As the inaugural meeting of the Asian Infrastructure Investment Bank sets to convene, Stanford researcher Thomas Fingar discusses findings from his new book that seeks to study China’s objectives and methods of engagement with other countries. Much of China’s behavior is determined by its own cost-benefit analysis of the perceived effect engagement would have on its security and development.

As China has pursued modernization over the past 35 years, patterns have emerged that shed light on the government’s foreign policy decision-making, according to new research by Thomas Fingar, a Stanford distinguished fellow at the Shorenstein Asia-Pacific Research Center (APARC).

Since 1979, China’s foreign policy has been underscored by two priorities – security and development. Knowing those priorities, analysts can attempt to better study and anticipate China’s relations with other countries even in the wake of unforeseen events in the global system.

“China’s increased activity around the world has elicited both anxiety and admiration in neighboring countries eager to capitalize on opportunities but worried about Beijing’s growing capabilities. Yet as is the case with all countries, what China can do is shaped by global and regional developments beyond its control,” said Fingar, the editor of The New Great Game: China and South and Central Asia in the Era of Reform.

The book, which has a total of 13 authors, is the first in a series published by Stanford University Press that examines China’s changing relationships in Asia and with other portions of the world. It is also an outcome of the research project “China and the World.” Fingar, who heads the project, draws upon his experience from five decades working on Asia and more than 25 years in U.S. government, including as chairman of the National Intelligence Council.

Framework to analyze China’s foreign policy

One dimension of the research project examines how China’s policies and priorities are shaped by China’s perceptions about how much a country threatens or addresses China’s security concerns; a second dimension examines China’s perceptions about how much a country can contribute to China’s pursuit of sustained economic growth and modernization.

To explore these relationships, Fingar developed a framework for analysis using a matrix that displays, on one axis, China’s perceptions about the threat to China’s security posed by a country or region, and on the other axis, China’s perceptions about a country or region’s capacity to contribute to China’s development.

By comparing the position of a given country or region from one period to another, the matrix both predicts the character of China’s policies and reveals a pattern over time. The figure below illustrates China’s views in 1979 and 2016.

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In 1979, India and countries in Central Asia figured high on the threat axis because of their relationship with the Soviet Union and low on capacity to provide the resources China needed to jumpstart its economy, Fingar said.

At that time, China sought to address both its priority security concerns and developmental goals by improving ties with Europe, Japan and the United States. South and Central Asia were afforded lower priority, he said.

In the 1990s, however, China’s perceptions shifted as a result of the demise of the Soviet Union and a decade of economic success in China, Fingar explained. Shown in the matrix, China’s policies toward Central Asia changed as the region transitioned to a more favorable security position by 2000 and as China required additional resources (energy, technology, training, etc.) to fuel its growing economy.

Fingar said China’s increased engagement with South Asia was buttressed by a need for markets and investment opportunities, and furthered along by a reduction in the threat environment as India altered its relationship with Russia and Pakistan became a less valuable security partner.

Calculating who China will engage with and how has become much clearer, yet in some ways it has also become more complicated, according to Fingar.

“The countries that can do the most for China today often pose the greatest perceived long-term threat, namely the United States and its allies,” he said. “Conversely, China’s proclaimed closest friends—North Korea and Pakistan—can do little to assist China’s development and pose increasing danger to its security.”

Current policy applications

Over the past three years, Chinese President Xi Jinping has embarked on numerous projects with neighbors and other countries around the world, such as the “new Silk Road,” a trans-continental trade route that will link countries together, and the Asian Infrastructure Investment Bank (AIIB), a multilateral development bank that plans to lend money to poorer parts of Asia for building infrastructure.

The objectives of both initiatives are consistent with the China’s prioritization of security and development, Fingar said. The AIIB and Silk Road initiative indicate that China assumes there are gains from economic integration, and this is largely due to the fact that China has already benefited from past projects.

In 2001, the Chinese government launched concerted efforts to improve its relationships with Central Asian countries because of China’s concern that the United States was seeking to “contain” China, he said. Outcomes have included newfound markets for China’s manufactured goods and increased stability in separatist areas near or on its borders.

“By taking such a big stake in building infrastructure, China has changed the dynamic of the region,” he said. “Anybody can use a road, railroad or bridge. China has helped stitch together the economies of different countries in ways they have never been before.”

For China, the AIIB and the Silk Road initiative are also a form of “soft power,” said Fingar. The approach by the Chinese government evokes memories of U.S. “dollar diplomacy” early in the last century and Japanese “yen diplomacy” when financial assistance was extended to developing countries.

But Fingar doubts that “buying friends by building infrastructure” will be a major contributor to China’s quest for security and development. Going forward, the Chinese government must face the growing paradox between its foreign infrastructure projects and its principle of respect for sovereignty and territorial integrity, he said.

“When working in other countries, China cannot afford to dismiss internal stability, governance, rule of law,” he said. “Those facets are the baseline for building infrastructure.”

Related links:

The Diplomat - Q&A on Chinese diplomacy in the 21st century

The Bank of Japan (BOJ) convened in late April to discuss the future of Japanese monetary policy. An outcome of that meeting was a decision to hold interest rates steady. On Bloomberg TV, Stanford economist Takeo Hoshi said the non-move is unsurprising and offered views on what to expect next from the BOJ.

The Program on Arab Reform and Democracy (ARD) at Stanford’s Center on Democracy, Development, and the Rule of Law (CDDRL) is pleased to welcome Egyptian economist Samer Atallah as a visiting scholar for the 2015-16 academic year. Atallah has taught economics at the American University in Cairo (AUC) since 2011, and his work focuses on development economics and political economy of democratization. He is a leading contributor to debates on economic public policy in Egypt, and previously served as an advisor to the 2012 presidential campaign of Abdel-Moneim Abul-Fettouh. He holds a PhD in Economics from McGill University and a Masters Degree in Engineering from University of California, Berkeley. His research on the Arab world has received the support of the Arab Council for Social Sciences and the Economic Research Fund, and spans a wide range of areas, including; education, electoral behavior, public opinion, trade policies, and political institutions in resource dependent economies.

During his residency at CDDRL, Atallah will work on a series of publications examining salient questions in the political economy of the Arab World, including the impact of trade and capital flows on governance in Egypt and Tunisia, and the relationship between education and wealth inequality in Egypt. Atallah’s fellowship is generously funded by a grant from the Carnegie Corporation to support scholars from the Arab world. In the following interview, Atallah discusses his current research projects and their relevance to important public policy debates.

What are your research goals and priorities during your residency at CDDRL?

First of all, I would like to say that I am extremely delighted to be here and excited at this valuable opportunity to collaborate with distinguished scholars at CDDRL and Stanford University, which promises to be a nourishing environment for my research. 

My research agenda during my residency here at CDDRL includes working on two projects, both of which are related to broader questions of democratization and development. This first one is a comprehensive theoretical and empirical study investigating how political and economic institutions evolve as economies become integrated in the global economy. I am interested in understanding how trade and capital flows impact institutions - in the economic sense of the term - and the implications of that impact on political change. For instance, the experiences of economic liberalization in countries like Egypt and Tunisia had unquestionable consequences on the distribution of wealth within their respective societies. Economic liberalization policies had equally important effects on the performance and evolution of their legal, economic governance and political institutions. My own research seeks to investigate how these institutional changes have evolved and the impact of these processes on political change.  The second project is an empirical study examining the relationship between wealth inequality and educational inequality in Egypt.

In what ways do your projects speak to contemporary debates on the origins and trajectories of the Arab uprisings?

I would argue that the divergence in outcomes across the various uprisings in Arab region cannot be understood without seriously thinking about the different historical evolution of political and economic institutions in these countries. These institutions impact the functioning of the economy, its growth, and the social inclusiveness of that growth—factors that were very pertinent to the popular mobilization that advanced the post-2010 uprisings. Certainly these institutions are in part the product of how the economy is managed in a given country in the short-run. At the same time, they are the result of long-term external and internal factors that we need to investigate and understand.

A case in point is the bureaucratic apparatus in Egypt. That sizable bureaucracy is the outcome of a long-standing policy of guaranteed employment, which the government had adopted in the 1960s to secure political support. Whereas economic liberalization policies adopted by President Anwar al-Sadat in the 1970s shrunk the economic role of the state, the size of the bureaucracy, nevertheless, increased significantly. Thus, the question we confront as researchers is why have these institutions remained stagnant and shielded from change despite the fact the nature and priorities of the economy have shifted. This is a major concern in my own research.

What lessons, if any, does your work offer policy-makers involved in the areas of economic and human development?

My second project on inequality and education speaks to one of the central factors that have animated the post-2010 uprisings in the Arab world, namely economic inclusion. In the context of Egypt, educational inequality has contributed greatly to the huge disparities in income and wealth in the country. Exacerbating and reinforcing these disparities is an intergenerational dependency in educational attainment—that is, children of uneducated parents are highly likely to remain uneducated, and by implication, economically underprivileged. This is an area that leaves a lot of room for policy interventions.

But such interventions must be grounded in a better understanding of the causes of this dependency and why it persists. Toward that end, my research seeks to investigate how the type and range of assets in a given household affect schooling and education decisions. Other key determinants of these decisions include access to credit, spatial distribution of educational facilities, and volatility of household income. With a sufficiently nuanced understanding of the problem at hand, all of these factors present potential areas for policy interventions to alter the incentives for school enrolment and quality of education delivery. Such interventions could potentially lead to a better distribution of education and income in the long run.

What are the potentially important research questions that address Arab reform and democracy?

I believe the recent upheavals in the Arab world have pushed us to re-evaluate our understanding of the underlying reasons and implications of political and economic change. This has opened up a multitude of lines of inquiry related to the economic incentives and costs of political change. One such endeavor entails an ambitious effort to compare the evolution of social movements, economic policies, and political structures in the Arab world with other regions of the world. For instance, I think we could draw multiple parallels between the Arab experience and that of many Latin American countries, especially with respect to the role of military institutions, the impact of economic liberalization, social inequality, and civil society movements. Having said that, there is also a lot of work that needs be done in understanding and analyzing the divergent outcomes of the Arab uprisings.