How China Loses A Discussion with Luke Patey - Transcript

00:00:02

Intro jingle

This is the Nordic Asia podcast.

00:00:10

Andreas Bøje Forsby

Welcome to the Nordic Asia Podcast, a collaboration that shares

expertise on Asia across the Nordic region. I'm Andreas Bøje Forsby,

Researcher at the Nordic Institute of Asian Studies, NIAS, where I

primarily focus on Chinese foreign and security policy. I'm delighted to

be joined today by Luke Patey, who is a Senior Researcher at the

Danish Institute for International Studies, whose main field of expertise

is also Chinese foreign and security policy, focusing specifically on

patterns of Chinese trade and investment. He's also Senior Research

Fellow at the Oxford Institute for Energy Studies, University of Oxford,

where he heads the institute's African Research. Today, we have

invited Luke to talk about his new book titled How China Loses: the

Pushback Against Chinese Global Ambitions, which is published by

Oxford University Press. Some of the key arguments that he makes in

the book have also recently been published in Foreign Policy

magazine. If listeners would like a short introduction to each views on

the rise of China. So, thank you very much for participating in the

podcast Luke.

,

00:01:13

Luke Patey

It's great to be here Andreas, thanks for having me.

,

00:01:16

Andreas Bøje Forsby

So when I came across the title of your book, the first thing that came

to mind was Kishore Mahbubani's book, also from last year Has China

Won? in which he lays out a fairly optimistic perspective on China's

growing power and influence in the world compared to your book. I

realize that a book title tends to overstate the underlying arguments of

the book for the sake of aid and visibility, and that the editors also

have a say in the matter. But despite all that, I think it's fair to say that

your book presents a far more critical perspective on the rise of China.

And in the book, you meticulously go through most of the regions in

the world, Asia, Africa, Europe, Latin America, to document the

emergence of all this pushback against China's global ambitions.

Meanwhile, China has weathered the Corona crisis better than most

countries. It is the largest trading partner of all of than one hundred

twenty countries around the world and it's still the main growth engine

of the global economy. If we leave aside the US for a minute, could

you perhaps stop by pointing to some of the strongest indications of

this pushback reactions and tell us why the Chinese leadership in

Beijing should worry about this trend?

00:02:31

Andreas Bøje Forsby

Let me start by underlining what the book does not argue. It doesn't

argue that China should not or will not play a role in shaping the global

economy and global affairs. Neither do I suggest that China is fading

away or will become insignificant to the future. Quite the opposite. I

think China is a considerable power. It's already an economic

superpower, as you point out, with so many countries having China as

its largest partner in trade. It's become a major investor globally as

well. It has vaulting military strength, particularly in East Asia, and it

even has impressive tech capabilities for a middle-income country.

And many countries around the world, particularly in the developing

world, have cheered on China's rise and supported it for decades on

end. But at the same time, in the book, I do recognize that China's

foreign policy has changed over the past decade, that China's

leadership under President Xi Jinping in particular, has deliberately

chosen how to project its power in the world in a way that I think

undermines its ultimate influence. So we know that the United States

under President Trump, has agitated its relations with China, but in the

book I unpack some of the ways Beijing is doing the same with its

relations in the world, that despite this strong economic muscle,

despite being the world's largest trader, its main engine of growth,

China still punches below its weight in influencing other countries.

Some indicators of that are with the world's middle powers some

countries like Japan, India and those in Europe. When we look at

China's relations with those powers, we see upset political ties. Some

new economic barriers going up and even in some cases, rising

security tensions. So I think the other major powers in the world

beyond the United States are recognising that engage in China in

some areas of trade, investment, finance and technology, it does offer

benefits, but it can also threaten a country's long term competitiveness

and even their foreign and defense autonomy. So that's where I see

this pushback. How it's developed in the last decade, and I think we

need to recognise that China has been upsetting a lot of its relations

with the other major powers in the world.

00:05:28

Andreas Bøje Forsby

OK, but I was wondering if you could maybe point to some of the

strongest indications of this pushback reaction that we've seen, let's

just say, in the past couple of years, apart from the US, where do you

tend to zoom in and say this is a real strong indicator of what you

ascribe as this global pushback reaction against China's assertiveness

and growing influence and power in the world?

00:05:56

Luke Patey

We can start here in the EU, I think over the past five, seven years,

we've seen a dramatic change in the nuance in which the EU views its

relationship with China. And we've seen growing policies from the

European Union, but also from member states that have really put

economic relations on the defensive. By that, I mean, we've seen the

2019 investment screening mechanism be passed by the EU. But more

importantly, we've even seen member states, including Germany, Italy

and others block Chinese acquisitions of advanced manufacturing

companies and tech companies. These are moves that the EU and

countries within the EU weren't doing 10, 15 years ago. So there's

been a recognition of the competitiveness and the unfair playing field

that China is presenting to European companies and industries. So

that's an example where China's policies at home and its state support

to its companies at home and abroad has undermined one avenue for

it to elevate its economic technology capabilities through overseas

acquisitions. China's ability to acquire manufacturing and tech

companies overseas in the US, in Japan and now in the EU is really

quite constrained compared to what it was 10, 15 years ago. So that's

one example.

,

00:07:36

Andreas Bøje Forsby

And it's fair to say that the opinion poll from the Pew Research Center

confirms that negative views of China are indeed on the rise in most

parts of the world. So this development trend, of course, comes with

major variations. And you just pointed to some examples. So this

pushback comes from what we might call the usual suspects, such as

Japan, Vietnam and India who were long ahead of the differences with

Beijing. Nor should Beijing be utterly surprised to see U.S. allies

partners such as the U.K., Australia and Canada also take a prominent

part in this pushback reaction. And you also just mentioned some

other examples in the EU, but what about countries in China's

immediate backyard that have traditionally been more deferential to

Beijing, countries such as Cambodia, Laos, Malaysia, Myanmar,

Mongolia and the five Central Asian states? I mean, are there any

critical cases of countries where this pushback reaction is somewhat

more counter-intuitively also on the rise, some of the countries that

China would really expect to be part of its closest allies and friends

around the world?

00:08:42

Luke Patey

That's a great question. I think we have a broad recognition that

negative perspectives towards China have grown across North

America and Europe of late. But I think what's less discussed is the

downturn in attitudes towards China among its neighbouring countries

in the Asia Pacific. And to be honest, if we go back two decades and

look at Pew Research surveys, we see that back at the turn of the

century, there were majority positive views of China, in Japan, in

Australia, in South Korea, and that these over the last two decades,

attitudes in those countries have fallen positive attitudes, have fallen

by the double digits so that there's no longer a majority positive

attitude towards China. And it's not only those advanced economies,

it's also countries like Indonesia and the Philippines, where we've seen

a drastic drop in positive attitudes towards China. And these are

China's neighbours. Countries that know it best, as you mentioned,

countries that have long welcomed its growing prosperity. Countries

that have high dependencies in trade on Chinese markets, but they've

seen at least public attitudes become more suspicious of Chinese

investments and particularly cautious about China's expanding military

role in Asia. Now, this isn't to say that everyone looks negatively upon

China. Across the global south and, you point out, several countries in

its near vicinity, there are positive attitudes towards China. China

offers new trade, new investment opportunities for these developing

countries. But at the same time, I think it's a fallacy that, often in the

press, here in Europe and in North America, we hear about the US

versus China or the West versus China, where the reality is that many

of China's large neighbours who were once quite positive towards its

development, have more concerns with its economic and military

direction.

00:11:06

Andreas Bøje Forsby

Yeah, I totally agree with that, but if we shift gears a bit, I would also

like to hear your thoughts on the underlying drivers of this global trend

that you document in your book. So what is driving this pushback

against the rise of China from your perspective? Coming back to the

US, is this reaction primarily orchestrated by Washington as part of a

hegemonic struggle for supremacy itself, rooted in structural security

dynamics of the international system, as well as ideological differences

perhaps between Washington and Beijing? Or should we rather see

this pushback as sort of a decentralised, bottom up response from

various countries around the world, fueled by local concerns about

China's more assertive foreign policy approach over the past decade

or so?

00:11:53

Luke Patey

I think every country has its own reasons, so those countries that have

become more critical of China have different drivers for this change of

attitude and change of policy towards China. So for the United States,

of course, it sees a rival to its global power. In Europe, I think it's more

a case of the competitiveness and the lack of market reciprocity

between Europe and China, that upsets European policymakers the

most. In Asia, there are the security concerns, the territorial disputes

with India, Japan and others, particularly in the South China Sea. So

there's a variety of reasons, pushback comes for different reasons,

and therefore I think it's more of a decentralised bottom up response

rather than a US arranged and orchestrated pushback. And I think it's

a mistake to believe that the US is so capable that it can convince

other major powers and developing countries to become part of some

united pushback against China just because the Americans want it, I

think that's a disservice to the reality of the relationship between these

countries and China that has nothing to do often with the United

States. I think we're bombarded with media stories and opinion pieces

about U.S. versus China competition, U.S. versus China, whether that

will lead to a new Cold War and this deserves attention and analysis.

But China is developing its relations with the rest of the world as well,

and I don't think we should lose sight of the importance of those

relationships. And we need to sort of dig down and unpack local

connections and discourse between China and other countries. The

U.S. did not create territorial disputes between China and its

neighbours in the South China Sea or between China and India. The

U.S. is not responsible for Europe's concerns with China's economic

behaviour. So U.S. pressure on other countries can make a difference,

I think, we've seen countries in Eastern Europe, for example, change

their policies towards engaging in China's telecom company Huawei

because of U.S. pressure and concerns that not siding with the U.S.

might upset how these countries can defend themselves against

possible Russian aggression. So U.S. pressure is important, but it's far

from the whole story. There's a lot more going on. And I think one of

the main drivers for myself in writing the book was to tell many of

those stories for those relationships that China has on its own of these

other countries and how they're becoming more complicated.

00:14:59

Andreas Bøje Forsby

All right, so some people have over the past decade referred to China

as an economic bully, usually citing Beijing's economic coercion

against countries that have crossed some of China's red lines, such as

the Philippines, South Korea, Canada and most recently, Australia. In

the case of Australia, it was Canberra's call for an independent

international investigation into the covid-19 pandemic. In the case of

Canada, it was the arrest and detention of Huawei executive Meng

Wanzhou. South Korea crossed China's red lines by installing THAAD

U.S. missile defense system. And with respect to the Philippines, I

think it was the territorial disputes in the South China Sea that caused

some reactions from Beijing. You also discussed some of these

examples in your book, and you make the very interesting point that

we shouldn't worry too much about China's economic coercion. Why

is that? And why did for instance South Korea eventually reach a

common understanding with Beijing on the THAAD issue in 2017 if

such pressure doesn't work? What one might even ask, why would

Beijing risk alienating other countries if such measures are largely

ineffective or even counterproductive?

00:16:10

Luke Patey

I think I'll try to get straight some of the findings of my research on

China's economic coercion first. The findings show that it's not that

China's coercion doesn't necessarily work, but that targeted countries

and I think the Western media at large often exaggerates the levels of

economic pressure that China actually places on those countries that

you listed that have crossed China's foreign and security policy red

lines. So it doesn't mean that a targeted country still might not feel the

pressure and capitulate. It's just that it's actually a very narrow, small

percentage of trade and investment that is targeted and blocked by

China. And that, I think, is central to understand, because the price of

an independent foreign and security policy is not as high as we might

perceive, or reversely, the countries that do capitulate demonstrate

that the issues that China's upset with don't hold so much value for

these countries. With the South Korea case, very briefly, I think at that

point, it was the Moon government coming in, that had a policy that

was more standoffish from working closely with the U.S. on defence

and security matters. And it was simply because the new government

was coming in with it, which already had that policy, is why you saw a

limit on the THAAD defense systems coming in. But our defense

system already came in under the previous government. The new

government had a different policy and it might appear that they

capitulated, but this was their policy a nyways. That's my reading, we

can unpack that. You can unpack that. But I wanted to also give an

example of what I mean by the fact that China doesn't put a lot of

economic pressure on countries and I'll use Australia because I think

it's the most recent one. And we've heard a lot of media stories about

the bans and high tariffs that China has placed on Australian exports,

including barley, coal, lobster and other goods. And when this first

occurred, Australian and international media reports pointed to some

20 to 25 billion dollars of goods exports to China that were under

threat. A year or so later, you see that only around five billion has

actually been lost from this dispute. So China, for example, never

blocked Australian iron ore because it desperately needs it for its own

construction industry, for its own economic stimulus. And this points to

the fact that China has interests, too, that it doesn't want to upset its

growth, it doesn't want to upset its industries, and it often targets

countries with partial sanctions, not like the Americans have done to

many countries over the past many decades. Many of the goods that

were targeted in Australia also found new markets so China can find

alternative suppliers of some products. But those that are blocked can

also find alternative buyers. And Australia found alternative markets in

India for its coal, for its barley and other products. Japan, Middle East,

Southeast Asian countries bought up a lot of those goods because

these are fungible commodities. If China is not buying them, there's

still demand out there globally and someone else will. So at the end of

the day, the pressure on Australia is not as strong as we often see it

portrayed as in the media. And whether or not you agree with

Australia's current approach to China, it demonstrates that China also

is sensitive to its own economic growth, its own economic trade. And

this carries on, I think, throughout the last decade, among the cases

that where we have seen China targeting countries. Final point I'll

make is that I do notice an escalation in China's trade measures from

Norway and South Korea; there is really a narrow amount of goods

that were targeted. And if you compare that with Canada and Australia,

you see an expansion, nothing overly significant, but an expansion

nonetheless. And this points to one future caution, and that is China

has a self-sufficiency drive at the moment, policy drive, it wants to

become more independent, particularly in high tech industries, but also

more independent from external products that it requires for its

economic growth. And if it's successful in doing that, I think we might

see Beijing become more willing to apply economic pressure. So I

don't think we should necessarily ignore China's economic coercion

because it might escalate in the future. And it's imperative that I think

targeted countries and those that aren't targeted have a plan because

e ven when the targeted countries don't face a tremendous amount of

damage, there are still industries and livelihoods that are upset, like the

Australian lobster industry, for example, and these industries, they

need new financing, maybe new political risk insurance to help them

get over these periods. And at the same time, in the long term, there

needs to be more work done in diversifying these markets that are

highly dependent on China, such as Australian lobster, for example,

that there are other markets that can buy these products and that

governments like the Australian, like the Canadian, the Korean

government work more with their companies and industries to ensure

that their products aren't more diversified, so that future Chinese

pressure won't be as significant as it might be.

00:22:35

Andreas Bøje Forsby

I agree, and I think there is some really important policy advice

emerging from what you're just saying there. So a related topic I would

like to bring up is the so-called dependency myth in relation to China.

And I think you already touched upon it with your Australia example.

So maybe we could focus instead on the European case, where you

have also previously talked about the dependency myth. So what do

you mean by it? And if I could ask, this wave... who's pushing this

myth and maybe also a question more to have in the back of your

head. Do you think the now stalled investment treaty between Brussels

and Beijing would have made any difference in that regard if that is

even a major concern and what is going on here from your

perspective?

00:23:24

Luke Patey

So what I mean by that dependency myth is, again, I feel that because

of China's rapid growth to become the second largest economy in the

world, the first, by some measures, we have an inflated idea of how

important China is to European trade and investment interests. The

numbers show something completely different. Of course, China has

risen to become a large trading partner for the EU at large for certain

European countries, but just because China's market has grown so

fast doesn't mean that all European economies have the same access

and have the same dependency on China. So Europe trades around

1.7 billion euros with China every day. That sounds like a tremendous

sum, and it is to your eye or most businesses out there as well, but the

EU trades over 30 billion dollars each day in total with itself, with

countries within the European Union and with its external partners. So

China represents around six percent of the EU's total trade. Close to

two thirds of EU trade is actually done between member states. When

I raise these numbers, I often hear, well, Germany trades a lot with

China and Germany is the largest economy here in the EU. What about

it? Isn't it pulling the EU towards this dependency myth? Of course,

China is Germany's largest trading partner. It represents around eight

percent of Germany's goods trade, but the US represents seven

percent of Germany's goods trade and the Netherlands the same

amount and France six percent. And Poland and Italy are not far

behind. So even Germany has quite a diverse group of trading

partners, not a China dependency. Even when you look at growth, so

new euros, between 2015 and 2019, Germany generated 15 percent of

its trade growth from China. If you take that number by itself, it sounds

extremely impressive, but if you look at the broader picture, which is

what we need to do when we think about our relationship with China,

you can see that Italy and Poland combined had the same type of

trade growth for Germany as China did. So sounds a little bit less

impressive now that China is an important part, but only one part of

Germany and the EU's bigger trading picture. Another common retorts

I receive to the dependency myth is that, well, China is the largest

manufacturer in the world and there are just raw supply chain

dependencies on parts for cars and other products that we just need

to get from China, but even these critical dependencies are only in

selected industries: electronics, consumer goods, pharmaceuticals.

And the EU is actually advancing plans to lower some of these

dependencies. And even if you account for these really critical

dependencies in certain industries, you have to remember that China

benefits from this trade too. It exports more to the EU than the EU

exports to China. And it's not interested in disrupting this. China has

never blocked its own exports from going to Australia or Canada or

some of the countries that it's targeted with restrictions. So it's still

interested in this trade. It's not that we in Europe are solely dependent

on China. China also wants trade to continue. So who might be

advancing the idea that China is more important to our economic

welfare in Europe than we think it is? I think there is corporate interest,

because there are large German companies like Volkswagen in

particular, but also some outside of Germany like Airbus that have high

sales dependencies in China. So a large amount of their sales, 10, 20

percent, some even more, are made in China. So they're going to

lobby hard to ensure that they're not targeted by the Chinese in any

dispute with Europe. And that's, I think, where you get this myth,

because these companies, they have the ears of European leaders.

And that's where I think we have this misconception of China's

importance to European welfare at large. And I think the investment

deal to finish up, if it is passed by the European Parliament, if it's

implemented by both sides, if it's enforced in the end, it does open

new market access opportunities for European companies, but under

specific sectors, under specific conditions, where often investment

levels are pointed to that they need to cross a certain threshold for that

openness to take place. But so I think it would increase investments

from Europe to China, but it doesn't necessarily guarantee that those

investments help European prosperity and welfare, that we need to

have a better idea of how our trade and investment with China actually

helps European welfare at home. And I think that's something we need

as researchers and journalists to unpack more, because this is a

critical question. If Volkswagen builds a new factory outside of

Shanghai, how does that help anyone in Europe beyond Volkswagen's

shareholders? And I think as politics in Germany might be undergoing

a change in the coming year or two and the Green Party might take a

larger role in the German government, we might see some of these

questions receiving more detailed answers than we have in the past

decade or so.

00:29:47

Andreas Bøje Forsby

Yes, I agree, and I think also maybe it was a wake-up call recently to

many European leaders when the Beijing upped the ante, so to speak,

by responding to Brussels' Xinjiang-related sanctions, but what has

been widely regarded as a disproportionate set of counter-sanctions.

But I want finally, since both of us are located in Copenhagen,

Denmark, to turn our attention to the Danish-Chinese relationship. One

doesn't have to study hard to also find some signs of pushback

against China and Denmark over the past couple of years within regard

to 5G and Huawei, Chinese investments in Greenland or official Danish

reactions to the political unrest in Hong Kong. So, interestingly,

Denmark and China have been unable to update their comprehensive

strategic partnership program, which happened to expire by the end of

2020. So while some Ministry of Foreign Affairs officials suggest that

the delay has been caused by the Corona pandemic, the recently

strained bilateral relationship also seemed to play a role in this. So

does it make sense for Denmark, in your view, to maintain a

comprehensive strategic partnership with China? And how should we

calibrate that relationship if it were up to you?

00:31:02

Luke Patey

Well, if I was making the decisions, I would say, yes, continue the

strategic partnership program, but be more receptive to the challenges

that now exist in the relationship between Denmark and China. This

isn't the same relationship that existed back in 2008 or so when the

agreement was first penned. And we need to be honest about that and

see it clearly for what it is, rather than trying to just push it in the corner

and ignore it. Because Denmark and China, I think this agreement will

eventually go through. I think there are very strong forces behind it that

want to see it address climate change and green crop cooperation in

particular. I don't see the use in breaking ties with China, but at the

same time, Denmark should remember that on top of cooperation on

addressing climate change, we also need to be aware of the

competition that exists from the Chinese side in renewable industries.

There is green competition for Denmark coming out of China. China

has this immense industrial base that has previously laid waste to

European competitors in the solar power industry because Chinese

companies could exploit their preferential access to the Chinese

market. They could exploit state support to drive prices down both in

China and abroad and really undercut German and other European

solar power companies and really push them out of the market. We

don't want this to occur with Danish companies in the windmill and

other green industries. And I think the Danish government needs to be

aware that we need to cooperate with China. Yes, but we also are

faced with competition from China and that we need to ensure that not

only the large Danish companies like Vestas have a strong position to

work from, but also the smaller manufacturers in the value chain of the

windmill industry of green tech, that they are also given a level playing

field to compete against with their Chinese competition and

competition outside of China coming from the US and other markets

as well. So I think continue with the strategic partnership program. It

might help to structure and advance relations. It may not. It might just

be window-dressing. After all, Australia has a comprehensive strategic

partnership program with China as well. So it's not something that

necessarily dictates the direction of the relationship. But it is

something that at least keeps the lines of communication open and we

shouldn't cut those off.

00:34:12

Andreas Bøje Forsby

OK, so you are recommending strategic partnership, not

comprehensive, but rather smarter in the future, and I think I agree with

you on that. All right. I think we'll end today's podcast here. You've

been listening to the Nordic Asia Podcast with me, Andreas Bøje

Forsby, and senior researcher at the Danish Institute for International

Studies, Luke Patey. Luke, thank you so much for taking the time to

talk to me. And to those of you who haven't yet taken a look at this

new book, I can recommend it.

00:34:42

Luke Patey

Thanks very much, Andreas.

00:34:45

Andreas Bøje Forsby

Cool, thanks a lot. You have been listening to the Nordic Asia podcast.