China's soft power: A serious matter or who cares?

November 17, 2021 09:05
Photo: Reuters

“China is not liked!” I said. It was an evening in 2009 when I was casually discussing soft power with my mates from graduate school. One of my friends from mainland China quickly responded, “Who cares? This does not matter”. He then elaborated that China had such a big market that no countries and companies could possibly ignore, regardless of their feelings about the country.

I was prepared to debate with him, but found no effective counter. 2009 was a good year for China. Despite the global economic downturn, China was set to replace Germany as the world’s largest exporter. China was witnessing steady increases in foreign investment inflows, a trend that would continue in the coming decade. That year, Kevin Rudd was the incumbent prime minister of Australia. He was the first Western political leader who can speak Mandarin and whose China-friendly stance was attacked by his political opponents as “Manchurian candidate” and “Beijing’s running dog”.

The conversation left a mark in my mind. In the next ten years, it popped up whenever people discussed soft power. Until now, the tarnished global image of China due to differences with the West goes side by side with China’s much stronger global influence. This seems to vindicate yet again my friend’s assertion. That said, we have also seen limiting freedom of operations for Chinese government agencies and companies abroad exactly due to the declining global image.

Power, hard and soft

The discussion with my friend was about hard power and soft power. But before getting into their differences, let’s talk about the concept of power itself. There are numerous concepts in social sciences that sound like common sense, while in fact we do not actually understand. Power is probably one of them.

What is power? The late Professor Robert Dahl, a guru in the studies of political science, gave us a classic definition: “A has power over B to the extent that he can get B to do something that B would not otherwise do”. Power, as so defined, is relational and is about influence. As such, the distinctions between hard and soft power are about the different means to a common end, defined as influence. Hard power uses coercion and payment, or the so-called carrot and stick approach, to influence the others. It principally relies on materialistic and tangible resources such as money and military forces to achieve the goal. Soft power, in contrast, gains influence not through inducement or threats but by indirectly shaping one’s preferences through persuasion and attraction. Soft power is derived from intangible sources including political values, culture and foreign policies.

My friend and I both missed the point, that hard power and soft power are not mutually exclusive. In other words, it is not about picking the winner between hard and soft power but to assess the extent hard and soft power matters in a circumstance.

My friend’s preference for hard power is valid, but just to a certain extent. China’s loss of international appeal, or soft power, has increased the transaction costs of getting what it wants in the international arena. To give a day-to-day illustration, if I trust or am attracted to someone, I go easy with him on everything. Conversely, if I do not trust that same person, I go to great lengths to protect myself even if I decide to engage with him.

China’s declining attraction

China’s image has gone downhill in the West, damaged by the wolf warrior diplomacy; the controversies around its handling of the coronavirus pandemic; the military threats to Taiwan and South China Sea; and the human rights issues in Xinjiang, Tibet and Hong Kong.

At the national level, attitudes of Western governments and politicians have become increasingly negative towards China. Kevin Rudd, the Sinophile Australian politician mentioned above, asserted in an interview a few months ago that the West should unite against China, in particular when challenging the country on human rights issues. Raphael Glucksmann, chair of the European Parliament’s Special Committee on Foreign Interference, claimed during his recent visit to Taiwan that it was “China’s aggression towards Taiwan” that had driven Europe closer to Taiwan. The US has led the formation of the Quadrilateral Security Dialogue (Quad), a strategic security alliance involving India, Japan and Australia, in an obvious attempt to counter China’s military expansion in the Indo-Pacific.

At the business level, Western companies can no longer ignore that China has crossed their lines on human rights issues and unfair trade and investment practices. Siegfried Russwurm, the head of the Federation of German Industries, recently gave a social activist-sounding comment on China, that “human rights are not the internal affairs of states." He went on adding that companies have “the obligation to define red lines for their global commitment themselves," rather than waiting for their governments to do so.

This marks a sea change on the wilful blindness amongst Western companies on problems with China in the past. Motivated by the pursuit of profits, Western businesses have been actively engaged with Chinese companies, despite value differences on social justice and political openness. These businesses have rationalised their engagements with China through the notion of “transformation through trade” , a theory predicting that economic prosperity would naturally drive political liberation, transforming a country into a liberal democracy. That said, given the increasingly assertive and defiant China, Western businessmen could hardly use this theory as a shield without running the risk of antagonising politicians and customers in their home countries.

At the public level, people in democracies have unfavourable views on China. In October 2020, Pew Research Center published a survey finding the most negative views on China amongst respondents from democracies in a decade. The poor scores were attributed to China’s handling of the coronavirus outbreak. In June 2021, another survey by Pew Research Center returned yet more negative results on China. The respondents expressed the concern over a lack of respect for personal freedom from the Chinese government. Unsurprisingly, people in countries directly at odds with China are sharply more critical of China. In August 2021, a survey conducted in South Korea, which has angered China on the missile development programme, showed that 58% of the 1,000 respondents described China as “close to evil”. Notably also, the survey suggests that young Koreans appear to dislike China more than Japan, whereas in fact disliking the latter has been part of South Koreans’ national identity.

Cost: Investments

People of the hard power will say Chinese money is still welcomed regardless of the soft power deficit, but the reality is that the general lack of trust has caused Chinese companies to face more hurdles when investing in sectors deemed in the West as sensitive. As I mentioned above, without trust, one goes to great lengths to protect his interests, translating into higher transaction costs in terms of time, money, and regulatory oversight.

A case in point. In 2018, the US authorities increased the scope of national security scrutiny of the Committee on Foreign Investment in the United States (CFIUS), with an obvious agenda against Chinese direct investments in certain sensitive sectors. By the third quarter of 2018, data from Mergermarket showed that the amount of Chinese investments in the US had shrunk 92%, in part due to the tightened regulatory environment. In July 2021, CFIUS’s annual report showed the agency had heightened scrutiny on transactions involving Chinese investors in particular.

Chinese investors who recalibrated their focus to Europe have similarly found a tightening regulatory environment. For example, Germany, one of the top Chinese investment destinations, has tightened rules on foreign direct investment three times since 2017. They were triggered by the takeover of a German robotics company Kuka by a Chinese electrical appliance manufacturer Midea in 2016. Then the German government found no way to block the deal, despite widespread concerns over the potential forced transfer of national strategic technologies to China. The same tightening of FDI regulations have been carried out in various European countries. These have contributed to the lowest Chinese FDI inflow to the European Union in 2021.

Cost: Education

Confucius Institutes are cultural exchange organisations established in education institutions around the world to promote China’s soft power. These institutes too have fallen victim to a lack of trust in China.

Sweden has closed all Confucius Institutes amidst growing concerns over China's human rights records. The German Education Ministry recently called on local universities to end cooperation with Confucius Institutes. Anja Karliczek, the German minister of education, said that “I do not want the Chinese government to influence our universities and our society.” In the US, the State Department announced in 2020 that all Confucius Institutes had to be registered as foreign agents. As a result, staff members would be required to formally register with the authorities and subject to more restrictions. Those institutes can still operate, but at much higher costs.

Soft power matters

The wolf warrior diplomacy and the disregard of or even contempt towards Western values has weakened China’s soft power abroad. Like my friend, China seems to believe that its massive investment pool of money, its huge domestic market and sophisticated armed forces could fully compensate for the misgivings about its global images. This is wrong. The loss of soft power results in higher costs for China’s global activities in investment and education, to name but a few.

Conversely, in June 2021, President Xi Jinping told senior party officials that it was important to present an image of a "credible, loveable and respectable China". However, nothing has changed so far. The wolf warrior diplomacy and a “loveable” China are just mutually exclusive. Will China continue to write its version of “Courage to be Disliked”? Time will tell.

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Founder of Richard Ip Consultancy, a due diligence and sanctions compliance advisory business, the writer is a global political and compliance risk consultant with a special focus on Asia.