Managing Chinese economic coercion

Political divergences and economic competition are becoming more prominent in relations between the EU and China. In this situation, using economic pressure is a strategy for defending China’s objectives and interests. It sends a strong message to businesses and governments that there will be financial consequences if measures are done that Beijing deems unacceptable. Companies can be penalized for their own behavior in some situations, but they can also unintentionally find themselves in the middle of international conflicts. It is imperative to learn how to deal with Chinese economic coercion.

Coercion may be quite successful in preventing parties from crossing boundaries that are sensitive to China’s interests if there is a fear of harm to economic interests. It has not stopped the EU from enacting additional laws, such as those on forced labour. Unfortunately, China is known to circumvent such laws. The same was seen when cotton from the Xinjiang region was banned. Chinese producers simply transported the goods to a different location and named it as the place of origin. However, China can react against businesses after the rule is put into action to weaken its enforcement.

Patents, trademarks, trade secrets and copyrights are all fully protected by Chinese law; nonetheless, the law is frequently broken and ineffectively enforced. Therefore, developing and carrying out an action plan that is both sensible and efficient is crucial for any business looking to sell items in China. More significantly, a corporation should take security precautions to safeguard its intellectual property both within its own organisation and that of its Chinese business partner. For instance, set up processes to prevent the unintentional exposure or misuse of sensitive information and restrict access to it. When necessary, use confidentiality agreements and carefully train any staff members who will have access to the sensitive data. To effectively defend a company’s intellectual property rights it is essential to establish an extensive and meaningful procedure at the beginning.

The employment of recently established defensive economic measures, such as the anti-foreign sanctions law, as well as widespread boycotts, and trade and tourism restrictions are among them. Another tactic used against foreign businesses doing business in China is administrative discrimination. Exclusion from public procurement and penalties for claimed regulatory infractions are two examples of such actions.
The bulk of incidents are unreported because of the informality of many Chinese regulations and businesses’ fear of being impacted. However, about 20% of the cases can be said to be hollow threats. In these situations, Beijing frequently offers ambiguous warnings that are not followed by effective measures. For instance, the German automobile sector was threatened during the discussion of whether to use Chinese network equipment in 5G networks, but nothing came of it. However, even such baseless threats have the power to stir up dread and uncertainty in discussions of public policy that concern China’s interests.

Most instances of economic coercion are brought on by concerns with national security and sovereignty. This mostly refers to matters pertaining to Taiwan, other East, and South China Sea territorial claims, or human rights concerns. But as China becomes more adamant about defending its interests, the boundaries are becoming increasingly hazy. Considered unfair treatment of Chinese enterprises abroad, such as prohibitions against Chinese network providers, notably Huawei, is one of the new red lines. However, businesses have also come under fire for supporting political parties that Beijing accuses of pursuing anti-Chinese policies and like in the instance of Australia over COVID-19’s beginnings in 2020, started to push back against governments harming its reputation. Companies must evaluate their risk exposure in order to negotiate the new realities of economic coercion. The most vulnerable companies to attack are those with little strategic importance for China’s economic growth objectives.

Consumer products, commodities, and the service industries are Beijing’s most frequent targets. Businesses in these industries must accept the unsettling reality that their operations in China are extremely vulnerable. Businesses can attempt to protect their operations by supporting the policies of the Chinese government, but this could spark unrest in Europe. The best course of action seems to be to diversify while reducing exposure to China. It’s a different picture for foreign businesses that are more economically significant to China, such as those that supply the country with the necessary technology, jobs, and tax money. To avoid becoming a target in this situation, it is important to maintain strategic relevance. The use of economic coercion does not indicate a positive trade partnership. Beijing relies on businesses to advocate for its interests by employing a carrot-and-stick strategy. But it would be extremely unsettling if international businesses decided it was safer to support China’s viewpoints and attempt to sway the policies of their governments toward China. But if China uses economic pressure too frequently, it will hurt its economy and lose some of its efficacy.


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