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Economic Case Studies

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China’s Grand Strategy

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Abstract

After a short explanation of case selection and introduction, this chapter discusses three within-cases associated with the grand strategy design input of economic policy. The analyzed cases are the rare earths export restrictions, China’s free trade agreement (FTA) strategy, and its establishment of the Asian Infrastructure Investment Bank (AIIB). Each within-case study contains an introduction, course of events, analysis of relationship with honor and legitimacy, alternative explanations, and a summary.

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Notes

  1. 1.

    There was also an earlier case of export restrictions on ‘eight raw materials used as inputs in the steel, aluminum and chemicals industries [which the WTO had already condemned]’ (Pruzin 2014). However, since this case was not as intertwined with China’s security strategy and diplomacy as the case of the REEs (plus Tungsten and Molybdenum) was, it was not considered here. For further in-depth analyses of the REE export restrictions, see, for instance, Ma (2012) and Morrison and Tang (2012).

  2. 2.

    In the past years, elections have been introduced for some local level, low-stakes political positions. This is, of course, nowhere near the level of the democracy which one could witness elsewhere, as the Chinese Communist Party (CCP) may still preselect candidates and the like. Still, this is a first step which can lead to more democracy in higher levels, up to the national level, in the future.

  3. 3.

    See, for example, Balaam and Dillman (2013), p. 172. They refer to this behavior as ‘currency manipulation’ rather than ‘artificial undervaluation.’

  4. 4.

    See, for example, Norrlof and Reich (2015).

  5. 5.

    REEs are ‘a set of 17 chemical elements in the periodic table that include 15 lanthanides (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium), as well as scandium and yttrium’ (Pruzin 2014). The export restrictions enacted by China included also Tungsten and Molybdenum, which are outside of the earth elements category but rather are metals.

  6. 6.

    An earlier version of this subchapter was published in parts in Danner (2016).

  7. 7.

    The 95 percent mentioned here is a lower estimate of what China is controlling in comparison to, for instance, Smith’s estimate, which is as follows: ‘China produces about 97 percent of the global supply of rare earths’ (Smith 2015b, p. 192).

  8. 8.

    Contrary to Shambaugh, Smith sees this process of export restrictions as having begun even prior to 2009: ‘Even before the 2010 incident, the Japanese government struggled to gain Chinese acquiescence in maintaining access to these rare earth minerals. Then in 2006 China began to impose quotas on its exports to ensure environmentally sound practices of extraction but also to ensure that its domestic manufacturers had priority access to them. Although Japanese government officials sought continued access to China’s rare earths, Japan’s quota has already been reduced, as have the quotas on exports to other nations, with China cutting its exports by half since 2005, from 65,580 tons to 31,130 tons in 2012’ (Smith 2015b, 201f.). Indeed, 2005 was the origin of this quota system. See also, for example, Yap (2015).

  9. 9.

    See, for example, Kyodo (2012).

  10. 10.

    This seems unrelated to economic policy apart from the fact that large quantities of fossil natural resources like oil and/or gas are said to be under the seabed in this area of the East China Sea —most prominently the Chunxiao gas field which is located northeast of the Senkaku/Diaoyu islands and northwest of Okinawa. With China contesting the territorial ownership of Japan, especially what concerns the Senkaku/Diaoyu Islands , this may be said not only to be a political or security-related concern but also related to China’s economy and economic policy. In terms of the latter, this would be mainly pertaining to China’s energy security strategy, that is, to augment the market and attain as many natural resources as possible to be in a position to fuel growth of its market for decades to come. Besides this potential existence of fossil resources, the fishing grounds near these islands are known to be very rich as well, and therefore can be considered valid to China’s economy, too.

  11. 11.

    See BBC News (2010a).

  12. 12.

    While this seems to be a standard phrase from the Foreign Ministry, to suggest that patriotism—an emotion—should be expressed rationally seems very far from reality, though. These two, emotion or passion and ratio or reason, have been seen as opposites by many theorists, such as Karl von Clausewitz in his unfinished work On War, writing on his famous trinity of war, that is, passion, reason, and chance. See Clausewitz (2012 [1832]).

  13. 13.

    An immediate reaction by the Japanese was to seek diversification of the countries from which it obtained REE, since it realized its overdependence on China in the embargo. As a consequence, Japan started ‘negotiating agreements with Vietnam , Mongolia and Australia to develop new mines’ (BBC News 2010b).

  14. 14.

    It is important to separate the deliberate and secret order to delay exports of REEs to Japan in customs and the cut in export quotas from the fact that, in 2009, China had already begun to exert governmental influence on the quantity of REEs exploited and on the domestic market, so as to have prices rise—similarly to what OPEC orchestrated in the 1970s. From this intervention in the price mechanism, the customs delays, temporary bans, and reductions of export quotas have to be viewed separately.

  15. 15.

    Interestingly, as mentioned above, this case which began in March 2012 was not the first WTO dispute settlement case against China’s export practices: ‘This request for consultations was the first step in the dispute settlement process at the WTO. The request (Dispute Settlement 431, DS431) by the European Union, the United States , and Japan for consultations with China at the WTO on rare earth export restraints was made on March 13, 2012, and came on the heels of a prior dispute settlement panel finding against China on ‘measures related to the exportation of various raw materials’ (DS394). Although Japan did not participate in this dispute settlement case, the WTO panel found that ‘China’s export duties were inconsistent with the commitments China had agreed to in its Protocol of Accession. The Panel also found that export quotas imposed by China on some of the raw materials were inconsistent with WTO rules’ (‘DS394 Summary of Key Findings,’ released on July 5, 2011). See World Trade Organization (2015a) and World Trade Organization (2015b). China appealed this decision the following month, but in January 2012 it lost its appeal on export restrictions on raw materials. Thus, the case on rare earths followed immediately on the heels of the WTO finding against China’ (Smith 2015b, 322n36).

  16. 16.

    See, for example, Pruzin (2014).

  17. 17.

    See Kyodo (2012).

  18. 18.

    See Chap. 6, case one; different from the situation in September 2010, ‘[i]n the wake of Japan’s effective nationalization of the Senkakus in September [2012], [the Chinese government did not follow] (…) growing calls in China that Beijing should restrict rare earth exports to Japan. [It] ha[d] continued to export rare earths to Japan’ despite the ongoing dispute in the East China Sea (Kyodo 2012).

  19. 19.

    Or, at least, in the view of three of the four judges on the panel deciding over China’s REE export restrictions

  20. 20.

    See Stringer (2015).

  21. 21.

    In the longer term, Chinese territorial expansion could also involve territory in the Russian Far East bordering Heilongjiang (formerly Manchuria) and Mongolia (Outer Mongolia).

  22. 22.

    Equally interesting is the beginning of the Sino-Japanese ‘Ice Age’ from 2012 to 2014. The incident occurred correspondingly just a few days before the scheduled celebration of the 40th anniversary of Sino-Japanese official foreign relations.

  23. 23.

    Though it is not discussed at length here, the RCEP was perceived by the United States as a counterinitiative to the American-led TTP, presenting another instance where the antiquated notion of ‘spheres of influence’ and hegemonic actions on both sides of the aisle—China and the United States—come to mind.

  24. 24.

    Signatory countries to the MoU were Bangladesh , Brunei , Cambodia , China, India , Kazakhstan , Kuwait , Laos , Malaysia , Mongolia , Myanmar , Nepal , Oman , Pakistan , the Philippines , Qatar , Singapore , Sri Lanka , Thailand , Uzbekistan , and Vietnam . See Xinhua (2015).

  25. 25.

    See IMF (2015). This decision is another example of symbolism in international affairs, as the Chinese government has actually not fulfilled all conditions for the Renminbi to be warranted inclusion as basket currency for SDR.

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Authors and Affiliations

  1. Florida International University, Miami, FL, USA

    Lukas K. Danner

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  1. Lukas K. Danner
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Danner, L.K. (2018). Economic Case Studies. In: China’s Grand Strategy . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-65777-6_5

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