Decision-Making Process of Chinas Economic Sanctions

Decision-Making Process of Chinas Economic Sanctions It is undoubtedly that the rest of the world are increasingly concerned of Chinas economic power and how will China intend to use the power to advance geopolitical ends. China has enjoyed rapid economic growth since the introduction of market reforms in 1978. The unprecedented economic growth has made China becoming the second biggest economy in the world in the year 2010. Not only did Chinas economic power improves, the significant economic growth has also provided China with greater opportunity and strength to increase political influence abroad through economic means, so called economic statecraft. Today economic statecraft has become an ever more evident feature of Chinas behavior in the international system, as the level of interdependence between China and the global economic grows. To define economic statecraft more clearly, this study will rely on Baldwins (1985) definition. Baldwin defines economic statecraft as the use of economic levers by states attempting to influence other international actors through offering economic incentives or imposing negative sanctions[1]. In other words, economic statecraft is divided into positive incentives and negative sanctions, and these will take in the forms of trade and capital. For example, positive incentives in the form of trade are favorable tariff discrimination and trade subsidies, while capital incentives in the form of capital are foreign aid and investment guarantees. Examples of negative sanctions in the form of trade are embargo, boycott, and unfavorable tariff discrimination, while sanctions in the form of capital are aid suspension, freezing assets and financial control. Chinese leaders generally prefer carrots over sticks, as economic incentives provide mutual benefits to both economies and thus resulting in a win-win outcome. Examples are Chinas foreign aid activities in developing countries and Chinas free trade agreement with other countries, which both cases not only enable China to strengthen its relationship with other countries but also allow both countries to benefit economically. While the use of economic sanctions by China has been rather rare, which is not a surprising phenomenon. This is because China has a long-standing stance on the opposition of economic sanction[2]. It opposes sanctions as a way of resolving issues and condemns sanctions as an immoral punishment of vulnerable and the innocent populations. Chinas opposition is demonstrated through top Chinese leaders publicly criticized other countries for imposing economic sanctions to punish wrongdoers. One example is that a Chinese foreign ministry official, Jiang Yu responded to t he Frenchs call for massive sanctions against Iran to cease its nuclear program in 2009, China always believes that sanctions a pressure should not be an option and will not be conducive to the current diplomatic efforts over the Iran nuclear issues.[3] Another example is that the Chinese foreign minister, Wang Yi opposes sanctions on North Korea and expressed his view to the Japanese counterpart that unilateral sanctions were not the only answer to managing the situation on the Korean Peninsula and it would not resolve the nuclear issue of North Korea[4]. These two examples reflect Chinas belief of inefficacy of sanctions. Besides public critics of sanctions, China had also employed its Security Council veto to oppose against sanctions on countries including Myanmar in 2007, Zimbabwe in 2008, Syria in 2011 and 2012. Not only did Beijing thinks sanction is ineffective, but it also think sanction can inflict injury to the target countrys economy and the living of its people[5]. Beijing has repeatedly insisted that peaceful means should be employed as the priority option to resolve conflict, while sanction should only be used as a last resort[6]. Indeed Chinas opposition stance on sanctions is consistent with its commitment to peaceful development and its pursuit as a responsible power. Chinas peaceful development has been the central theme of Chinese foreign policy since 2004. Beijing sees peaceful development as crucial to preserve a peaceful environment for sustaining its economic development and stability. In other words, China advocates a world with peace and harmony, in which all countries are benef iting from the shared prosperity. China also has been working towards to build its image as a responsible power to mitigate Chinas threat theory through proactively involve in international affairs. Despite Beijings long standing negative perception of economic sanctions, there is a trend of China increasingly make use of economic coercion in the international arena, which marks a new and significant phenomenon that contradicts with Chinas rhetoric and its long-standing stance. This is evidenced in the four cases that will be further explored in the later chapters. The first case is Chinas proposed economic sanctions on USs companies that engages in arms sell to Taiwan in 2010. The second case is Chinas imports ban of crude soy oil from Argentina as a retaliation in response to Sino-Argentina tension in 2010. The third case is where China imposed an export ban of rare-earth on Japan in face of the Sino-Japanese tension in the disputed maritime island in 2010. The last case is Chinas restriction on Philippiness imported bananas following the Scarborough Shoal incident in 2012.These cases indicate the increasing propensity of China to exercise economic coercions. The question pres ents here is that provided Chinas negative perception of economic sanction, why China still imposes economic sanction on other countries as a tool of economic statecraft? What are the decision process driving China to exercise economic sanctions? What are the characteristics of Chinese economic sanctions? It is also worth noting that majority of the existing literature on Chinese economic statecraft focuses on the effects and efficacy of Chinese economic statecraft rather than on its motives and application. Because examples of Chinese economic coercion are relatively limited and understudied, an in-depth analysis of Chinas economic sanction is vital to understand the decision making process and what triggers China to resort to coercion especially in recent years. This study also further seek to explain how Chinas exercise of economic sanction fits into Chinas grand policy? This paper builds on Chinas economic statecraft literature specifically Chinese economic sanction in the field of International Political economy (IPE) by drawing key definition and concepts from influential works. 1. Economic Sanctions and its effectiveness As discussed in Chapter 1, economic sanctions are stemming from economic statecraft. Daniel Drezner (2003) defines economic coercion as the threat or act by a sender government to disrupt economic exchange with the target state, unless the target acquiesces to articulated demand.[7] Many scholars have used sender to refer to the state that imposes the sanction, while target means the sanctioned countries. However it is noted that many studies today have used the term economic coercion and economic statecraft interchangeably despite that they are different[8]. To align with the current studies, this paper will treat these two terms as equivalent. There two major weaknesses with this definition. First, Drezners definition of sanction is too restrictive. It only views the behavioral change as the only desired outcome of sanctions by the sender, which in this case is the acquiescence to the senders demand. However, sanctions can also have outcomes such as signal and deterrence. Second, t he definition limits itself to only one desired outcome by the sender. In fact, senders are able to achieve more than one outcome on the target by imposing sanctions. Lindsay and Giumelli demonstrate that economic sanctions can achieve outcomes other than behavioral change and hold multiple goals. Lindsay claims that sanction can take up to five different actions including compliance, subversion, deterrence, international symbolism, or domestic symbolism[9]. Giumelli also defines three dimension that sanction can take, which are coercion, constraint and signal[10]. For the purpose of this paper, I will utilize Giumellis three means of economic sanction to evaluate my dependent variables in Chapter 3. Most existing literature on economic sanctions focus on measuring the successful rate of economic sanctions. While the majority of literature in the 1970s and 1980s saw the low successful rate of economic sanction, many scholars concluded economic sanction to be ineffective. The study conducted by Hufbauer, Schott and Elloitt is one of the first to challenge the negative perception and finds that 34 percent of cases in economic sanctions were successful in the twentieth century[11]. However, the findings has later been contested by other scholars. Scholar like Robert Pape re-conducted the study using the same dataset, yet he finds less than 5 percent of sanctions had succeeded and concludes their study inflated the success rate[12]. On the other hand, Drezner holds an opposite view than Paper where he asserts that success rate is potentially undervalued as a result of selection biases[13]. He argues that there were many cases where economic coercion ended at the threat phase rather than the impositions phase. These cases show greater chances of succeeding than when they are imposed due to change of pre-emptive behavior. Since Hufbauer et al. select those cases that are less likely to succeed when sanctions are imposed, Drezner argues that they downplays the role of hidden hand of economic coercion and hence the success rate is far higher. These researches share the common weakness in which they have solely depended on the behavioral change criterion to gauge the successfulness of economic sanction. This problem is exactly the same as the definition earlier. Without taking into account other effects of economic sanction, the effectiveness of sanction cannot be measured. This raises a question if really economic sanctions are proved to be so unsuccessful in practice, why policymakers still depended on it for its state governance? Not to mention that today there is still no consensus reached as to the degree of success of economic sanctions. This is because of a lack of a shared model for the study of successful sanctions. However, in general scholars agree on that a successful economic sanctions is to keep the target costs of deadlock and potential vulnerabilities large while having the cost of imposing small. For instance, Hufbauer et al. in its 3rd book edition advise that policymakers require to evaluate both the vul nerability of the target country to prospective sanctions and the viability of maintaining the sanctions regime[14]. Drezner in his book the sanctions paradox illustrates the importance to enlarge the gap in the costs of sanctions impositions, meaning to maximize the targets costs of noncompliance and minimize the senders costs of imposition[15]. Beside this, he also argues that the low expectation of future conflict between the sender and target will make sanctions more likely to succeed. His argument has proven to explain why allies are more likely to take larger concession than the case with adversaries. It is worthy to note that the tools of economic sanctions are increasingly effective today than a decade ago, with improving abilities to enlarge the costs of targets while limit the senders costs. Smart or targeted sanction is one of them, where it was first introduced in 1990s. Smart sanctions are different to comprehensive sanctions in that they impose sanctions by targeting an individual or limited sectors compared to targeting the whole country[16]. By doing so, smart sanctions are able to effectively increase the costs in that group while reduce the humanitarian effects on the target countrys population and disruptive economic impacts to other sectors. Asymmetric interdependence is another major tool that has been increasingly used by policymakers. Hirschman demonstrates that asymmetry interdependence serves as a source of power to the stronger and larger states as they have the coercive leverage over the weaker and smaller states, with the smaller states are depended on the economy of the larger state[17]. Building on the concepts of Hirschman, Robert Keohane argues that asymmetric interference can also apply to weaker states provided that they have the asymmetric advantage in certain groups of the stronger states[18]. This thinking has challenged the original idea of asymmetry and provide explanation of why would weaker states impose sanctions on stronger states. Undoubtedly, the recent evolution of sanction tools stemming from the classical ones has increased the proliferation of the use economic sanctions. 2. Chinese economic sanctions Few scholars have commented on Chinas economic sanctions, and little remains to be found in the literature on this topic. This is simply because, strictly speaking, China does not formally impose economic sanctions unilaterally on other countries. Instead, China pursues other economic maneuvers that essentially have the same effect. To remain politically correct and technically accurate though, scholars use the term economic coercion to describe Chinas behaviour. Despite sharing the same objectives, economic sanctions mainly used by rich western countries and economic coercion have its own defining characteristics. Specifically, Chinas use of economic coercion is informal and indirect[19]. The Chinese government would never declare the true reason for the economic restrictions. Instead, other unrelated reasons are cited, leaving the target country to connect the dots themselves. Some scholars are starting to believe that Chinas longstanding practice of shunning economic sanctions will soon come to an end. Beijing has become increasingly reliant on economic coercion to solicit policy change or as a means to send a message[20]. As the number and degree of tensions escalate, economic coercion may not be adequate. Chinas growing economic clout is another alarming development for some. With greater power, some scholars fear that China would be more inclined to use what is readily available at their disposal. On the opposite side of the argument, scholars believe that China would continue its limited use of economic policies as a tool. The argument goes like this: Economic coercion or sanctions are detrimental to Chinas core national interests[21]. In particular, Beijing places great emphasis on peaceful development and creating a good international image. Imposing sanctions or coercion on other countries can seriously undermine that objective. Moreover, the stringent rules of the WTO greatly restricts the range of options that is available to Beijing. Pursuing an aggressive economic coercion strategy puts undue risks of violating WTO rules and damaging the countrys economic health.   1. Hypotheses After the analysis of literature review of economic sanctions, the following hypotheses are made to address the research question why China imposes economic sanctions? What trigger the use of economic sanctions? What are the distinctive characteristics of Chineses economic coercion? H1: China exercises economic sanction on non-allied countries when they harm Chinas national interest provided that the gain derived from sanction outweigh the cost. This hypothesis is built on the foundation of Drezners Sanction Paradox theory, which argues that sanctioning states are more likely to sanction adversaries than allies despite a lower success rate. The adversaries would take a larger concessions if target incurs significant more costs than senders costs. Since China views economic sanction as a last resort of resolving conflict, China will only imposes coercion when its core interest is infringed. In this case, the independent variable is damage or no damage to Chinas national security, while the dependent variable is the use of sanction. H2: China uses economic sanction where there is a sectorial asymmetric economic advantage over the target country Asymmetric economic advantage allows China to have a higher chance of success in achieving its political goals in target countries with limited costs. This hypothesis also considers the importance of smart sanction for Chinas decision to impose sanction. In specific, asymmetric economic advantage in a certain sectors offers coercive leverage and source of power to contest against equally strong or stronger countries. China takes advantage of the sectorial asymmetric advantage not only can generate the most optimal benefit-cost outcome but also minimize negative impacts on the whole economy and humanitarian impacts on the population. Independent variable is economic sanctions with sectorial asymmetric economic advantage, and dependent variable is the use of economic coercion. H3: China uses implicit economic sanctions as its prioritized option and uses explicit economic sanction as a last resort Implicit economic sanction indicates sanctions in a non-declared and closed-door settings. The implicit feature of economic sanctions allows China to gain flexibility and minimize diplomatic fallout. It also allows China to reveal a relatively more consistent image of a responsible power that advocates peaceful development and peaceful resolution. China will only adopt explicit economic sanctions if implicit sanctions cannot work. The independent variable in this hypothesis is implicit economic sanction, and dependent variable is the use of economic sanction. 3. Case Studies In order to examine the validity of these three hypotheses that together contribute to reasons why China uses economic sanctions. This study explores four case studies where China imposed economic sanctions against four different countries, which are the 2010 Sino-Taiwan arms war, the 2010 Sino-Argentina crude soy oil, the 2010 Sino-Japan rare earth war, and the 2012 Sino-Philippine banana war. In order to reduce the selection and personal biases, this study compares four case studies and identifies the similarities and differences between these studies. On top of that, quantitative measures is also adopted. In detail, the monetary costs of both the sender and target countries, the time period of the target countrys response to Chinas sanctions, as well as the impact of the sanction on the countrys economy are measured. Given that these four cases are all trade sanctions, trade statistics are collected from United Nations Commodity Trade Statistics (UN Comrade). These statistical results will also be contrasted case-by-case and is subsequently review together with the qualitative results. Even though the quantitative measures are not used to measure the effectiveness of Chinese coercion levers, they provide insights on the rationale why China employs these levers. The result can also confirm Chinas implementation of implicit economic coercions, as some may argue that Chinas moves are not economic sanction where they are independent of those incidents. Timeline/schedule for the thesis January: Amend and Complete literature Review and methodology chapters Research and examine the current literature on the four case studies February: Analysis of the qualitative analysis of four case studies and make comparison between the four Conduct quantitative analysis of the case studies and make comparison March: Interpretation of the results from both qualitative and quantitative analysis and make conclusion April Final submission [1] Baldwin David, Economic Statecraft (New Jersey: Princeton UP, 1985), 40-42. [2] James Reilly, Chinas Unilateral Sanctions, The Washington Quarterly 35, no. 4 (2012): 121-133. [3] Willem V. Kemenade, China vs. the Western Campaign for Iran Sanction, The Washington Quarterly 33, no. 3 (2010): 99-114. [4] Huileng Tan, China tells Japan sanctions against North Korea wont resolve nuclear issue, CNBN, September 14, 2016, http://www.cnbc.com/2016/09/14/china-tells-japan-sanctions-against-north-korea-wont-resolve-nuclear-issue.html (accessed December 8, 2016) [5] Mu Ren, Chinas Non-intervention Policy in UNSC Sanctions in the 21st Century: The Cases of Libya, North Korea, and Zimbabwe, Ritsumeikan International Affairs 12, (2014):101-134 [6] Ibid. [7] Daniel W Drezner, The Hidden Hand of Economic Coercion, International Organization 57, no. 3 (2003): 643-659. [8] Baldwin David, Economic Statecraft (New Jersey: Princeton UP, 1985) [9] James M Lindsay, Trade Sanctions As Policy Instruments: A Re-Examination, International Studies Quarterly 30, no. 2 (1986): 153-173 [10] Francesco Giumelli, Coercing, Constraining and Signalling: Explaining UN and EU Sanctions After the Cold War (Colchester: ECPR Press, 2011), 3 [11] Gary C. Hufbauer and Jeffrey J. Schott and Kimberly A. Elliott, Economic Sanctions Reconsidered: Supplemental Case Histories, (Washington, D.C.: Institute for International Economics, 1990) [12] Robert A Pape, Why Economic Sanctions Still Do Not Work, International Security 23, no.1 (1998): 66. [13] Daniel W Drezner, The Hidden Hand of Economic Coercion, International Organization 57, no. 3 (2003): 643-659. [14] Gary C. Hufbauer and Jeffrey J. Schott and Kimberly A. Elliott, Economic Sanctions Reconsidered: Supplemental Case Histories, (Washington, D.C.: Institute for International Economics, 2009), 690 [15] Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations, (Cambridge: Cambridge University Press, 1999), 13 [16] Daniel W Drezner, Sanctions Sometimes Smart: Targeted Sanctions in Theory and Practice, International Studies Review 2011, no. 13 (2011): 96-108 [17] Albert Hirschman, National Power and the Structure of Foreign Trade,(Berkeley: University of California Press, 1980). [18] Robert Keohane, and Joseph Nye, Power and Interdependence, 238-240. [19] James Reilly, Chinas Unilateral Sanctions, The Washington Quarterly 35, no. 4 (2012): 121-133. [20] Bonnie Glaser, Chinas Coercive Economic Diplomacy: A New and Worrying Trend,CSIS, August 6, 2012, https://www.csis.org/analysis/chinas-coercive-economic-diplomacy-new-and-worrying-trend, (Accessed on 11 December 2016) [21] Jianwei, Liu. Is china an emerging sanctioning state? Cooperation for a Peaceful and Sustainable World Part 2, 2013, 225-240.