Some Thoughts on Deepening Economic Diplomacy

China International Studies | 作者: Ye Hao | 时间: 2014-01-20 | 责编: Li Xiaoyu
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by Ye Hao



Since the founding of the People’s Republic of China, the nation has paid a great deal of attention to economic diplomacy. In particular, since the launch of the reform and opening-up policy and its accession to the World Trade Organization, China has made great achievements in economic diplomacy, which has grown and improved in terms of patterns, objectives and contents. In the 21st century, globalization offers both opportunities and challenges, and international economic cooperation and competition have played an important role in foreign relations. Economic diplomacy has been increasingly important in terms of diplomacy. As we encounter new problems and face new challenges, we urgently require new breakthroughs in economic diplomacy.


I. The Concept of Economic Diplomacy: Temporal-spatial Shift of Weight


In the traditional sense, diplomacy is “the activity of a state to maintain sovereignty by peaceful means, generally referring to the external activities of heads of state and government, foreign ministers and diplomatic institutions on behalf of their respective nations.”[1] However, such a strict and narrow definition of diplomacy no longer suits international contacts in the current context of globalization, with economic interests and means having become an important component of diplomatic activities.

Economic diplomacy was first proposed as a concept by the Japanese. Due to its defeat in the Second World War, Japan lacked a voice and influence politically, militarily and in other traditional areas of diplomacy. The mid-1950s witnessed the rapid growth of the Japanese economy and a concurrent growth in demand for resources and markets. The government of Nobusuke Kishi formulated the concept of economic diplomacy and actively implemented it in its relations with Southeast Asia. It tried to gradually open the Southeast Asian market by providing economic assistance and helping some countries improve their infrastructure and investment environments. In the 1970s and 1980s, Japanese academics in particular Susumu Yamamoto and Mitsuru Yamamoto, made achievements in the research of economic diplomacy.[2]

The US may be a latecomer to advocating and studying economic diplomacy,[3] but it has a long history of applying it in practice. In the early 20th century, President William Howard Taft encouraged and supported bankers in their expansion of overseas investment in order to “substitute dollars for bullets”. The famous Marshall Plan of the late 1940s and early 1950s was a typical example of promoting economic diplomacy in Europe. US diplomacy has long carried out a “carrot and stick” policy, i.e. attracting and winning over countries that obey with the “carrot” of US assistance, while suppressing those that do not obey with the “stick” of military and economic sanctions. It is very obvious that economic interests lie at the heart of US diplomacy. US interventions in the Middle East, including all previous Middle East wars, the Iran-Iraq War, and its two invasions of Iraq, have all centered on oil interests.

Chinese scholars, who started paying attention to economic diplomacy in the early 1990s, contend that it has two major elements: overseas contacts carried out by a government or agencies or officials on behalf of the government for the purpose of national economic interests; and overseas contacts carried out by the above-mentioned actors in order to achieve national strategic goals by economic means.[4]

What sets modern diplomacy apart from traditional diplomacy is that it has three lines of approach: political, economic and cultural. The respective importance attached to these varies according to the country and the era in question, depends on their effectiveness in terms of a country’s diplomacy, and reflects a temporal and spatial evolution. The following equation shows that:

Modern diplomacy = A*political diplomacy + B*economic diplomacy + (1-A-B)*cultural diplomacy

In the equation, A is the effective coefficient of political and military means, and B is the effectiveness and feasibility of economic means. For example, post-WWII Japan was weak in A and stronger in B, as Japan completely lacked weight in the military and political aspects of traditional diplomacy.

We can also use an equation to illustrate economic diplomacy:

Economic diplomacy = A*economy serving diplomacy + (1-A)*diplomacy serving economy

In this equation, A is the coefficient of economic interest goals in diplomacy. When a nation’s economic diplomacy mainly focuses on politics and ideology, that is, when 1-A is greater, the main instruments are direct foreign assistance or expanding diplomatic influence through investment. However, when economic diplomacy is mainly aimed at securing economic interests, that is, when A is greater, the main instruments are corporate foreign investment, foreign trade, and transnational cooperation and exchanges between economic and financial organizations. Needless to say, the means and tasks of a country’s economic diplomacy will evolve with different stages of history and changing international economic and political structures.

Since the end of the Cold War, international politics has entered a relatively peaceful stage, and economic competition has become the primary feature of international competition. No country carries out diplomacy without associated economic interests. Developing countries hope to secure aid and attract investment through economic diplomacy, while developed countries hope to expand their influence and maximize their economic interests. In particular, with rapid economic globalization and growing international economic cooperation, national economies are increasingly interdependent, and bilateral and multilateral economic agreements or mechanisms have become important links in maintaining international relations. Economic diplomacy is playing an increasingly important role in diplomacy.



II. Significance of Economic Diplomacy: Interests, Power, Environment and Opportunities


Having a long history, economic diplomacy plays a more important role in current Chinese diplomacy for the following reasons:

First, in terms of strengthening interests, economic diplomacy is an extension of domestic politics, and serves domestic economic construction. After the founding of the People’s Republic of China, diplomacy mainly served politics, but after the reform and opening-up policy was launched in 1978, the focus of diplomacy shifted from politics to economics, primarily domestic economic development. Therefore, there was a marked increase in the previously mentioned coefficient A (economic interests’ goals in diplomacy). Besides aid and foreign trade, assisting firms overseas expansion, outward foreign investment and participating in financial cooperation have become increasingly important components of economic diplomacy. The changes are specifically embodied in two aspects:

On the one hand, economic diplomacy is interest-oriented. In the past, economic diplomacy was based on ideological factors. We only aided those countries which agreed with our ideology. However, the current core interest in development is national economic construction, and the practice of carrying out economic diplomacy simply guided by ideology has been changed. Ideological disagreements will not affect bilateral economic and trade cooperation, and economic diplomacy can even play the flexible role that ideological struggles cannot.

On the other hand, economic diplomacy serves national economic development and transformation. When its economy was underdeveloped, China needed foreign investment and technologies. However, with the development and growth of domestic economic entities, firms and financial institutions have not only had the impulse to expand markets and expand overseas, but also the ability to go out and invest. It is an irresistible trend for Chinese firms to seek overseas expansion for resources, labor or markets. At this point in time, this is all the more important as the Chinese economy currently faces bottlenecks of resources and energy, so firms urgently need to expand overseas to seek energy and resources, while other developing countries, and even developed countries that are mired in the debt crisis, are in desperate need of investment from Chinese firms to drive their economic development and recovery. With Chinese firms expanding overseas and taking advantage of overseas resources and markets, China has acquired, by economic means, interests that could only be obtained in the past by means of war. At the same time, Chinese firms expanding overseas are in urgent need of diplomatic protection.

Second, by smartly employing power, economic diplomacy helps to enhance China’s international influence. Simply put, B, the previously mentioned coefficient which refers to the effectiveness and feasibility of economic means in diplomacy has increased dramatically in China’s diplomatic work. The growth of China’s economic power has seen an unprecedented improvement in the status of economic diplomacy in the nation’s diplomatic work.

China has now become the world’s second-largest economy and its economic power has attained a record high. However, this rapid economic growth has also led “China threat” and “China collapse” theories to gain currency in some circles in the West. China is now fully able to counteract this and enhance its international influence by exerting its influence on global diplomacy through the comprehensive and integrated use of economic means. Since the establishment of the forum mechanism at the first ministerial meeting of the China-Africa Cooperation Forum in October 2000, it has become an effective platform for bilateral collective dialogue and pragmatic cooperation. Multilateral and bilateral cooperation mechanisms between China and Africa have been further strengthened, and cooperation among the parties has been expanded, broadened and raised to a higher level. By investing in African countries and engaging in equal, mutually beneficial and pragmatic cooperation, China has significantly boosted its influence in this region. The China-Africa Cooperation Forum has become a successful example of China’s economic diplomacy, and the China-Central and Eastern Europe Cooperation Mechanism under construction is also expected to gain the same results. Developed Western economies that are mired in the eurozone crisis have also changed their attitude of vigilance toward China to one combining vigilance and reliance. Japan, Vietnam, the Philippines and other countries that have territorial claims against China must balance their provocations of China with an attitude of prudence due to their interwoven and interdependent economic relationships with China.

Third, by improving the overall diplomatic environment, economic diplomacy contributes to peace, development, cooperation and a win-win situation. China’s rise requires a peaceful international environment. Due to their interactivity, reciprocity and the multiplicity of participants, economic activities can have a longer-term influence than purely political diplomacy in terms of deepening friendship, defusing conflicts and turning enemies into friends, which helps improve a country’s external environment. Economic diplomacy can help international relations transcend ideology, making countries connect with, rely on each other and form win-win relationships. China-US relations are a typical example of this. Although the US confronts China on issues such as human rights, democracy and trade disputes, increasingly close economic relations have become the “damper” and “ballast” of bilateral relations, and the two sides are ready to seek consensuses and win-win opportunities out of disagreements. In developing countries, economic diplomacy makes the benefits of Chinese investment tangible to the public, deepening their good impression of, friendship with and trust in China. In light of the practice of economic diplomacy since the founding of the People’s Republic of China, whichever country received aid from China and successfully carried out economic cooperation with China has seen its traditional friendship withstand the test of time. Seen from a contemporary perspective, New China’s initial foreign aid seems to have placed an undue emphasis on ideological factors, but it undoubtedly laid a solid foundation on which China could return to those countries and further deepen bilateral cooperation. Despite Western interference in China’s economic diplomacy, it cannot stop Chinese firms from playing a greater international role. Economic integration will eventually offset its adverse impact on China and enhance the nation’s friendly relations with other countries.

Fourth, by seizing opportunities, economic diplomacy is conducive to extending the period of strategic opportunity. Since 2008, the global financial crisis and the subsequent European and US sovereign debt crises made the trend evident that the West is declining and the East is the ascendancy. China has outshone others in economic performance and became an important driver of global economic recovery. The crisis is precisely a strategic opportunity for China, providing a crucial starting point for it to accelerate its development and fully utilize its economic power to exert global influence. That means that this great opportunity must not be missed and economic diplomacy must be quickly strengthened. To this end, China must seize the current period of strategic opportunity, deepen economic diplomacy, in particular encourage Chinese firms to expand globally, and lay a solid foundation and framework for future economic diplomacy.



III. Deepening of Economic Diplomacy: Integration and Breakthrough


The global economy is integrating at an unprecedented speed, and China has made major achievements in economic diplomacy. There is currently a gap between China’s capabilities in economic diplomacy and its economic position in the world. As a result, further strengthening and improvement of China’s economic diplomacy is of vital importance.

First, in terms of institutional framework, we should further optimize the top-level design and establish a cross-agency cooperation mechanism to coordinate economic diplomacy. On the one hand, being the core agency of economic diplomacy, the Ministry of Foreign Affairs should further strengthen its functions in this field, improve its awareness and ability to play economic cards in major diplomatic issues, coordinate other executive bodies of economic diplomacy on a more macroscopic level, balance political and economic diplomacy, and drive the integration of politics and economics, both promoting the economy through political means and supporting politics through economic means. On the other hand, specific departments should establish specialized corresponding agencies to serve the nation’s overall diplomatic objectives and its diplomatic strategy, while playing a professional role.

Second, in terms of setting goals, we should place greater emphasis on cooperation and win-win situations, increase political and economic investment and focus on promoting mutual benefits, cooperation and win-win situations with developing countries and emerging economies. The ultimate goal of economic diplomacy is to maximize national interests. In order to achieve this goal we must further emphasize win-win cooperation. In the course of their overseas expansion, Chinese firms should, one the one hand, be committed to accessing energy and resources and expanding international markets; on the other hand, they should refrain from indulging in short-sighted behavior for instant benefits. To invest and start a business in developing countries and emerging economies in particular, Chinese firms should try to promote local development while realizing their own interests, giving more and taking less or giving first and taking later, rather than simply seeking resources and markets, and exporting problems related to China’s economic development to other countries. This kind of expansion is unsustainable, and would even harm China’s national image.

Third, in terms of institutional platforms, we should actively participate in the formulation of international economic rules. A country’s international status not only depends on the scale of its GDP, but is also reflected in its soft power in formulating rules. Various international economic organizations are major platforms for economic diplomacy, in which China should play a more active role. Firstly, China should vigorously enhance its role in international economic organizations led by developed countries in Europe and North America such as the IMF and the World Bank. Secondly, China should play a more active role in such major multilateral summits such as the G20, BRICS, APEC and the Shanghai Cooperation Organization. Thirdly, China should consider establishing some new regional organizations for economic and financial cooperation in Asia, Europe, Africa and Latin America. In light of the trade between China and other developing economies, the potential is great for China to establish organizations for economic and financial cooperation with those countries. China should strengthen its international bilateral and multilateral cooperation, actively participate in the formulation and establishment of a new international order, and seek more resources and the right to speak.

Fourth, we should further strengthen the economic functions of institutions stationed overseas. We should vigorously promote the emphasis overseas-stationed institutions attach to economic diplomacy, and effectively recognize the important role economic exchanges play in deepening bilateral relations and friendship between peoples. We should recognize the importance role of helping firms expand overseas in terms of China’s overall diplomatic efforts. Chinese firms currently face many problems in terms of their overseas expansion, such as a lack of understanding of foreign situations and language barriers, and require institutions stationed overseas to act as intermediaries. When encountering problems and troubles, Chinese firms need assistance from institutions stationed overseas. Institutions stationed overseas should regard the above two tasks as an important aspect of economic diplomacy, fully utilize their advantages in the access of information, conduct studies and analysis of international economic situations, in particular the economic factors of the country they are stationed in, and provide reference and market information for decision making in economic diplomacy.

Fifth, in terms of team building, we should further emphasize economic practice, by attaching importance to improving diplomats’ theoretical and practical abilities in economic diplomacy. On the one hand, we should improve the professional training and education system, and continue to improve diplomats’ economic literacy. We should also strengthen the training and exchange of current diplomatic personnel, highlighting economic practice. In particular, we should strengthen the flow of talents, allowing professional diplomats to learn economics and manage economic affairs, and allowing economic professionals to learn diplomacy and work on economic diplomacy in order to develop an international perspective. We should be committed to cultivating inter-disciplinary talents in economic diplomacy and make the ability to carry out economic diplomacy an important criterion of measuring diplomats’ quality.

Sixth, we should further promote diversified participation. We should explore innovative ideas and expand the breadth and depth of non-traditional actors participating in economic diplomacy. Besides central and state-owned enterprises, we should extensively mobilize private capital and social organizations to participate in outward foreign investment, particularly in small and medium-sized countries. In the course of their overseas expansion, firms should actively understand the local market and collect information, seek investment opportunities and improve their “acclimatization” by overcoming cultural differences through cooperation with local firms.

Seventh, in terms of theoretical study, we should further speed up disciplinary construction. A number of achievements have already been made in the study of economic diplomacy, but this field largely remains in its infancy. A systematic knowledge system and theoretical framework have yet to be established, and the current theoretical basis is inadequate to guide the overall process of economic diplomacy from strategic formulation to its actual implementation. An economic diplomacy training system should be established in the nation’s higher-education system in order to lay a solid foundation for this work. At the level of theoretical study, multi-disciplinary cooperation should be increased to study economic diplomacy from perspectives including international relations, political science, economics and sociology. In terms of the construction of academic platforms, we should pay attention to the further construction of disciplinary vehicles and make economic diplomacy a new academic focus by means of publishing magazines, founding societies and carrying out international exchanges.

Source: China International Studies November/December 2013 p114-125


[1]Chinese Encyclopedia: Volume of Politics, Chinese Encyclopedia Press, 1992, p. 366.

[2] Susumu Yamamoto, Tokyo-Washington, Iwanami Shoten, 1961; Mitsuru Yamamoto, Japanese Economic Diplomacy, Nikkei Shinsho, 1973.

[3] As late as in the 1980s, some works, e.g. Kaiser’s Economic Diplomacy and the Origins of the Second World War, Daoudi and Dajani’s Economic Diplomacy: Embargo Leverage and World Politics and others, just explored some specific issues in the practice of economic diplomacy, and failed to mention the concept of economic diplomacy.

[4] Zhou Yongsheng, “First Exploration of Deng Xiaoping’s Thoughts on Economic Diplomacy,” Beifang Luncong, Issue.1 1996, p. 35.