Buying Influence

This chapter analyses how China converts its financial power into influence abroad. It argues that the provision of aid, loans, and foreign direct investment is a key tool China uses to project its power. It further asserts that China’s financial resources have a greater impact in less developed states, which by definition are lacking in capital, and in authoritarian regimes, due to the much smaller number of those whose support must be garnered in order to influence policies. It shows how Chinese finance secures influence over foreign state governments by enhancing the resources available for the foreign leader to disburse to the ruling coalition that keeps the leader in power. A stylized “aid game” illustrates the bargaining that occurs between state leaders over such capital imports. It further examines some of the accepted wisdom concerning Chinese “aid”, including the strings attached to what is often termed “no strings attached” aid, as well as whether China’s financial assistance is accurately termed “aid.” It also shows the myriad of channels through which capital inflows from China can be diverted from the projects they are funding in order to help the recipient state leader maintain power, thereby enhancing China’s influence over that leader.

Multilateralism and Divisions in ASEAN

This chapter introduces ASEAN and the “ASEAN Way” of taking actions based on consensus as well as both the theoretical and practical difficulties that presents for successful collective action by the members of the organization. Emphasizing the theoretical insights of Ruggie and other scholars concerning multilateralism as well as theories of collective action, the chapter provides insight into the factors that inhibit a common ASEAN response to the disputes in the South China Sea. The chapter further highlights the diversity among ASEAN member states, including geographic, cultural, political, and economic differences, as well as their own territorial disputes both in and outside of the South China Sea, that further inhibit collective action. Finally, the chapter provides data on China’s foreign direct investment (FDI) into the region, which, the book argues, provides China with increased influence over some ASEAN members.

Sino-Cambodian Ties That Bind

This chapter first surveys the close historical ties between the governments of China and Cambodia, as well as between the Chinese Communist Party (CCP) and the Cambodian People’s Party (CPP). It then presents data on Cambodia’s dependence on Chinese “aid” and other forms of capital, including foreign direct investment (FDI). It argues that both the relatively high levels of Chinese funding as well as the “no strings attached” nature of that funding, which lacks the conditions for political and economic reforms often attached to foreign aid by other governments and multilateral institutions, provide additional leverage for China over Hun Sen’s government. The chapter shows how China uses this leverage both to help its state-owned enterprises (SOEs) overcome the high risk in Cambodia’s investment environment for their very specific (immobile) assets and to gain the support of the Cambodian government on issues vital to the legitimacy of the Chinese Communist Party, including its territorial claims in the South China Sea. The chapter specifically analyses cases of Chinese investments in Cambodian hydropower projects and shows how Chinese influence over the Cambodian government helps overcome domestic opposition to these projects and secures long-term guarantees for the profitability of investments in this sector.

Dividing ASEAN and the Limits to China’s Influence Abroad

The chapter summarizes the book’s findings on China’s efforts to divide ASEAN and conquer the South China Sea, using variation in member state’s reactions to the decision in favor of the Philippines by the tribunal at the Permanent Court of Arbitration to illustrate the impact of China’s influence. The book concludes that because of the inherent differences within ASEAN, especially in political institutions, as well as the intrinsic difficulties of effective multilateralism and collective action, ASEAN will be unlikely to come together to force China to the negotiating table, as long as China wishes to resist taking a seat. The chapter notes that China’s efforts to influence states in the region have not always been successful, as the case studies illustrate; China has advantages in influencing developing state, authoritarian governments but faces more and higher hurdles in its efforts to influence developing state governments operating within relatively democratic institutions. A brief comparative analysis of China’s bilateral relations in Latin America suggests that the book’s findings are generalizable to China’s relations with developing states globally. The book concludes that the potential evolution of political institutions toward democracy is a form of long-term political risk facing Chinese efforts to influence developing state governments.

Evolving Institutions and Declining Chinese Influence in Myanmar

This chapter examines the effects of the evolution of political institutions in Myanmar on Sino-Burmese relations. The chapter argues that this case stands as particularly powerful evidence for the book’s thesis; as the Burmese regime liberalized, opposition to Chinese influence, previously boiling under a lid of authoritarianism, bubbled to the surface. This has resulted in a weakening of the bonds between governments that had long been “blood brothers.” The chapter shows that under the ruling SPDC, the Chinese could rely on close government-to-government ties to gain support on important issues, such as China’s South China Sea claims, and Chinese firms could rely on politically-connected Burmese “cronies” to secure approval for and protection of their investments. Political reforms beginning in 2011 that witnessed the end to decades-long military rule saw a concomitant plunge in Chinese investment in Myanmar and delays and even cancellations of major projects by Chinese SOEs in Myanmar, such as the Letpadaung Copper Mine and the Myitsone Hydropower Project. The chapter concludes that the Myanmar case illustrates that the evolution of the political “rules of the game” in China’s bilateral partner are a form of political risk for China and its firms.

Sino-Philippine Relations

This chapter first provides an overview of the history of Sino-Philippine relations, noting the strong improvement during Gloria Macapagal Arroyo’s term as president from 2001-2010. It uses each president’s annual State of the Nation Address (SONA) as well as data on the number of state visits to and from China to illustrate the relative strength of these relations over time. The chapter then provides evidence that, despite much closer relations with the Arroyo administration, major investments from China agreed to by Arroyo were halted due to strong domestic opposition. Given the Philippine’s relatively democratic institutions, opposition in the courts, the legislature, the media, and civil society was able to force the administration to halt these Chinese projects and end efforts at cooperation between the two governments in the South China Sea. The chapter also presents the Philippines case against Chinese claims and activities in the South China Sea before the Permanent Court of Arbitration at The Hague, which the Philippines instituted partially due to the inability of ASEAN to act collectively regarding the disputes. It concludes by noting efforts of Rodrigo Duterte’s administration to improve relations with China but suggests that these too may be hampered by domestic political opposition.

Comparative Political Systems

This chapter presents a comparative study of politics and political institutions in Cambodia and the Philippines, which were long at the extremes within ASEAN regarding whether the members should work collectively to negotiate with China over competing South China Sea claims. Noting the similarities in informal political institutions in both states, including high levels of corruption and the dominance of family dynasties of both political economies, the chapter, nevertheless, emphasizes the differences in formal political institutions in the two countries, as well as the oligarchic political competition of elite families in the Philippines, termed “dynastic pluralism” compared to the dominance of Hun Sen’s family through intermarriage in Cambodia. While patron-clientelism is entrenched in both systems, the chapter argues, in the Philippines there are many more patrons. The chapter concludes by suggesting that Cambodia’s even more corrupt environment and less democratic institutions provide relatively wider avenues for Chinese influence over Cambodia’s government.

ASEAN Member States’ Maritime Claims

This chapter analyzes each ASEAN member state’s territorial claims and disputes both in and outside of the South China Sea as well as its current position regarding ASEAN efforts to negotiate multilaterally with China over rival South China Sea claims. It highlights the broad support for freedom of navigation within ASEAN as well as the stated desire of each government to pursue a peaceful resolution based on the Code of Conduct with China that the ASEAN members agreed to develop in Phnom Penh in 2002. The chapter makes clear that, despite the many overlapping and competing maritime territorial claims among ASEAN member states, these states have managed to cooperate to resolve disputes outside of the South China Sea and, unlike China, since the signing of the DOC have largely refrained from taking provocative actions related to contested claims within the region. The chapter further notes the important differences in the dynamics between, and preferences of, China and the rival ASEAN claimants in the South China Sea when compared to the cases of successful dispute resolution discussed in the chapter; the most obvious difference is the asymmetry in the balance of power between China and the other claimants.

Introduction

This chapter introduces the rival territorial claimants, all of whom, besides China and Taiwan, are members of ASEAN, and their claims in the South China Sea. It provides historical background for several of the claims to the Paracel and Spratly island chains, focusing on those of China, which has been most successful in actualizing its claims. It analyses the shifts over time in China’s foreign policy in the region, highlighting efforts at cooperation near the turn of the century and China’s more aggressively asserting its claims in recent years. It lays out the two tales the book tells: the story of China’s efforts to divide ASEAN in pursuit of its territorial claims and the broader story of how China uses its financial power to influence foreign governments in developing states. The chapter also provides a justification for the selection of the three case studies in the book: China’s relations with Cambodia, the Philippines, and Myanmar, emphasizing variation in the key variable of political regime type. Finally, it introduces each subsequent chapter.