Bringing the Economy Back In: Economic Development and China’s Grand Strategy

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Abstract

There is a vast literature on grand strategy. However, it focuses on US grand strategy and on military means towards national security ends. This article taps into the burgeoning literature that examines the relationship between a globalized economy and the likelihood of war and peace. It seeks analyze China’s grand strategy, which is crucial for US policies in the Asia-Pacific. Using primary Chinese-language documents and interviews with former Chinese officials, this article brings back the relevance of economic factors to grand strategic discussions and emphasizes that economic development has been central to China’s grand strategy and is considered part of China’s “comprehensive national security.” Changes in the international economic system have a significant impact on the direction of China’s grand strategy. One policy recommendation from this article is for the United States to keep China in the globalized production and supply chain, which reduces China’s propensity to use force.

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China’s grand strategy has always been of theoretical and empirical importance to both scholars and policy makers alike. As a rising power, China’s grand strategy intrigues scholars of international relations. Are rising powers’ grand strategies similar to or different from those of hegemons? How is China’s grand strategy similar or different from historical rising powers? Can China’s grand strategy tell us anything about the future trajectory of a rising power? Analyzing China’s grand strategy is equally important due to its real-world significance because changes or continuities in China’s grand strategy might be crucial in predicting the degrees of peace and stability in the Asia-Pacific region. Analyzing Chinese grand strategy is particularly critical given current speculation in the media about China’s present-day behavior, which believes that China is embracing a new brand of aggressive diplomacy, especially during COVID-19.¹ Yet it remains to be seen whether China’s grand strategy has changed drastically or not during the Xi Jinping era.

There is a vast literature on grand strategy. Grand strategy is conceptualized as a means-ends chain. As historian John Gaddis puts it, grand strategy is “the process by which ends are related to means, intentions to capacities, objectives to resources.”² Following the literature, I conceptualize grand strategy as a means-ends chain, that is, the use of comprehensive means of statecraft to achieve a set of priorities laid out by the state.³ The literature on grand strategy, however, tends to focus on the grand strategy of established and historical powers, including US grand strategy.⁴ More important, the literature focuses almost exclusively or primarily on military means toward national security ends. For example, Richard Betts defines grand strategy as “a plan for using military means to achieve political ends.”⁵ That is, the literature prioritizes military means and ends as opposed to domestic economic means and ends.⁶

The literature on Chinese grand strategy does examine the domestic components of China’s grand strategy, especially noting economic factors as well as individual leaders on China’s grand strategic behavior.⁷ Yet these works do not systematically analyze economics as a factor affecting China’s grand strategic behavior both regarding means and ends. Neither do these works compare China’s grand strategy against historical rising powers to see if there is an underlying theme that focuses on economic development. This article, therefore, adds to the burgeoning literature on China’s grand strategy by highlighting the economic factors affecting China’s behavior, conducting a systematic analysis by using primary Chinese-language documents and sources while adding brief case studies of historical rising powers for generalizability.

Using primary Chinese-language documents and interviews with former Chinese officials, I contend that China’s grand strategy is a means-ends chain. The article brings back the relevance of economic factors to grand strategic discussions and emphasizes that economic development has been central to China’s grand strategy and is considered part of China’s “comprehensive national security.” China also utilizes economic statecraft for national security ends. Changes in the international economic system have a significant impact on the direction of China’s grand strategy.

This article is in line with the burgeoning literature that examines the relationship between a globalized economy and the likelihood of war and peace, linking international security and international political economy.⁸ It seeks to bring the discussion of economic factors and international political economy to the discussion of states’ grand strategies. Moreover, by utilizing primary Chinese-language sources, some of which are internal, as well as interviews, this article seeks to better understand China’s decision-making rationale. Finally, the article highlights empirical and policy implications for how to maintain peace and stability in the Asia-Pacific region as well as to manage China’s rise. It sheds light on the decision-making rationale of China and highlights the economic constraints and opportunities rising powers such as China are faced with.

The structure of the article is as follows. The following section provides a systematic empirical analysis of economics as a crucial grand strategic end of China. The next section examines China’s use of economic statecraft as means to its grand strategy. I then turn to examine changes in the international economic environment and its impact on China’s grand strategic direction. The final section concludes and elaborates on theoretical and policy implications while discussing the generalizability of my argument.

Economic and Social Development: China’s Grand Strategic Ends

Economic development has been the focus of China’s grand strategy in the reform and opening-up period since 1978. Deng Xiaoping stated in 1987 that China should make “economic development the focus” (yi jingji jianshe weizhongxin), which has been serving as a guiding principle for subsequent Chinese leaders.⁹ Other key official documents—for example, China’s annual government work report—also suggests the centrality of economic development in China’s overall strategy, despite the conventional wisdom in grand strategy studies that external security tends to be the focus or priority of states.¹⁰ In the 1988 government work report, it was stated that “national defense should take into account the overall framework of economic development [and should be] subsumed in the overall planning of national economic and social development.”¹¹ This focus on economic development over national defense has to do with regime security being the core of the three strategic priorities; for an authoritarian state such as China, if its economy stagnates, there is a greater risk of social instability, which in turn might endanger the stable rule of the Chinese Communist Party (CCP). Moreover, without a growing economy, the defense budget will be negatively affected too. Speech evidence from Chinese presidents in the post–Cold War era also confirmed the centrality of economic development in China’s grand strategy, as shown in table 1 below. In other words, subsequent Chinese presidents Jiang Zemin, Hu Jintao, and Xi Jinping have been following Deng’s guiding principle. Despite media claims that Xi acts differently, it is clear from the primary evidence identified in the table above that China’s grand strategy has been stable and demonstrates continuity in prioritizing economic development.

Table 1. Speeches of Chinese leaders in the post–Cold War period

To summarize, China’s strategic priorities constitute what Xi Jinping calls “comprehensive national security,” with “political” or regime security being the key and “economic security” being the foundation.³⁸ It demonstrates that China has a clear interest hierarchy, that external security is not as crucial as regime security, and that China views grand strategy in a comprehensive manner, conceptualizing political and economic security as part of its grand strategy. Of course, China has other national interests and foreign policy goals, including ensuring a stable Korean Peninsula, tackling nontraditional security issues such as counterterrorism and climate change, and engaging in multilateralism. These foreign policy objectives, however, are not ranked as high.

Economic Statecraft as Grand Strategic Means

In line with economic security being a crucial end for China’s grand strategy, China also utilizes economic statecraft as means to achieve its ends. The kinds of economic statecraft that China adopts are twofold: carrots and sticks. The literature on power transition tends to predict China’s behavior as a rising power to be aggressive.³⁹ A rising power, however, needs to send signals of reassurance while it is still in the process of rising. According to Michael Glosny, a rising power can minimize the severity of the balancing response in two ways: preventing the other powers from concluding that the rising power is a threat; and “using its power to provide them benefits and protect their interests.”⁴⁰ China’s logic of using reassurance tactics follows Glosny’s arguments—since two of the strategic priorities are regime security and economic development, China needs a peaceful external environment to facilitate its economic growth.

Economically, China has increased its use of economic statecraft, especially economic inducement, in various regions in the world. For example, to reduce concerns from Association of Southeast Asian Nations (ASEAN) countries about China’s entry into the World Trade Organization and to expand China’s export market, China and ASEAN signed the China–ASEAN Free Trade Free Agreement in 2002.⁴¹ China’s global economic presence went beyond Asia. In Latin America, China provided development assistance, including concessional finance, grants, technical assistance, and aid. China became Latin America's second-most important trading partner, second-most important source of mergers and acquisitions foreign direct investment, and top source of development assistance, having provided more than $141 billion in development.⁴² In Africa, China surpassed the United States as Africa’s largest trade partner in 2009.⁴³ China is a destination for 15–16 percent of sub-Saharan Africa’s exports and the source of 14–21 percent of the region’s imports.⁴⁴ China exports a range of machinery, transportation and communications equipment, as well as manufactured goods to African countries.⁴⁵ In the Middle East, China tried to forge stable economic relationships with countries for access to oil and natural gas. More recently, in addition to improving foreign trade relations via imports and exports, China initiated the Belt and Road Initiative (BRI) that focused on infrastructure development and cooperation. It is important to note, however, that China’s use of economic statecraft, including the BRI, is shaped by its grand strategic priorities. The origin of the BRI, for example, was not the media-portrayed geopolitical competition but rather domestic challenges for China to continue its economic growth, including decreasing GDP growth rates, poor corporate performance, and industrial overcapacities.⁴⁶

In addition to reassurance tactics, China also utilizes economic coercion. China has been resorting to economic sanctions, defined as “instructions by the government to certain actors to withdraw from trade or financial relations so as to force the target to change a foreign policy the coercer dislikes.”⁴⁷ For example, China used a “banana ban” against the Philippines in 2012 over maritime territorial disputes around the Scarborough Shoal in the South China Sea. China imposed a monthlong embargo against Philippine banana exports to China.⁴⁸ When French and German leaders met with the Dalai Lama, the Tibetan spiritual leader, China froze Airbus orders and cancelled large-scale contracts with those two countries.⁴⁹ It is important to note, however, that China’s use of economic sanctions is not a recent phenomenon. China has been utilizing economic sanctions since the Cold War, even when it was a weaker economic power.⁵⁰

Similarly, in 1992, China imposed economic sanctions over French weapons sales to Taiwan. China imposed a ban on French wheat exports to China, awarded a subway bid in China’s southern city of Guangzhou to Germany, and froze a French project to build a nuclear power plant in China.⁵¹ These sanctions episodes were effective in forcing a foreign policy change in France, yet not all cases of Chinese economic sanctions were successful. William Norris notes that the effectiveness of Chinese sanctions partially depends on whether the state is able to control and direct the behavior of Chinese economic actors.⁵² China does not utilize coercion every time an issue threatening its strategic priorities arises. This restraint is due, in large part, to concerns about its dependence on the target state’s market or technology and capital supply, especially if the target is the United States.⁵³ As mentioned in the previous section, however, as China strives to transition from an export-oriented economy to a domestic consumption–oriented one, China’s dependence on foreign markets and supply might lessen in the future, which may in turn suggest that China could be using coercion more frequently.

International Political Economic Factors Influencing China’s Grand Strategy

For a long time since China began reform and opening in 1978, the focus has been exporting, foreign direct investment, and foreign technology transfer. China needed countries in the Organisation for Economic Co-operation and Development, especially the United States, for their markets, capital, and advanced technology. At times, China even had to sacrifice a tough stance on Taiwan, one of the core-interest issues, for a smoother economic relationship with the United States. For instance, the United States sold 150 F-16 jet fighters to Taiwan, a significant departure from its past behavior, which China viewed as adversely threatening its core interest concerning Taiwan. When contemplating a proper response to US arms sales in 1992, Deng Xiaoping endorsed the foreign ministry report that “China needed to give priority to economic interests” and that, if China retaliated with trade sanctions, “a cycle of mutual retaliation could unleash a trade war in which China would lose most.” The report concluded that “China should do everything it could to avoid the deterioration of Sino-U.S. economic relations.”⁵⁴ My interview with one former US State Department official also agreed that economics was the number-one concern for Deng at the time and that Deng was aware China was not in a position to coerce the United States because it needed US markets, technology, and business investment.⁵⁵

In more recent years, however, changes in the international economic landscape forced China to make adjustments to the means to achieve economic development. One critical event was the 2008 global financial crisis, which had an adverse impact on China’s exports—a key driver to China’s economic development. In response to the global economic downturn, China began to strive for transitioning its economic growth mode from exports to domestic consumption (neixu), as indicated by China’s annual government work reports. Prior government work reports in the post-1978 period emphasized increasing export, attracting foreign direct investment, and broadening external markets. The 2009 Chinese government work report was the first time when “expanding domestic consumption” was emphasized and made the “first priority,” and subsequent reports continued to stress domestic consumption.⁵⁶ Granted, it takes time for China to eventually achieve the transition. Nevertheless, the government’s emphasis on domestic consumption remains notable.

This trend stressing domestic consumption heightened in the Xi Jinping regime, primarily because of the trade war between China and the United States as well as the shock from COVID-19. The former convinces Chinese leaders of the potential danger of depending too much on the United States. The latter further highlights the vulnerability of the globalized production and supply chain that China is part of, since COVID-19 limits both economic growth and the exchange of goods and services across borders. Therefore, in 2020, Xi Jinping raised the notion of a dual circulation development model—internal and external circulation—with internal circulation being the priority (guonei daxunhuan wei zhuti, guonei guoji shuangxunhuan), stating explicitly that the rationale had to do with COVID-19, protectionism from the United States, and a global economic recession.⁵⁷ By internal circulation, Xi means domestic-oriented consumption and production. Admittedly, Xi has not given up on external circulation—external trade and financial relations—yet the focus is internal circulation.

In short, China’s grand strategy reflects the cautious calculation from Chinese leaders regarding their external and internal environments. As Xi Jinping himself reasoned in an internal speech: “We are a large country. We must not make mistakes on fundamental issues. If we do, it will be irremediable.”⁵⁸ This suggests that as assertive as Xi Jinping is, he is, ultimately, a rational actor taking into consideration the costs and benefits of policy choices.

Conclusion and Implications

In conclusion, this article contends that China’s grand strategy is a means-ends chain. It brings back the relevance of economic factors to grand strategic discussions and emphasizes that economic development has been central to China’s grand strategy and is considered part of China’s “comprehensive national security.” China has a clear interest hierarchy and a set of strategic priorities: regime security, territorial integrity and security, and continuous economic and social development. China also utilizes economic statecraft for national security ends. Changes in the international economic system have a significant impact on the direction of China’s grand strategy. It is important to note that China’s strategic priorities as well as the factors influencing China’s grand strategy have not witnessed dramatic shifts during the Xi Jinping regime. In other words, there is consistency and continuity in China’s grand strategy in the post–Cold War era regarding the centrality of economic factors.

There are several theoretical and policy implications. First, in contrast to the conventional literature on US grand strategy that focuses on external factors, it is crucial to acknowledge that internal dynamics, especially economic ones, are highly relevant for authoritarian states such as China and North Korea.

Relatedly, despite the association between security interests and grand strategy in US-centric grand strategy literature, internal economic development is an important strategic priority even for the United States. For example, the United States, when it was a rising power, paid keen attention to economic development. During the John Quincy Adams period, development of the domestic economy and scientific development were central themes.⁵⁹ At that time, the United States also utilized trade and strategic neutrality in commercial affairs as a means toward its grand strategic ends. This focus on economic issues continued in the post–Cold War period. For example, the National Security Strategy of 1991 emphasized that national security and economic strength “are indivisible,” prioritizing economic growth as an important end.⁶⁰ Some might question former President Donald Trump’s foreign policy conduct, but his signature “America First” slogan rests on the long-held premise that the priority is “peace and prosperity.”⁶¹ Even when he was just stumping on the campaign trail, Trump emphasized from day one that “we have to rebuild our military and our economy.”⁶² Whether or not Trump’s vision was successfully implemented, one cannot deny the centrality of economic development during his presidency. Despite partisan differences, Trump’s successor, President Joseph Biden, has demonstrated a striking similarity in his emphasis on economic recovery. Biden’s “Build Back Better” plan demonstrates a resemblance to John Quincy Adams’s focus on domestic economic development, infrastructure, education, and scientific development.⁶³ In other words, although the US scholarly strategic community tends to discuss military means to national security ends, economic prosperity is never ignored by US presidents. In fact, it is one of the fundamental priorities of US grand strategy.

Similarly, postwar Japan placed a significant emphasis on economic development. According to Richard Samuels, Japanese strategists have been deeply committed to managing economic risks.⁶⁴ Japan’s grand strategy rests on the notion of “comprehensive security” strategy, which “creatively combined economic and technological capabilities with a low-cost military posture,” prioritizing economic security and practicing mercantile realism.⁶⁵ Japan’s notion of comprehensive security has a strong resemblance to Xi Jinping’s comprehensive national security. This suggests the centrality of economic development as a priority in the grand strategies of historical rising powers and contemporary great powers and that China’s attention to the economic factor is in fact generalizable. As such, economic development is a crucial component of grand strategies. China’s grand strategy, especially the centrality of economic development, is not dissimilar from other major powers historically and today.

Moreover, although China is increasing its global footprint via diplomatic, economic, and military statecraft, China’s strategic priorities demonstrate an internally oriented focus: regime security, sovereignty, and economic development. The empirical evidence presented in this article does not support media claims that China’s goal is to take over the entire world, either through military expansion or exporting its authoritarian model.⁶⁶ Despite the media’s claims that Xi Jinping’s regime is different, China’s grand strategy has exhibited relative continuity and stability. It is, therefore, critical to use primary sources and speech evidence to support claims about any state’s grand strategy. One cannot make convincing claims about China’s grand strategy without utilizing primary Chinese-language documents and sources.

Finally, because China’s grand strategic priorities include both economic development and national security, there is an inherent tension. Economic development requires a stable external environment, which dictates China to use reassurance tactics. Defending China’s sovereignty, however, requires China to at times resort to coercion. Therefore, what we see is a rising China sending multiple, sometimes conflicting, signals to its external and internal audiences.⁶⁷ Predicting into the future, however, if COVID-19 proves to be a turning point for China to become more internal-consumption driven, it is possible that China may be less restrained when it comes to using coercive means to achieve its strategic ends in the future. This is because past research has suggested that China tends to refrain from coercion when the economic cost is high, that is, when China depends on the target state for markets for supply.⁶⁸ Thus, if China transitions successfully to internal consumption, then it is likely that it would become more militarily aggressive. As such, one crucial policy recommendation for the United States would be to keep China in the globalized production and supply chain and ensure that China continues to depend on the United States and its allies for key components of the high-tech supply chain, including the semiconductor industry. The United States loses its economic leverage over China for national security matters when the economies are decoupled.

Dr. Ketian Zhang

Dr. Zhang is an Assistant Professor of International Security in the Schar School of Policy and Government at George Mason University. Her research focuses on Chinese security policies. Part of her research on China’s use of coercion has been published with International Security, Brookings Institution Press, and the Washington Post.