? We can do more on and both as researchers, and the U.S. government, [have] an ability to do that and should be pursued.

Eleanor M. Albert: Right. Research that tracks ownership structures or the nested relationships between party entities and corporate entities, the interpretation of that information doesn’t have to be wholesale adopted. But that’s factual data that can be interpreted then by anyone who might seek to do business with some of these entities. That would be a huge contribution, I think, to places that are lacking in the capacity. That’s a really important takeaway.

Any final thoughts on how we should think about Chinese economic coercion and corporate entities?

William Piekos: One area that I didn’t mention yet is that we’re seeing an evolution in Chinese economic statecraft. Beijing has put in place a number of more formal legal mechanisms through which it can coerce. The Unreliable Entities List, the Export Control Law… There are a few others. And it’s worth paying attention to how these evolve. They have actually put some of these into use against U.S. defense contractors for deals with Taiwan. And I think that’s something that we’re going to see more in the future.

Eleanor M. Albert: That's reminiscent of some of the actions that Xi has taken across the internal structure of Chinese governance. You've seen what had previously been informal actions become more regularized or become routine through new structures, new laws... And if those become more frequent processes and mechanisms of enforcing policy, then that, of course, has implications for the way corporate entities interact with the outside world as well.

William Piekos: One last thing that I wanted to mention is to talk a little bit about where economic coercion fits in China's larger economic statecraft agenda. My next project is going to focus on economic inducements and how China has used these to achieve strategic goals.

We talked about lack of transparency, how this can be a difficult area to research. Part of the challenge here, of course, is getting a full handle on the universe of cases that we're actually dealing with. Here we've discussed, and many of the other great think tank reports that have come out on this issue focus on, the very overt coercive attempts that we've seen—Lithuania, South Korea, Mongolia, Australia. These aren't necessarily representative of all the ways in which China is using its economic engagements to achieve its strategic aims.

A lot of attention has been on coercion, and I think it's really important that we be thinking about how to combat these Chinese economic coercive actions. But, it's still somewhat unclear what the balance is between coercion, inducements, influence, where economic coercion lies in the broader spectrum of how China is achieving its goals. That's something that we need to be thinking about in terms of how best to achieve U.S., allied partner strategic objectives in this larger competitive environment.

The views and opinions expressed are those of the speakers and do not necessarily reflect the position of Georgetown University.

Outro

The U.S.-China Nexus is created, produced, and edited by me, Eleanor M. Albert. Our music is from Universal Production Music. Special thanks to Shimeng Tong, Tuoya Wulan, and Amy Vander Vliet. For more initiative programming, videos, and links to events, visit our website at uschinadialogue.georgetown.edu. And don’t forget to subscribe to our podcast on Apple podcasts, Spotify, or your preferred podcast platform.