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Discussion prompt for reflection: To what extent can non-traditional diplomacy—from people-to-people relations, to commercial capacity building, and other cooperation types—help prevent U.S.-China conflict, or at least reduce the probability of it? How?


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Economic Interdependence and
International Conflict: Situating
China’s Economic and Military Rise
David Pak Yue Leon*
Many scholars have argued that systemic risks of conflicts tend to increase at critical
junctures of power transitions or major power shifts. This article examines the economic
and military rise of China and the challenges that it both faces and poses in East Asia,
especially in relation to the United States. Specifically, it connects issues of power
projection and parity, trade, and interdependence, as well as international institutions
and governance to underscore the need for continued economic engagement and
institutional enmeshment to lessen the likelihood of militarized conflict in the region.
冲突的系统风险往往会在权力转移或主要权利转变等这类关键时刻增加, 对此许多学者已
有过讨论。本文调查了中国经济军事的崛起以及中国在东亚地区引起和面临的挑战, 尤其
治理等一系列问题联系起来, 以强调需要持续经济合作和制度介入来减少该地区产生军事
Key words: China, institutions, interdependence, power projection, security, trade
关键词: 安全, 贸易, 相互依存, 力量投射, 机构, 中国
hina has, in the past 30 years, experienced economic growth and military
modernization to such an extent as to position itself as a power capable of
shaping the Asian regional order and, potentially, the rules and institutions
governing the international system.1 In the existing literature, various policy
analysts and international relations scholars have argued that, historically, systemic risks of conflicts tend to increase at critical junctures of power transitions
or major power shifts when the power gap narrows between a hegemon and a
*David Pak Yue Leon is Assistant Professor of Political Science at Keuka College, New
York, USA. His research and teaching interests focus on international security and economic relations, U.S. foreign policy, China and the Asia-Pacific, international relations
theory, and the philosophy of social science. He has also taught at the University of Minnesota and at the Johns Hopkins University.
Asian Politics & Policy—Volume 9, Number 1—Pages 9–30
C 2017 Policy Studies Organization. Published by Wiley Periodicals, Inc.
Asian Politics & Policy—Volume 9, Issue 1—2017
rising challenger, especially a revisionist one committed to overturning the
established set of institutional arrangements (see Copeland, 2000; Gilpin, 1983;
Kugler & Lemke, 1996; Organski, 1958; see also Chan, 2008; Harris, 2014). An
increasingly powerful China in the context of the relative decline of the United
States (Layne, 2012; Zakaria, 2008; although see Beckley, 2011) has brought
these debates into sharper relief because whether or not China can rise peacefully and whether or not it will challenge the United States in its dual role as
the premier global power and traditional underwriter of global governance
institutions will have major implications for both theory and policy as analytical apparatuses are reexamined and reworked, and policy prescriptions developed and dispensed.
This article first suggests that neither theoretical nor policy questions pertaining to China’s rise can be properly addressed without examining the nature
and meaning of any power shifts that are said to be in process, or the balance of
economic and military forces within the intersecting global and East Asian
regional systems. Clarifying these issues in turn requires an analysis of such
factors as the trajectories, reversibility, and distributional consequences of differential growth; the possibilities and constraints of China’s current and
expected military capabilities, especially in relation to power projection and
strategic means of coercion (i.e., naval and air forces capable of long-range
operations, as well as nuclear forces and the capabilities and ranges of delivery
vehicles); economic interdependence; and China’s dispositions toward rulebased international institutional complexes.
This article argues that while China has seen tremendous economic growth
and substantial military modernization, sustaining its economic prosperity
depends to a large extent on global trade, internal and external stability, and
the ability to access natural resources. A deep level of international institutional
engagement that it has exhibited while rising in wealth and power is quite dissimilar to aggressive rising challengers in the past (e.g., Imperial Japan and
Nazi Germany) where autarky or economic self-sufficiency and aloofness from
rule-based institutions tended to mark their behavior. Inasmuch as engagement
and enmeshment continue to be prioritized in Chinese foreign policy, China
will likely have strong disincentives to initiate conflicts that may disrupt trade
and resource flows and essentially slow its own rise. For the foreseeable future,
its military also does not have the kind of power projection capability and its
foundational sources—or what can be called the command of the commons
(Pose, 2003)—that would allow it to mount a serious challenge to U.S. military
primacy in the Western Pacific, much less to initiate a revisionist war to reorder
the core systemic arrangements; on the contrary, it has seldom been more
involved and engaged in such arrangements in modern times. This relatively
benign conclusion, however, is conditional on China’s continued access to the
resources necessary for further development and growth by means of trade or
acquisition, which also serves as a linchpin of domestic regime stability. This
can be attributed to Deng Xiaoping’s admonition for China to “hide its capabilities and bide its time” in international politics, a concept traceable to Sun Tzu’s
classic notion that high strategic virtue lies in winning without a fight (see Sun,
2009; see also Friedberg, 2011; Kissinger, 2011). It is still too early to tell if tensions in China’s geographical periphery and China’s more recent assertiveness
Economic Interdependence and International Conflict
in international affairs indicate a fundamental reorientation or an adjustment in
policy, but in any case, such tensions and the possibility of escalation should
not be taken lightly.
In short, China has been rising within a rule-based system characterized by
the institutionalization of world trade and politics (Baviera, 2016; Ikenberry,
2011), conceived initially as U.S.-led institutional design, and more broadly
intensified in the closing decades of the 20th century and the beginning of the
21st century. If this institutional architecture proves not to be robust and resilient enough to ensure reasonably unhindered access to the lifeblood of growth,
dangers may still loom for a concerted drive for autarky that in earlier times
had emanated from great power anxieties and heralded international conflicts.
The very existence and pervasiveness of contemporary global institutions, however, do present China with the possibility to rewrite or create its own set of
global institutions, something that totalitarian rising powers in the first half of
the 20th century did not seriously attempt to do.
China’s Economy: Major Growth Mixed with Multiple Stressors
China’s economic emergence has captured much scholarly and media attention. Since the launching of the reform era under Deng Xiaoping in 1978, China’s gross domestic product (GDP) growth has averaged about 10% annually
(World Bank, 2015a). In the process, poverty rate has dropped from 84% in
1981 to 13% in 2008, with more than 600 million people lifted out of poverty,
defined as living on the equivalent of 1.25 USD or less per day. It should be
borne in mind that there are still about 170 million people living below the
international poverty line, making China the second largest home to povertystricken people after India (World Bank, 2013). China’s GDP per capita still lags
far behind those of the United States, Japan, and other advanced industrialized
nations. Nevertheless, China’s economy as measured by GDP (at 10.4 trillion
USD in 2014) has become the second largest in the world, behind the United
States (at 17.4 trillion USD) and ahead of Japan (at 4.6 trillion USD), which had
held the number two spot for years until 2010 (World Bank, 2015b). Using GDP
data on a purchasing power parity (PPP) basis, China’s economy is even bigger
than its nominal GDP would suggest. In fact, by this measure, China’s GDP
PPP in 2014 was the largest in the world at 18.0 trillion dollars, compared with
the United States GDP PPP, at 17.4 trillion dollars (World Bank, 2014). While
China’s aggregate economy (as opposed to share of the world economy) may
have overtaken the United States if we look at the World Bank’s GDP–PPP
data—and on this point, we should not go back to the future where prophets of
Japanese dominance in the 1980s once were—there is little question that China
will not surpass the United States on a per capita basis in the foreseeable future.
The aggregate size of a country’s economy is, of course, only one metric, but it
is at least as relevant as the GDP per capita metric insofar as our object is to
arrive at a rough gauge of the size of a country’s economy and hence its total
economic strength and not necessarily of individual economic well-being and
productivity.2 But even the aggregate data pertaining to individual countries
should be placed in the context of the structural, relative distribution of economic power. This can be done in part by examining China’s share of the
Asian Politics & Policy—Volume 9, Issue 1—2017
Figure 1. Visualizing Relative Shares of the Global Economy: GDP-PPP Share of World Total,
1980–2021, Including Projections
Note: The author’s own calculations and graphical representation based on IMF data.
world’s combined gross product. Based on PPP values, China’s share has
increased from about 2.32% in 1980 to 17.65% by 2016. The U.S. share, although
still substantial, has declined from 21.93% to 15.71% in the same period. Based
on nominal values, China’s share also has shown tremendous growth from
2.73% to 18.60%; however, the U.S. share has gone down only slightly from
25.79% to 23.84% (International Monetary Fund, 2016).3 Whatever one thinks of
these figures on an aggregate basis, and keeping in mind the distance China
still has to cover on a per capita basis, it is undeniable that China has been
ascendant in the past three decades.4
What is less noticed in discussions regarding China’s rise is that, by some
accounts, today’s 10 largest economies were in some measures also the largest
back in 1992, and that China has been gaining ground at the expense of these
other economies.5 This is a crucial part of the global economic context.
Figure 1 presents the author’s visualization of International Monetary Fund
(IMF) data on trends in economic output involving the world’s largest economies from 1980 to 2021, including projections. While PPP-adjusted GDP is better suited for assessing standard of living, nominal GDP values may better
capture national shares of the global economy over time, as presented in
Figure 2.
What is striking is that, in assessing these two figures, there is a remarkable
semblance of stability or inertial tendency in that the 10 largest economies have
maintained a steady share of the world economy, hovering between 58.5% and
Economic Interdependence and International Conflict
Figure 2. Visualizing Relative Shares of the Global Economy: Nominal GDP Share of World
Total, 1980–2021, Including Projections
Note: The author’s own calculations and graphical representation based on IMF data.
61.1% for over 30 years despite the varied developmental trajectories of the
individual economies and of the global economy itself. The top 10 economies’
share of the global economy based on nominal values shows a slightly more
volatile pattern, but their share still lies within a fairly narrow range between
64.4% and 71.6%. The global economy was also much smaller a quarter century ago: in 1992, the global economy was only about 60% of the size of the global economy in 2010.6 Changes in relative economic power in the international
system are therefore attributable to what is essentially a “reshuffling” or
“rebalancing” within this small group. More specifically, the advanced industrialized economies have lost ground in relative terms, while China has picked
up the lion’s share of the ground lost, with the rest of the world’s economies
unable to exceed—or drop below—30–40% of the sum total, depending on
whether PPP or nominal values are used.7 Furthermore, of the emerging
states of “BRIC”—Brazil, Russia, India, and China—only China and India
have actually registered major absolute and relative gains in their shares. Brazil and Russia have moved up and surpassed other industrialized states in
absolute terms, but they have also seen slight to moderate declines in their
shares.8 The fact that the share of the top economies has only changed slightly
is indicative of a stabilizing tendency at the systemic level. What has changed
is China’s share of the top 10’s share. While that by itself is still a significant
Asian Politics & Policy—Volume 9, Issue 1—2017
Figure 3. The Top 15 Defense Budgets, from IISS (2015)
phenomenon, its significance should not be overstated from a systemic standpoint. This should be seen instead as a rebalancing within the top-tier of the
great powers.
China’s Position in Military Terms: Is There a Thucydides Trap?
As tricky as gauging a country’s aggregate economic might is, it pales in comparison to assessing its actualized military power, and how it stands in relation
to other powers in the international system and in its region. Of concern, here is
whether or not China’s rising economic and military power would lead to a
confrontation between itself and the United States. In this connection, some
scholars have called attention to what is sometimes called the “Thucydides
Trap,” invoking Thucydides’s well-known observation in History of the Peloponnesian War that “what made war inevitable was the growth of Athenian power
and the fear which this caused in Sparta” (Thucydides, 1972, p. 49, quoted in
Allison, 2015, p. 77). This classic analogy or historical precedent suggests that a
rising challenger and a reigning hegemon may come into conflict as a result of
power shifts and structural stresses. Different scholars, analysts, and organizations use different metrics, indicators, and data. Given the complexity of the
task it is prudent to consider at least a few different major measures in analyzing China’s military power and the security environment of which it is a part.
Figure 3, from The Military Balance published by the International Institute for
Strategic Studies (IISS), shows the top 15 defense budgets in the world, as well
as each country’s national share of the global defense expenditure, that is, the
global distribution of military expenditure. The United States clearly leads the
world in defense spending, accounting for 36.1% of all of the world’s military
budgets combined (IISS, 2015).9 China’s military budget is dwarfed by the U.S.
Economic Interdependence and International Conflict
budget, being a very distant number two at 8.0%. That translates into a ratio of
4.5 to 1. At least on paper, the military spending “balance” is very lopsided
indeed. Furthermore, if we take into account those states with the biggest military budgets which are also military allies of the United States through the
North Atlantic Treaty Organization (NATO) or other bilateral arrangements,
the share of the United States and allies together will jump to 56.5% of the
world total (the United States plus NATO and Japan). The sole Chinese ally on
the list is Russia, through the Shanghai Cooperation Organization (SCO). These
two military budgets combined would amount to 12.4% of the world total. In
relative terms the addition of Russia only improves the military spending balance slightly in China’s favor vis- a-vis the United States and allies, and arguably, Sino-Russian military ties are not nearly as close as those between the
United States and Japan or those between the United States and its European
NATO allies.
We can consider the spending issue from a somewhat different angle. If the
U.S. Department of Defense’s figure for China is adopted in place of those of
the London-based, independent IISS, then we arrive at a figure of around 165
billion USD for China, compared with 687 billion USD for the United States, or
a ratio of 4.16 to 1 in America’s favor (U.S. Department of Defense, 2015, p.
49).10 If actually valued on a comparable basis, China’s military expenditure
might be somewhat closer to that of the United States than the figures indicate
since military salaries are much lower in China than in the United States.
Given this lopsided picture of military balance—understood as a state of near
equilibrium—it does not seem reasonable to state that China’s military is anywhere near on par with the U.S. military. Does it make better sense to speak
instead of a rising power that is in the process of balancing instead?11 In other
words, even if China’s military is far from being at parity with the U.S. military,
can we say that China is in the process of endeavoring to overtake the U.S. militarily? Arguably, available evidence does not seem to lend strong credence to
this view, either. It has been widely documented that China has stepped up its
military modernization program, which focuses, among other things, on aerial
and naval capabilities, doctrinal shifts, and capabilities in anti-access/areadenial or what the Chinese military calls counter-intervention tactics (Tellis &
Tanner, 2012; United States Department of Defense, 2015). In many ways, however, these can be seen as steps that have been taken by China to address what,
in effect, is an imbalance of power, especially naval power, in the Western Pacific
region, where the United States and its allies, especially Japan, continue to
enjoy substantial advantages over the Chinese naval and air forces even after
substantial Chinese modernization. Modernization has made much progress
and the readiness of the People’s Liberation Army has gone up, but there is still
no rough balance or equilibrium, properly understood. Moreover, China’s need
for internal security coupled with a long border shared with countries in which
or with which China has fought wars in modern times divert resources away
from focusing on the United States and redressing the military imbalance
(Beckley, 2011).
Nevertheless, China’s military modernization efforts, together with its more
assertive foreign policy behavior in the East China Sea and the South China
Sea, can lead to outcomes which it might not have wanted, as the U.S. pivot to
Asian Politics & Policy—Volume 9, Issue 1—2017
Figure 4. Military Expenditure as a Percentage of GDP for Selected Countries in the Western
Note: Author’s chart based on data from the Stockholm International Peace Research Institute
(SIPRI, 2015a).
Asia and the distrust and tensions in the region make clear. The fear that it
appears to have struck in some Southeast Asian nations, likewise, is understandable given the power disparities between them and China, for while China trails behind the United States in military terms, and Chinese leaders have,
at least since the 19th century, operated from the vantage point of being the
weaker party, it still looks comparatively strong and perhaps even menacing to
some of its Southeast Asian neighbors.12
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