China’s Dilemma to Asserting Economic Coercion

• In Event: Chinese Politics Mini-Conference: Firms, Industries, and China's (International) Political Economy

Abstract

The concentration of economic activity around a few central firms creates chokepoints in the global economy, which can be exploited by powerful states to either monitor or isolate adversaries. While the United States has used such tools against a host of targets, it is still an open question as to whether other great powers, particularly China, will be positioned to compete in a world marked by weaponized interdependence. Proponents of Chinese economic power have shined a spotlight on a series of state sponsored activities largely under the banner of the Belt and Road initiative. Notwithstanding these efforts, private Chinese companies have yet to establish themselves as central players in global economic networks capable of replacing U.S.-based firms.

Building on a markets-as-power approach, this paper argues that autocracies face a new type of dictator’s dilemma when attempting to compete in a world of weaponized interdependence. While globally central firms (e.g. economic hubs) offer the state foreign policy tools to compete against other great powers, these firms can also become the site for political power competition with the state domestically. Authoritarian leaders are likely to balance domestic political control over foreign policy autonomy, and thus, placing the emerging hub firms in the cross hairs of domestic political conflict. As the regime attempts to reassert control over these large private economic actors, the tightening of political control not only amplifies market uncertainty but induces greater political risk of cross-border businesses, diminishing the attractiveness of the firm to global partners. To test our argument, we look at the rise and fall of Ant Group, a Chinese digital payment provider. With the technology foundation, business channels, and licenses for cross-border payments, Ant Group was on the path to build a global payment network based on local e-wallets as “nodes” and cross-border payments as “channels”. However, the power struggle with the state eventually led to the abrupt suspension of its IPO, which marked the beginning of a decisive crackdown on the country’s tech industry and hub erosion of the company’s rise to global centrality. The case demonstrates the domestic political limits of competing in a world marked by weaponized interdependence as well as the tensions posed by platform power in autocratic states.

Authors

• Gloria Xiong, Cornell University

• Abraham Newman, Georgetown University