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Thomas Fingar on Chinese foreign policy

Photograph of Dr. FingarDr. Thomas Fingar is a Shorenstein Distinguished Fellow in the Freeman Spogli Institute for International Studies at Stanford University. He was the inaugural Oksenberg-Rohlen Distinguished Fellow in 2010-2015 and the Payne Distinguished Lecturer at Stanford during January-December 2009. From May 2005 through December 2008, he served as the first Deputy Director of National Intelligence for Analysis and, concurrently, as Chairman of the National Intelligence Council. Dr. Fingar served previously as Assistant Secretary of the State Department’s Bureau of Intelligence and Research (2004-2005), Principal Deputy Assistant Secretary (2001-2003), Deputy Assistant Secretary for Analysis (1994-2000), Director of the Office of Analysis for East Asia and the Pacific (1989-1994), and Chief of the China Division (1986-1989). Between 1975 and 1986 he held a number of positions at Stanford University, including Senior Research Associate in the Center for International Security and Arms Control. Dr. Fingar is a graduate of Cornell University (A.B. in Government and History, 1968), and Stanford University (M.A., 1969 and Ph.D., 1977 both in Political Science). His most recent books are Reducing Uncertainty: Intelligence Analysis and National Security (Stanford University Press, 2011), The New Great Game: China and South and Central Asia in the Era of Reform, editor (Stanford University Press, 2016); and Uneasy Partnerships: China and Japan, the Koreas, and Russia in the Era of Reform Stanford University Press, forthcoming). Dr. Fingar spoke with Aleena Ali CMC '17 on October 7th, 2016.

Photograph and bio courtesy of Dr. Fingar

Have domestic influences on China’s foreign policy become more salient in the last few years? How have they evolved in recent years? How are they likely to evolve?  

The principal domestic determinants of foreign policy for the last four decades has been the leadership’s commitment to do whatever is necessary to sustain high rates of economic growth, to maintain an international environment that is peaceful and stable, to retain positive relations with the U.S., and to maintain and develop relations with other countries that are conducive to the acquisition or sale of commodities. This consensus has existed at the highest levels of government and within the Chinese Communist Party, and has not been driven by interest groups within China.
 
What is changing, and has changed, is policy toward Japan and toward the South China Sea (SCS). The government has cast its policy toward these areas in terms of defending China’s sovereignty and territorial integrity, in a way that resonates with the public, particularly younger segments of the population. This conceptualization has influenced policy by constraining the flexibility of the leadership, as it makes it harder for the Chinese leadership to work out compromises or to accept the judgment of the international tribunal on China’s claim in the SCS. The leadership is aware that there would be advantages to moderating its stance, but it seems reluctant to risk public displeasure by compromising with Japan or by negotiating around the issue of China’s sovereignty. The concern isn’t only the foreign policy dimension of this, but also the fear that anti-Japanese demonstrations could turn into protests about domestic frustrations, such as pollution, inflation, unemployment or other issues that might cause domestic unrest. The leadership is far more concerned about a potential spillover into a broader criticism of government policies and actions. 

In an article you authored in 2013, you described the longstanding stability of U.S.-China relations. Does the recent polarization of the domestic political landscape in the U.S. and the reassertion of Chinese nationalism threaten the pillars on which stability is premised?
 
The pillars are strong enough to withstand the current political climate, but the relationship will be more difficult to manage, partly because of the polarization of American politics and partly because the American public is less acquiescent. Americans are less willing to defer to the politicians and professionals in Washington who set foreign policy. The decades of and following the Cold War were characterized by the public tacitly agreeing to do anything necessary to protect the interests of the United States against the existential threat posed by the Soviet Union. The American public accepted unequal economic and trading relationships, one-way alliance protections, and obligations to defend countries deemed vulnerable. However, the public is unwilling to accept such measures now because it does not view China as an existential threat, in the way that it viewed the Soviet Union. China is not a replacement for the Soviet Union in that regard.  

Another pillar is economic benefit championed by the international, American-based business community. For decades, this community has been a strong advocate of stability in the U.S.-China relationship given a high level of investments in China and China’s importance in multi-country production chains. This community now has reservations, due to concerns about cyber-theft, intellectual property violations, anti-business crackdowns, and the failure to honor international treaty commitments and specific commitments to investors. 

The business community is remaining silent in this election campaign, unlike the last several elections. They are unlikely to pontificate because they’re not interested in expending political capital on lobbying in favor of stable relations with China, as they can now redirect their investments to other places. The redirection of investments away from China will further complicate the relationship because China will interpret these decisions as political retaliation or as an effort by the U.S. government to contain China, even though they will be private sector corporate decisions made for business reasons. 

What is the viability of moving away from China as a source of investment, cheap labor, and cheap capital inputs? Are there other countries or regions that can replace China’s primacy for the U.S. along these dimensions? 
 
The notion of China’s primacy for the United States is wildly overstated. At its peak, China accounted for 7 percent of U.S. treasury bill sales. Although it was the biggest foreign purchaser and displaced Japan, China still accounted for a small percentage of sales. Moreover, this percentage has gone down in the wake of the 2008 financial crisis, as American citizens are saving more, leading to more capital available in the U.S. to buy government bonds.
 
The notion that the U.S. is dependent upon China for investment and for keeping its treasury afloat is wildly overstated. For the last two years, and I suspect for a third year in 2016, capital flows from China to the United States have exceeded flows from the United States to China. Chinese private investors, and to a small extent state companies, consider the U.S. a better place to invest. 

China is no longer the only or even the best source of low-cost labor. Firms have far more options than they did in the 1980s and 1990s and they are adding capacity by investing in places in addition to China.  Chinese policy and actions that make it more difficult to do business in China accelerate this trend.

The South Asian region, dominated by the economic rise of India and the increasingly volatile security dynamics between India and Pakistan, presents a challenging environment for China. How is China likely to reconcile its adherence to its traditional and evolving alliance with Pakistan and the need to maintain strategic stability with India?
 
The operative dynamic in South Asia is one of growing ties between India and China, and between Pakistan and China. China and India’s relations were initially characterized by the security threat posed by India’s alliance with the Soviet Union. India and China’s relations have changed immensely due to India’s economic reforms, its demographic dividend, its cheap labor, openness to international engagement and its complementarity to China. These changes in India’s economic dynamics have opened possibilities that were not there previously. The same dynamic that makes India attractive to the United States, makes it attractive to China. India is also attracted to China because of trade complementarities.  

China’s relationship with Pakistan emerged in response to the combined threat of the Soviet Union and India. Currently, China’s interest in Pakistan is not intended to annoy India, but stems from the instability in Pakistan, as reflected in the training that goes on in Pakistan and Kashmir of extremists and insurgent groups. The Chinese have declared that their greatest security threat comes from Islamic insurgents, many of whom come from Pakistan. Stability in Pakistan and more effective governance of the ungoverned space are driving China’s relationship with Pakistan. Business motivations are also playing a role; China has recently invested a lot of money in Pakistan, some of which will generate economic benefits, and some of which will generate political benefits. 

China’s involvement in the region as a whole and its investment in infrastructure have transformed the region in two important respects. First, Chinese-financed infrastructure can be used by any country, changing the economies of scale for all countries and contributing to greater economic activity in the region. Second, this investment has spurred India to be more active in the region. Historically, India underperformed as an engine for regional economic activity. China’s growing presence has fueled competition and is driving India to engage with other countries in the region. 

President Obama and President Xi at a bilateral meeting"US President Barack Obama during a bilateral meeting with Chinese President Xi Jinping" by U.S. Embassy The Hague — Own work. Licensed under CC BY-ND 2.0 via Flickr Creative Commons — https://c2.staticflickr.com/4/3735/13756957204_28815235be_b.jpg

In a chapter you authored in 2013, you described China’s views of the existing world order as “pragmatic, inconsistent, and somewhat paranoid.” Would you still characterize Chinese views on the world order in this manner? If not, what factors have motivated shifts in Chinese perceptions of the world order?

There had been a high degree of stability, predictability and pragmatism and a clear, consistent logic undergirding China’s foreign policy until about 2009. Prior to that, the Chinese followed an approach of do-what-is-necessary to maintain stability and security in the global system, and to sustain China’s economic growth. This approach shaped China’s relations with country after country, and determined the nature and strength of China’s relations; it determined whether China needed to invest time, effort and diplomatic capital in order to open up a new market or acquire a new good. It also determined whether China should concentrate on developed countries that maintain stability in the international system, mainly the United States. This was guided by the idea that China benefited from the U.S. bearing system maintenance costs. There is still a lot of reluctance to take on any responsibility for the maintenance of that system. The Chinese have found it difficult to deal with a scenario in which the United States allows China a seat at the table and where there are discussions about what responsibilities China wants to share and which rules China would like to alter. The system clearly needs new institutions, especially institutions of financial management. China, however, is not willing to take the lead. 

What seems to have emerged is the exaggerated belief that the world is now more dependent on Chinese participation than China is on world participation, and that China can therefore dictate the terms of engagement, the rules, and the norms of the international system. This is incorrect in the short run and in the next decade or so. Certainly there are many countries with inexpensive labor where companies can invest. Moreover, China is still dependent on the U.S. In fact, 25 percent of its trade is with the United States, 40 percent with U.S.-Japan-South Korea, and another 40 percent with Europe. The percentage of economic activity that comes from foreign organizations in China or from exports remains very, very high. Therefore, China is clearly miscalculating when it holds the idea of the United States being in decline and panicked about the rise of China. In other words, China is wrong in concluding that the U.S. is now dangerous because it wants to thwart China’s rise. Yet this narrative is repeated over and over again. It resonates in China because there is no alternative view: and it also resonates in countries that favor friction in U.S.-China relations, so they can play one against the other. 

Under President Xi’s leadership, has China’s involvement in different regions followed a more coherent pattern? Is there some semblance of a Chinese grand strategy that is likely to dominate the 21st century?
 
There is not really a Chinese grand strategy. China’s regional involvement was initially motivated by its developmental efforts and security concerns, resulting in it engaging with countries in Northeast Asia, Europe and North America. It then extended its involvement to countries in Africa and Latin America that offered resources and markets for indigenously-produced Chinese goods that were not part of multinational production chains. 

Much has been made of the enhancement of China’s involvement in Africa, but it is very easy to overstate the significance and uniqueness of China’s engagement in that continent. China’s engagement is small compared to the aggregate involvement of the U.S. and of European nations. It grew dramatically in recent years and is primarily driven by oil; as the price of oil rose, China’s trade went up dramatically. And although China is involved all over Africa, 85 percent of its involvement is in four countries and is mostly energy-related, except for South Africa. In the countries where China is active, particularly those with energy resources, it has to operate by the rules, terms and prices set by the host countries themselves. 

In your remarks made earlier today, you noted China's growing involvement in international organizations. To what extent is China aiming to create a parallel order through the creation of competing organizations, like the Asian Infrastructure Investment Bank? Or is China aiming to work through, and take advantage of, existing institutions?  
 
I am delighted that China has established the Asian Infrastructure Investment Bank. I do not view the AIIB as a rival to either the World Bank or the Asian Development Bank. The AIIB is a sensible effort by the Chinese to create a multinational organization that enables them to back away from what had been their position on loans, which was characterized by the non-attachment of conditions and strings. They realized that such a position is not lucrative, and the likelihood of getting paid by non-creditworthy borrowers is very low. Since it is a development bank, it is also a way to utilize the enormous excess capacity in China’s steel and construction sectors. AIIB also provides an avenue for Chinese companies to loan money to another country in a bidding process that China will win, and enables them to secure construction contracts.  

That said, the likelihood of countries responding to this favorably is smaller than China anticipates, primarily because countries themselves are cash-constrained. The loans that China will be offering won’t be cheap because these countries are not creditworthy.  

The One Belt, One Road Initiative and similar efforts resemble previous initiatives such as U.S.-initiated dollar diplomacy and Japanese-led yen diplomacy. These efforts didn’t work for the U.S. and Japan, and they are unlikely to work for China. 

There might be a logic to China’s efforts for countries that cannot compete otherwise, and cannot win in a free and fair competition. These countries might decide that locking themselves into a kind of assured relationship with China is better than competing unsuccessfully in an international market. On the basis of that determination, they may be willing to accept the constraints imposed on them, lower levels of development and high levels of dependency.  

In your remarks you also mentioned that Chinese foreign policy is premised on a misconception regarding global dependence on China. To what extent has China enhanced the degree of dependence on it by deepening its physical, capital and military investments in various regions? Do you anticipate this strategy to endure and is it likely to be effective in helping China achieve its goals?
 
If it is successful, it will generate interdependencies. In the modern world, one-way dependency is quite rare. For China, it has primarily existed in the acquisition of commodities. However, the markets from which China receives goods have slowed down. As growth has slowed in the markets where China sells its products, such as those in Europe and Japan, China’s own growth has also slowed. This is a dependency that does not bring China too many benefits. Instead, it brings it a lot of criticism. The slowdown in China’s growth has had a large negative impact on commodity-producing countries that accepted high-priced loans and incurred environmental damage in order to accelerate the production of commodities. This has generated criticism. There has also been a backlash against China’s dependence on oil from the Middle East and Africa. This dependence means that China must now care about stability in the Middle East, and therefore relying on the U.S. to maintain stability is insufficient.

Author: 
Aleena Ali