go to top
A Chinese honor guard member walks past a poster of Chinese President Xi Jinping. A Chinese honor guard member walks past a poster of Chinese President Xi Jinping near the entrance to the Forbidden City in Beijing, Sept. 18, 2021 (AP photo by Mark Schiefelbein).

China Doubles Down on Its ‘Carrot and Stick’ Economic Diplomacy

Wednesday, Dec. 15, 2021

China’s “coercive economic policies” took center stage at last weekend’s G-7 foreign ministers’ meeting, after an eventful week that saw Nicaragua break off diplomatic relations with Taiwan in favor of Beijing and China upping the ante in its retaliation against Lithuania, after the Baltic country permitted a Taiwanese Representative Office to open in Vilnius last month.

Nicaragua announced Friday that it would sever long-standing ties with Taiwan, further reducing the number of countries that still recognize the self-governing democracy as a sovereign nation to 14. (Honduras’ incoming president, Xiomara Castro, had made a similar pledge during her campaign, though she has since backtracked on the issue.) Hailing the switch as “a righteous choice,” Beijing donated a million doses of COVID-19 vaccines to the Central American country, which arrived within days. China is also expected to expand trade opportunities and increase direct investment to boost the Nicaragua economy, which remains crippled by international sanctions amid democratic backsliding under President Daniel Ortega’s rule. 

Evan Ellis, a professor at the U.S. Army War College, attributed Nicaragua’s switch from Taiwan to China to the effectiveness of Beijing’s vaccine diplomacy, its growing economic importance to the Latin America region and the financial needs of Central American governments, which have been hit hard by the economic effects of the coronavirus pandemic. “China, in pursuing its strategic economic interests, is sustaining authoritarian populists in power, leading to a region which is ever less democratic," Ellis said in an interview with Reuters.

But the carrot Beijing offers to would-be international partners is only one aspect of its foreign policy. And Western countries are increasingly concerned with the stick, particularly how China weaponizes trade and other commercial tools to achieve its geopolitical goals. “We have been clear at this meeting this weekend that we are concerned about the coercive economic policies of China,” British Foreign Secretary Liz Truss told the press in Liverpool, after the gathering of G-7 foreign ministers there. “And what we want to do is build the investment reach, the economic trade reach, of like-minded, freedom-loving democracies.”

The remarks, which Chinese state tabloid Global Times described as “an ideological attack,” came as China continues to impose punitive measures on Lithuania over the opening of a representative office by Taiwan in Vilnius. Besides downgrading its diplomatic relations with the Baltic state last month, Beijing took other retaliatory steps, including blocking its exports and removing the country from its customs databases. Beijing also took things up a notch by pressuring international companies to cut commercial ties with Lithuania or risk losing access to the Chinese market.

Subscribe to receive China Note by email every Wednesday. If you’re already a subscriber,  adjust your newsletter settings to receive it directly to your email inbox.

Beijing has been “sending messages to multinationals that if they use parts and supplies from Lithuania, they will no longer be allowed to sell to the Chinese market or get supplies there,” Mantas Adomenas, Lithuania’s vice-minister for foreign affairs, told Reuters, while noting that some companies have obliged.

Jeffrey Wilson, research director of the Perth USAsia Center, told me that while state-backed boycotts in China against foreign brands or products are nothing new, the extraterritorial reach of this boycott is different—and worrying. “This is a far more drastic step than simply preventing Lithuanian goods to enter into China, as it seeks to remove the country entirely from global value chains,” he stressed.

There has been, and continues to be, growing pushback against Beijing’s tactics, including from governments in Canada and Australia, which continue to stand their ground amid rifts with China, despite the economic consequences. The recent escalation with Lithuania, however, indicates that Beijing is doubling down on its recourse to trade coercion, said Wilson. And though wealthier nations may possess some resilience and leverage to bargain with the world’s second-largest economy, “small countries have little chance to retaliate, as their size asymmetry means it is impossible to win a trade war against a larger aggressor,” he said.

Wilson added that, with the World Trade Organization’s dispute settlement system in disarray, there is a need for other international mechanisms that enable countries to take collective action and support one another in the face of threats and coercion from other states. The European Union, for instance, unveiled its proposal for an Anti-Coercion Instrument last Wednesday. The first of its kind, the measure is aimed at protecting EU member states from “economic intimidation,” which the European Commission’s Executive Vice President Valdis Dombrovskis defined as when “one country pressures another country into changing their policies by restricting, or threatening to restrict, trade or investment.” 

The draft legislation details a wide range of countermoves the bloc can take against coercive measures against its member countries, including restrictions on foreign direct investment and tariffs. But it also emphasizes that the tool should be used as a “last resort,” when “other means such as negotiations, mediation or adjudication” fail to end the coercion, suggesting a reluctance to readily deploy the instrument. Whether the tool will be adopted by the European Council remains to be seen, but the lack of consensus on a diplomatic boycott of the upcoming Winter Olympics in Beijing shows that concerted action among Western allies to counter China remains elusive.

In Other News 

Hong Kong gears up for legislative elections scheduled to be held this Sunday, the first after Beijing imposed sweeping electoral changes to ensure only “patriots” could run for public office. Authorities have also detained opposition politicians who participated in an informal primary poll last July by citing the 2020 national security law. Activists in exile are calling on the public to boycott the vote, which polling data suggests could see record low levels of turnout. “Anyone who participates in this election is a betrayal to the political leaders and activists behind bars,” Sunny Cheung, a prominent activist now seeking asylum in the U.S., told me.

Worth a Read

An investigation by the Washington Post revealed the extent of Huawei’s role in the Chinese state surveillance network, contradicting the telecommunications company’s persistent denials of involvement in such operations. The Post’s China correspondent, Eva Dou, reviewed more than 100 PowerPoint presentation slides carrying the company’s watermark, which all outline its surveillance projects, including a tool co-developed with a Chinese artificial intelligence company that can analyze voice recording for national security purposes, as well as track locations of “political persons of interests” for the public security department of Guangdong province.


The New York Times looked at the foreign influencers used by Beijing as part of its propaganda efforts. Though these internet personalities and YouTubers claim to be creatively independent, many go on state-sponsored trips and, in some instances, are directly employed by Chinese state media outlets without disclosing their commercial relationships or affiliations on social media platforms. “China is the new super-abuser that has arrived in global social media,” Eric Liu, a former content moderator for Chinese social media, told the Times. “The goal is not to win, but to cause chaos and suspicion until there is no real truth.”

Rachel Cheung is a freelance reporter based in Hong Kong. Her work has appeared in the Los Angeles Times, The Washington Post and Nikkei Asian Review, among other news outlets, and she was previously a reporter at the culture desk of South China Morning Post.

To read more,

enter your email address then choose one of the three options below.

Subscribe to World Politics Review and you'll receive instant access to 10,000+ articles in the World Politics Review Library, along with new comprehensive analysis every weekday . . . written by leading topic experts.