Economic Leverage is the Key to a Rising China’s New Foreign Affairs Strategy

Yifan Hu (PIIE)



The Chinese economy is already the world’s second largest economy, with over three decades of strong growth behind it and more room to grow, and its economic power has translated into increasing political power. China’s historical, economic, and institutional backgrounds set a particularly challenging backdrop for a rising power in a Western dominated international system.

It has become increasingly important and urgent for China to establish a new foreign affairs strategy to address changes in international power structure, and its own changing stature as it moves up the economic competitiveness pyramid. China’s non-intervention policy has been a successful strategy in an early stage of development, but with increasing interests abroad, this strategy is no longer in China’s interests.

Under the new circumstances, it could be an active and better strategy for China to leverage its increasing economic power in international affairs to better promote its interests worldwide and utilize cooperative opportunities to improve its ties with various countries. China needs to find the right equilibrium between the necessity to exert a bigger global influence and the need to avoid being too aggressive.

Strategic collaboration with the US, Europe, Russia, Japan, and emerging market countries should be China's top priority:

  • China-US relations can be strengthened via four main economic channels including improving trade relations, promoting common strategic sectors, rebalancing domestic economies, and coordinating for an optimal policy-mix at a global level.
  • China-Europe relations could thrive if based on the economic and financial needs of the “old continent.” The key areas for cooperation are to maintain a high level of trade by avoiding tariff wars, to increase Chinese investment into Europe, and to maintain China’s strategic support amid a continuing debt crisis.
  • China-Russia relations could be reinforced by cooperating in the fields of energy and resources, establishing trade agreements and coordinating roles in international organizations as a way towards a better equilibrium of power globally.
  • China- Japan relations could be improved by exploring synergies at the level of trade, investment, high technology, and environment, as well as coordinating on regional issues despite tensions from history.
  • China’s relations with emerging markets represent an opportunity for a win-win solution with the developing world. China’s “infrastructure for commodities” model, shifts in global production chains and the growing international influence of the renminbi will promote development in emerging markets and offer the chance to create a sphere of influence independent of existing global powers.

Communication is equally important as strategy in international affairs, especially for a rising power like China, The country faces great challenges on how to communicate its intentions to the other countries in the system. We recommend attempting to bridge cultural barriers, establishing an open, smooth and regular official communication platform, and promoting multi-layer grassroots communication channels to improve China’s communication strategy.

A farsighted new foreign affairs strategy together with effective communication will greatly benefit China on its way to becoming a bone fide superpower. Approaching international affairs tactfully and pragmatically while sticking to the bottom line can be expressed as an “iron fist in a velvet glove” strategy. This presents a gentle, pleasing outer demeanor while encompassing a stronger core. This is to say, even if China’s bottom line issues dictate that the message must be harsh, deftly communicating with other countries will improve relations or at the very least not strain them as much as a stiff, unyielding interaction would.

The US is arguably the country that has mastered this idea of the “iron fist in a velvet glove” the best, able to pursue its own agenda but still claim a mantle of righteousness. Particularly on issues that are likely to strain relations, such as trade or territorial disputes, it could be beneficial for China to organize its communications in a multi-pronged manner, being rigid when the situation calls for it, and flexible when there is room for negotiation.

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