China’s economic rise at home has expanded outward, with an influx of Chinese investment, aid, and loans overseas, particularly since the launch of the Belt and Road Initiative in 2013. Analysts abroad, especially in the United States, often see these financial levers as a channel for Chinese influence. The thesis behind “debt trap diplomacy,” for example, holds that China uses loans to ensnare recipient governments in debt, then pressures them for concessions in exchange for flexible repayment conditions.
But has China’s growing economic engagement abroad actually translated into political influence?
That’s exactly the question Audrye Wong, a senior fellow at the American Enterprise Institute, explores in her new book, “Subversion and Seduction: China’s Economic Statecraft” (Oxford University Press, 2026). She finds that China’s economic influence is closely tied to positive inducements, not punitive measures like sanctions or debt penalties.
Even then, “Recipient countries actually have considerable agency in shaping and even circumscribing China’s economic influence,” Wong told The Diplomat in a written interview, “and that’s a point often overlooked by those focused on the high-level bilateral U.S.-China competition.
Continue reading for the full interview.
Your book focuses on a big picture question: has China’s economic statecraft actually succeeded? Do you think Western pundits have overestimated the extent to which China’s economic engagement translates to political influence? Have Chinese policymakers overestimated this?
My book argues that economic statecraft is not as simple or easy as Chinese decisionmakers think or as U.S. policymakers and external observers might fear. Success depends on the way China approaches economic inducements and who they approach. Recipient countries actually have considerable agency in shaping and even circumscribing China’s economic influence, and that’s a point often overlooked by those focused on the high-level bilateral U.S.-China competition. We have seen many instances of public and political pushback against corrupt Chinese-financed projects in the Philippines, Malaysia, and other countries.
This is not to say China’s economic statecraft should be dismissed. It has used carrots to achieve short-term transactional goals, such as getting Greece and Hungary to veto a multilateral EU statement critical of China. It has also been able to buy silence and acquiescence, among both governments and companies, on issues that Beijing cares about, such as the horrific human rights abuses and extralegal detention of Uyghurs in Xinjiang.
While not fundamentally winning hearts and minds or creating new allies, Beijing has used economic statecraft to divide and conquer. In present-day Germany, we see the political influence of business groups invested in continued economic ties with China alongside internal divisions among politicians and key ministries on national strategy toward China. Creating divisions helps to inhibit the formation of a U.S.-led coalition to counter China’s behavior and influence, and slows any concerted policy shifts away from the status quo of China’s centrality in the global economy and critical supply chains.
Is China’s use of economic statecraft unique, or does its strategy borrow from well-established playbooks?
Compared to Washington’s tendency to focus on sanctions and coercive aspects of economic statecraft, China has been quite concerted and sustained in its use of positive inducements – using trade, investment, and aid to entice countries to fall in line with Beijing’s foreign policy interests.
Of course, many countries hope to use economic tools to secure their political interests, but China is undoubtedly unique in its ability to mobilize capital at scale and in coordination with the regime’s political goals. Not every economic transaction or investment project is geopolitically-motivated, but the Chinese state is quite happy to leverage those linkages when it sees fit. Foreign aid is also blended with commercial loans and state-backed investments, and often structured to tie in construction contracts with Chinese companies. So China is able to move faster in making promises, sealing the deal, and bringing in the capital, making it quite enticing for many developing countries even if the terms are not always the most favorable or sustainable.
Another dimension of China’s economic statecraft that is relatively unique is its use of what I call “subversive carrots” – corrupt projects and deals circumventing the rule of law. China’s domestic political economy is characterized by cozy state-business relations – where continued state control over key economic levers alongside weak institutions in an era of rapid growth meant that companies had to develop symbiotic relationships with political elites. Overseas investment activities are likely to reflect that modus operandi of doing business: Chinese officials and companies tend to want to work directly with political brokers (including offering kickbacks) and bypass troublesome regulations in order to get things done more quickly. Thus we see many instances of China trying to use under-the-table carrots as a perceived quick and easy way to buy over political leaders.
You note that the success of China’s economic statecraft hinges on factors in the recipient country, especially its domestic institutions. Has China successfully tailored its economic approach to account for different potential recipients?
Yes and no. We see clear examples of China making mistakes, trying to offer subversive carrots as a shortcut but ultimately sparking backlash in recipient countries with strong enough democratic accountability, as with the Northrail project in the Philippines and the East Coast Rail Link in Malaysia. My book examines these cases in detail. So China’s execution of economic statecraft is by no means perfect.
At the same time, we see examples of successful “legitimate seduction” in places that matter – working with key political stakeholders and cultivating economic constituencies over time to fall in line with or at least refrain from opposing Beijing’s interests. In Europe, for example, we see China using subversive carrots in Hungary and legitimate seduction in Germany to considerable success, with the net effect of widening divisions on the continent and hampering coordinated efforts by Brussels for tougher policies on China.
The Chinese government has certainly learned some lessons from the initial era of the BRI. It sought to clamp down on corruption overseas and rebranded BRI projects as “small yet beautiful” (小而美) – prioritizing smaller-scale and more economically-viable projects in digital and green infrastructure rather than the previous emphasis on massive transportation and power projects (also more prone to corruption).
Beijing has also doubled down on another grand economic diplomacy effort – the Global Development Initiative (GDI), framed as a call to achieve the U.N.’s Sustainable Development Goals. Compared to the BRI’s initial launch, China has taken pains to emphasize its role through the GDI as a positive-sum global player providing debt relief, grants, public goods, and capacity-building to address development inequities, as well as working compatibly rather than competitively with existing regional and multilateral development frameworks.
Additionally, Beijing has portrayed these initiatives as contrasting with supposed U.S. preoccupation with great power competition and Washington’s economic and political containment of China. This messaging is certainly tailored quite effectively to appeal to developing countries eager for investment and growth.
To what extent is the use of “subversive carrots” – corrupt, non-transparent investments and projects – instead of more above-board “legitimate seduction” the result of Chinese government policy, versus company-level decisions made by individual firms?
Despite the strong hand of the state in the economy, Beijing doesn’t have perfect control over its companies. There are certainly instances where Chinese companies eagerly grease the wheels for their own profit-seeking reasons. We should also distinguish between the central government and provincial governments, the latter often being active players in promoting overseas investment and sometimes way less cautious than officials sitting in Beijing. Of course, the negative local reactions to such cases don’t necessarily distinguish between what was explicitly ordered by the Chinese government versus a company going rogue, so the overall reputation of China’s economic statecraft still takes a hit.
However, there are clear examples where the Chinese government is aware of and condones such corrupt, non-transparent investments. Going back to the case of Malaysia’s ECRL, there is documentary evidence showing the involvement of Chinese officials to bail out 1MDB, Malaysia’s corruption-ridden sovereign wealth fund, in return for investment deals. So it would be quite disingenuous (although a convenient cover) for the Chinese government to blame rogue companies for uncovered instances of corruption.
How do China’s other actions – military signaling, foreign policy rhetoric, and influence operations aimed at overseas audiences – impact its economic statecraft efforts, especially the lure of its positive inducements?
On the one hand, China’s more blatantly aggressive polices, whether in the form of diplomatic rhetoric, military activity, or economic coercion, can undermine the lure of its positive inducements. Governments are more likely to view dangled economic promises with a grain of salt, knowing that Beijing is likely to come calling with political demands in the near future.
On the other hand, we have seen time and again that many companies and even governments, from Europe to Africa, remain enticed by China’s market even after observing Beijing draw out its knives. The median country not facing direct security threats from China is likely to prefer to stay out of conflicts that don’t concern its immediate national interests (including in the Taiwan Strait) and keep economics separate from politics.
And China has been great at periodically using coercion in tandem with inducement, which keeps countries coming back. This exploits the short-term outlook of many business leaders, prioritizing performance now rather than long-term costs. European automakers are still seeking to localize production in China even as they are being competed to obsolescence.
We also see growing alignment and synergy between Beijing’s economic and informational strategies abroad, whereby China actively tries to shape narratives about China’s economic power and promote the legitimacy of political actors seen as favorable toward China. Especially in places where there is a relative lack of expertise or even attention on China, the provision of new narratives about China’s development model and its economic vitality fills an information gap and promote positive perceptions of China’s economic statecraft. It is not infrequent that political elites hold beliefs that Chinese investment and trade is indispensable and more important than any other economic partner, even though the data may differ. And China is great at credit claiming – sending the Chinese ambassador to attend a ribbon-cutting ceremony and write op-eds in local media outlets about the success of economic cooperation.
Finally, this is a time where the United States acting as an unreliable partner, imposing tariffs on allies, and rejecting multilateral diplomacy. This provides a double boon for Beijing. U.S. pressure tactics make it more permissible and less costly for China to coerce others, while China’s economic carrots become more attractive to those looking for an alternative to Washington.
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