By Gidon Gautel
The Coronavirus Pandemic is driving considerable changes in China’s foreign policy and international position. China’s international approach is intricately intertwined with its domestic environment, and the havoc wrought by the pandemic is making this particularly clear, with domestic concerns already driving foreign policy decisions. Simultaneously, China is facing a global volte-face of previously pro-engagement sentiment abroad, as well as a weakening of its soft-power tools, constraining its field of policy options. Both point to a foreign policy blunted in its instruments of engagement, less likely to take risks, and focused on consolidating on specific regional issues.
China is leading the global charge to reopen its economy, and some indicators, such as factory activity, are encouraging. Nevertheless, the overall situation remains grim. The government’s stimulus has been smaller than international comparators, and notably lacking in supporting the labour market and consumption (though this may well change following its Two Sessions in late May). A full economic recovery is unlikely while disposable incomes have been ravaged among consumers, and many, particularly employees of SMEs and migrant labourers are without a stable income.
This points to a parallel serious concern: unemployment. Diffusion indices tracking fundamentals of leading firms show a sharp reduction in the interest of private businesses to invest and hire. This is occurring within an environment where private enterprise provides approximately 90% of employment, and up to 10 million graduates will imminently enter the labor market. Concern quite rightly exists around the prospect of millions of educated yet unemployed young adults.
Domestic concerns are already having a direct, visible effect on China’s foreign policy. The country is consolidating its regional and territorial interests, and looks less likely to tolerate external challenges on these issues. One interpretation of recent actions in both Hong Kong and the South China Sea has been to put these down to a capitalization on Western distraction. This is most probably a factor. However, going forward, another reading of increased assertiveness may be that leaving foreign objections over these matters unchallenged could amount to a loss of national pride, at a time when this will likely be a stronger driver of political and societal cohesion in lieu of economic growth. One can therefore expect consolidation on regional issues, and a more forceful rebuttal of foreign concerns over matters such as Hong Kong.
Simultaneously, however, the central government may be less likely to take counterproductive and risky hard power actions that could prove de-stabilizing. For example, military sorties in the Taiwan Strait will continue. However, a continued strong US presence makes an escalation unlikely (and undesirable for all involved). Disproportionate and risky actions abroad could either result in dangerous escalation or a humbling climb-down, both of which would be domestically politically unacceptable.
Looking further abroad, economic distress and unfavorable foreign sentiment will blunt Beijing’s toolkit to engage with the world. An interesting dilemma involves long-running foreign complaints around China’s state sector. China’s SOEs offer a quick path towards economic recovery, and in the short term, much of China’s economic comeback could be driven by continued expansion of the state’s economic presence. The government has, for example, begun channeling unemployed graduates into SOE positions. While many would argue the temporary strengthening of the state will, in time, give way to continued market reforms, this is not guaranteed, and a semi-permanent increase in the power of SOEs would have long-ranging consequences abroad. The phenomenon would likely draw further ire from the US and EU in particular, who see market reforms as conditional for closer engagement with China. This indicates the broader potential that domestic actions taken to deal with the crisis will inadvertently shrink Beijing’s opportunities for friendly relations abroad.
This also points to the broader problem Beijing faces internationally in terms of a reduction in its foreign policy playbook. Current international attitudes towards China are characterized at best by damaged trust, and at worst by calls for retribution and compensation for the crisis. China-US relations will likely be irreparably harmed for the foreseeable future. Robbed of a strong labor market and roaring economy, Donald Trump and the Republican Party have already shown clear signs that railing against China will be seen as a political necessity in their fight against the Democrats, even if only to consolidate the Trumpian base. Should Trump win on this platform, this would constrain both his political ability to engage positively with China, as well as China’s willingness to do so. Any progress in trade and economic relations, which Trump is already jeopardizing with the threat of retaliatory tariffs, would be undone. Should Biden win, the outlook is just as bad for China, if not worse. Democrats show a similar appetite to challenging the country. However, unlike Trump, this would be accompanied by much closer coordination with allies.
Looking to Europe, the situation for China’s foreign relations does not look much better. The UK, long seen as one of China’s closest partners in the EU (now outside of it), shows clear signs of reconsidering its relationship with the country. Even if political and economic pragmatism prevails over pure hawkishness, the US will likely be a clear priority for the UK, and remnants of the already flagging UK-China “golden age” will be dead in the water. With the situation this bad in the UK, things hardly look more promising on the continent.
Even along BRI countries, an arguably successful source of historical soft power for China, matters look bleaker. Further investment projects will likely be out of the question as the BRI faces a triple-blow. On the demand side, debt-distressed countries are unlikely to take on further debt burden for additional infrastructure projects. On the supply side, China’s central government will likely fall under domestic pressure to cease costly investments abroad while the Chinese economy suffers. Amid global economic distress, it is unlikely that this drop in Chinese investment will be picked up by external private actors, as was previously hoped.
How might China counteract negative trends in its global position? One path would be to engage in a less agenda-driven approach to multilateralism and global engagement. International praise of China has always been at its strongest when celebrating its multilateral engagement in issues of global importance such as climate change, and more recently, acts of international cooperation and humanitarian relief amidst the pandemic. On the flipside, accusations of WHO bias, however true they may turn out to be, show that any perception of agenda-driven back-room influence on international bodies is only likely to further sow distrust. The central government would therefore be well served to avoid using China’s increasingly important role in multilateral organizations to push its message. Transparent multilateral engagement on issues of global concern, on the other hand, may go some ways to rebuilding trust and widening China’s foreign policy options.
Gidon Gautel is the China Foresight Project Coordinator at LSE IDEAS (The London School of Economics’ foreign policy think tank, and no.1 ranked university affiliated think tank in the world).
