Eshanthi Ranasinghe
Senior Manager

China Ascendant: "Soft power" in an Open Global Order

March 4, 2019

China is rapidly gaining global influence through the application of soft power — the ability to shape the world without the use of military force or coercion. Examples of significant wins include its move within the IMF to make the renminbi a reserve currency alongside the dollar, and the creation of its own multinational development bank, which has secured the participation of countries from a variety of geopolitical blocs. 

The Chinese government has become the largest contributor to international peacekeeping efforts among the five permanent members of the U.N. Security Council. And its ambitious Belt and Road Initiative (BRI) is a long-range plan for a vast network of transportation, energy, and telecommunications infrastructure, linking roughly 70 countries throughout Eurasia, Africa, and even Latin America, with an announced investment as high as $8 trillion.

While the Chinese government continues to make inroads in diplomatic, financial, and academic areas, China’s ‘soft power’ strategy has three important components: 1) Digital power — or tech-driven strength; 2) ‘Fore-power’ — the power achieved from top-down, long-range planning and foresight, and the top-down political system that allows them to act on it; and 3) Sharp power — the ability of authoritarian regimes to manipulate opinion abroad. But its strategy comes with substantial risk — for which, given its growing global role, the world may collectively pay.

Digital Power

China has an abundance of computing power and capital. China’s nearly 1.4 billion people generate more data than almost all other nations combined. And it has more internet users than any other country — more than 800 million, 98 percent of them mobile. The three Chinese tech powerhouses, Baidu, Tencent, and Alibaba, have enormous global influence and spending power — in many cases, besting their US counterparts with the achievement of major AI milestones in areas like speech recognition and deep learning.

AI is projected to give the Chinese economy a 26 percent boost over the next 13 years. And, a large chunk of forecasted Chinese GDP gains ($6.6 trillion) are expected to come from increased labor productivity, with businesses automating processes or using AI. While this is both a blessing and a curse — by virtue of having the world’s largest labor force, China risks the world’s highest AI-driven labor displacement — the advantages of this technology outweigh the drawbacks, and are a smart long-term play given its aging population.

Outside of AI, the Chinese government has also made manufacturing and robotics a priority with its “Made in China 2025” initiative, has more than 500 smart cities testing smart sensors to autonomous vehicles, is on the cutting edge of facial recognition projects, and isn’t shy to test innovations like state-owned social credit system (or things like bitcoin, though they may act just as quickly to close it). Chinese technologists are also building apps in local Indian dialects, well ahead of US tech companies.

China is leading on frontier technology as well. In 2016, China launched the world’s first quantum satellite, in an effort to establish worldwide secure quantum communications and maybe even a quantum internet. China is making inroads in emerging markets by taking on many Digital ID and facial recognition projects. Some projects have stalled, but that is as much a product of the markets they are in (Venezuela, Zimbabwe) as it is Chinese execution. And, while China has not planned to export its state-owned social credit system, companies like Ant Financial are monetizing social credit by applying its techniques to loans and other financial products.

The important insight here isn’t about a single advancement but the pattern overall — that China, its government, and enterprises within it, has made technology a priority, and will continue to push its advancement as central to its success.

Fore-Power

Practicing foresight is increasingly becoming a top-down existential imperative in an increasingly complex geopolitical environment. China has launched state-led efforts across technology (e.g., AI and quantum computing), agriculture, infrastructure (e.g., BRI), manufacturing and robotics (“Made in China 2025”), to cultivate expertise and global leadership. China’s government has increasingly shifted focus to reforming agriculture. It is spending billions on water systems, seeds, robots, and data science.

And, many young Chinese workers are moving from manufacturing into service industries. China announced a five-year plan to eliminate excess capacity and lay off workers in the coal and steel industries, in a bid to restructure the economy. While each of these initiatives can begin as internally focused, their eventual success can turn them into comparative global advantages. The ability to make long-term plans is not an inherent advantage, as China’s not-as-recent history demonstrates. However, China’s ability to distinguish itself in a world where G7s and BRI[C]S are increasingly unstable creates a natural leadership role on the world stage.

Looking beyond China’s borders, Chinese economic influence, through both trade and regional/ bilateral investment, is expanding worldwide across developed and emerging markets. It should be noted, however, that while these may seem like thoughtfully crafted and coordinated projects, many contend it’s just the opposite, not to mention unprofitable (more in “Risks to China’s Future” below).

Europe: Chinese money is pouring into Europe at a time when public investment in the E.U. is at its lowest level in 20 years. China’s attention is on northern European innovation hubs as much as on infrastructure, but crisis-hit southern economies have also taken advantage. In that spirit, leaders of the E.U. and China recently met to praise “E.U.-China connectivity.”

South and Southeast Asia: China has been aggressively expanding its presence in Pakistan (as part of the “China Pakistan Economic Corridor”, valued at $62 billion) and Malaysia, where it has given its largest BRI loans to-date, and increasingly Maldives, Nepal, Sri Lanka, and Bangladesh. “China’s penetration of South Asia is the biggest game changer in 100 years,” says Constantino Xavier, a Fellow at the think tank Carnegie India. “The Russians tried, the Americans tried. This is the first time since WWII that a massive power is contesting the Indian state.” These moves are seen as a powerful combination of political and financial clout, and how these play out, as demonstrated recently with Malaysia, will be considered a signal of their success — or failure — as a diplomatic global power.

Latin America: Earlier this year, China held its second ministerial meeting with the Community of Latin American and Caribbean States (CELAC). There, China announced plans to have the BRI invest in Latin America. Over the past decade, Chinese policy banks have provided more than $140 billion in loan commitments to Latin America. Latin America has become the second-largest destination for Chinese overseas investment.

Between 2015 and 2019, China plans to invest $250 billion in direct investment and about $500 billion in trade. China is already the largest trading partner of Argentina, Brazil, Chile, and Peru. China has increasingly sought to pair ideological and political influence with these investments. One concrete example is in Venezuela, where investment by Chinese private sector actors led to the introduction of a China-style social credit system.

Africa: China’s growing economic influence is no more apparent than in Africa. In the next 35 years, 25 percent of people in the world will be African. Chinese firms have been disproportionately awarded infrastructural development projects in Africa, and trade has ballooned over the last two decades. China officially surpassed US as Africa’s largest trade partner in 2009. China is now the single largest bilateral financier of infrastructure in Africa. A McKinsey analysis found that the amount of loans Beijing had made to Africa had tripled since 2012. In 2017 alone, the newly signed value of Chinese contracted projects in Africa registered $76.5 billion.

Beyond…: In 2014, China’s president Xi Jinping said that China wanted to become a “polar great power.” And, China’s ambitions now even extend to supremacy in outer space. More than 60 Chinese companies have entered the commercial space industry in the past three years. China wants to be one of the world’s top three aerospace powers by 2030. China is also working on the construction of a lunar base, to be used for new energy development and living space expansion.

Sharp Power

Although China does not seek to conquer foreign lands through the use of traditional hard power, some fear that China seeks to conquer foreign minds through “sharp power”, a term coined by the National Endowment for Democracy in its report, Sharp Power: Rising Authoritarian Influence. Sharp power helps authoritarian regimes manipulate opinion abroad — not to “win hearts and minds,” but to “manage their target audiences by manipulating or poisoning the information that reaches them,” a particular threat to vulnerable democracies. China’s sharp power was felt acutely in Taiwan, where President Tsai Ing-wen’s government “accused China of meddling in [local elections] by spreading disinformation, steering money to the opposition, and inducing Taiwanese media to provide slanted coverage”, resulting in a decisive defeat of the Democratic Progressive Party she represents.

While attempts to set up pro-China news networks abroad have been met with middling success, setting up China-aligned ‘Confucius Institutes’ worldwide has been more successful, as well as efforts to engage citizens of other countries with Chinese descent to identify as ‘overseas Chinese’ — though the ultimate impact of this is unknown, as many in the 60 million person Chinese diaspora remains distrusting of the Chinese Communist Party and its history with human rights.

This ‘sharp power’ activity suggests that China senses a window of opportunity to pursue its goals, especially with the Trump administration seen as withdrawing the US from its longstanding role as guardian of the liberal international order, joining many other northern countries now turning inward.

Risks to China's Future

While China’s ascendance has been impressive, it has significant risks to contend with, including debt-fueled growth, rising inequality at home, US trade standoff, US and European restrictions on tech transfer to China, contracting exports, reluctance to shrink the state sector despite increasingly crowding out private enterprise, $200 billion in loans to Belt & Road countries with already astounding debt loads, notable human rights abuses, as seen by its recent detention of Muslim majority Uyghurs in Xinjiang, not to mention its tendency toward vast, uncoordinated activity.

The Chinese government is known for taking more of a ‘campaign’-style approach — setting vision but not necessarily organizing activity. While this tactic can be effective for tech investment, it can be the opposite for infrastructure projects, leading to misalignment, duplication, even corruption. As one expert describes, “While outsiders tend to credit Chinese leaders with long-term vision and exquisite strategizing, policy implementation has in fact often been fragmented and patchy. The negative side effects of rapid, large-scale mobilization are generally disregarded until they grow too serious to ignore.”

Where will global economic order fall? Will China lead the world, or will the global economy split into two: one centered in the US and the E.U., another revolving around China? Will China’s debt-fueled rise finally implode, bringing down with it dozens of loan-backed countries who must quickly scramble back to the traditional lenders to stabilize their economies? How does this intersect with increasing nationalist policies around the world? What about disillusionment with democracy, and growing patterns of authoritarianism? Many developing nations are looking to China and its strong state system, as an alternative to the economic liberalization of ‘the West’. Will we see more countries both partner with, and emulate, China?

One thing is clear, China operates at one scale — huge. Huge production, growth, user base, loans, aspirations. As it enmeshes itself into the global economy and polity, just as hugely, its success — and downfall, becomes tied to that of Asia, Africa, and the world. Despite growing global tension, suspicion, and isolationism, we may very well all rise — or fall, together.

 

Special thanks to Gregory Dunn, Business Analyst at McKinsey & Company, and Linda Lim, PhD, Professor Emerita of Corporate Strategy and International Business at University of Michigan, for their contributions to this brief.

 

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