09-18-2021, 04:20 PM
Source: Manya Koetse, ‘Hong Kong protests: Brand “witch hunt” takes over Chinese internet”’, BBC News, 15 August 2019, online.
Figure 12: An official apology by Italian luxury brand Versace was shared online after it received backlash for designing T-shirts that implied that Hong Kong and Macau are independent territories
![[Image: pb36-fig12.jpg]](https://s3-ap-southeast-2.amazonaws.com/ad-aspi/2020-08/pb36-fig12.jpg)
Source: VERSACE (@Versace), ‘The Company apologizes for the design of its product and a recall of the t-shirt has been implemented in July’, Twitter, 7:36 pm, 11 August 2019, online.
The success of coercive measures against businesses largely stems from companies being profit-driven and having limited power relative to the world’s second largest economy. China’s consumer spending overtook the US’s for the first time in 2019,74 so companies are unlikely to risk losing access to that market. Targeting companies allows the CCP to achieve political ends while keeping the dispute at arm’s length from governments that would be better placed to push back. For example, in April 2018, the Chinese Civil Aviation Administration ordered 36 international airlines to remove all references from their websites that suggested Hong Kong, Taiwan and Macau were separate regions or risk having the company’s ‘serious dishonesty’ recorded and facing ‘disciplinary actions’.75 By July 2018, all 36 airlines, including British Airways, Japan Airlines, Lufthansa and Qantas, had modified their websites and other promotional material to reflect the CCP’s views. Delta Airlines went further and apologised for its listing, stating ‘We are fully committed to China and to our Chinese customers.’76 If the governments of the countries where the airlines were headquartered had instead banded together to counter the threat, the outcome would likely have been very different.
The emergence of a counter-coercion strategy
A number of foreign governments, including those of Australia, Canada, Japan, India, the UK and the US, are starting to call out the CCP’s coercive diplomacy as it happens and are working on ways to develop an effective counter-coercion strategy.77 For example, Australia set the foundations for a counter-coercion strategy back in June 2017 during the 16th Shangri-La Dialogue when then Prime Minister Malcolm Turnbull stated that ‘a coercive China would find its neighbours resenting demands they cede their autonomy and strategic space, and look to counterweight Beijing’s power by bolstering alliances and partnerships.’78 The Australian Government then enacted new national security and foreign interference legislation, citing ‘disturbing reports about Chinese influence’.79
Three years later, in June 2020, Prime Minister Scott Morrison formally declared that Australia won’t be intimidated by threats from the CCP and won’t trade its values in response to ‘coercion’.80 In August 2020, Morrison affirmed that Australia wants to ‘see international engagement framed by agreed rules and norms, not crude economic or political coercion’ in reference to the CCP and ‘will call it as we see it’.81
Another example was in August 2020 when the Five Eyes intelligence alliance issued a joint statement demonstrating grave concern over the disqualification of pro-democracy candidates in the Hong Kong Legislative Council elections and condemning the suppression of Hong Kong citizens’ rights and freedoms following the imposition of a new national security law by the CCP.82 The joint statement came after the CCP threatened countermeasures against all five member states for suspending extradition treaties and providing assistance to Hong Kong citizens.83 While counter-coercion strategies remain unclear for the rest of the world, they’re likely to increase in the future as the CCP continues with its coercive tactics.
Future challenges and recommendations
Coercive diplomacy is an important tool of Chinese foreign policy that the CCP will continue to use against foreign governments and companies, particularly in democratic countries. The CCP’s practice of coercive diplomacy is very broad in its targets, intentions, methods and levels of retaliation. Therefore, this report seeks to offer flexible policy options that can be implemented across different levels of society.
Recommendation 1: Increase global situational awareness about coercive diplomacy
The current failure of countries and companies to effectively deter coercive diplomacy suggests that there’s limited appreciation of its prevalence and limited discussion of effective countermeasures. Governments could remedy this by tasking their foreign ministries to track coercive diplomacy and use that data to identify potential coalitions, particularly in the areas of economic cooperation, trade liberalisation and technological development. Research institutions could also be encouraged to systematically track instances of coercive diplomacy.
Recommendation 2: Respond via coordinated and joint pushback
Responding to coercive threats in an individual capacity, whether as a state or as a company, will only work for the US, given China’s current size and heft. To be effective, governments need to counter the CCP’s divide-and-conquer tactics by pursuing coordinated and joint pushback through multilateral forums such as the G7, G10 and European Union and by building minilateral coalitions of countries affected by the same coercive methods. Those coalitions could be used to publicly call out examples of coercion in the same way that’s currently used to attribute cyberattacks, and follow that up with countermeasures. In many cases, it would be unethical and against core values to reciprocate with like-for-like countermeasures (for example, arbitrary arrests and executions), so countermeasures will need to target alternative areas, such as through joint statements, economic sanctions or official travel restrictions.
Recommendation 3: Establish a 5 Eyes collective economic security pact
The Five Eyes countries should consider adopting a collective economic security measure, analogous to Article 5 of the North Atlantic Treaty establishing NATO (“an armed attack against one or more of them in Europe or North America shall be considered an attack against them all”). Using their collective intelligence arrangements, the Five Eyes countries could make authoritative joint attributions of any coercive measures levied against any of the five members and take collective economic and diplomatic measures in retaliation. Such an arrangement could also involve an agreement to abstain from taking advantage of any coercive trade measures imposed by the CCP (for example, refusing to fill the shortfall created by banning Canadian pork). While this approach may be less attractive to the current US Administration it may be of interest to future administrations and would be highly effective in deterring the use of coercive diplomatic measures.
Recommendation 4: Develop protocols in collaboration with the business community to counter coercive measures targeting companies
Affected governments should work more closely with business groups to develop protocols on how to best respond to economic coercive methods applied by the CCP. The increasing risk of economic coercion by the party should be assessed as a structural matter in economic and trade policies, not just as isolated or unexpected acts in response to particular decisions and events. In cases of coordinated action against companies, the dispute should be elevated to a state-level discussion to prevent individual companies from being picked off and being forced to capitulate. In the case involving 36 global airlines, a more effective approach would have involved governments assuming the lead in responding to the ultimatum, working to form a global coalition of countries and their airlines that refused to be pressured, and countering the coercion by threatening reciprocal bans on access to their markets.
Recommendation 5: Factor in the heightened risk of doing business and building economic relations with China
As the CCP uses economic coercion more often, and more overtly, foreign companies with business operations in China need to factor in the increasing risk to trade flows, supply chains and market share. That risk is significant enough to warrant board-level attention and will no doubt be a standing topic in audit committees because of its bottom-line impact. This requires board-level involvement to protect shareholder value and is also likely to require companies to work more closely with their home government policymakers.
Appendix
Readers are encouraged to download the report PDF to access the extensive dataset which details cases of CCP coercive diplomacy targeting foreign governments and companies.
https://s3-ap-southeast-2.amazonaws.com/...dCLts4kbY=
Figure 12: An official apology by Italian luxury brand Versace was shared online after it received backlash for designing T-shirts that implied that Hong Kong and Macau are independent territories
Source: VERSACE (@Versace), ‘The Company apologizes for the design of its product and a recall of the t-shirt has been implemented in July’, Twitter, 7:36 pm, 11 August 2019, online.
The success of coercive measures against businesses largely stems from companies being profit-driven and having limited power relative to the world’s second largest economy. China’s consumer spending overtook the US’s for the first time in 2019,74 so companies are unlikely to risk losing access to that market. Targeting companies allows the CCP to achieve political ends while keeping the dispute at arm’s length from governments that would be better placed to push back. For example, in April 2018, the Chinese Civil Aviation Administration ordered 36 international airlines to remove all references from their websites that suggested Hong Kong, Taiwan and Macau were separate regions or risk having the company’s ‘serious dishonesty’ recorded and facing ‘disciplinary actions’.75 By July 2018, all 36 airlines, including British Airways, Japan Airlines, Lufthansa and Qantas, had modified their websites and other promotional material to reflect the CCP’s views. Delta Airlines went further and apologised for its listing, stating ‘We are fully committed to China and to our Chinese customers.’76 If the governments of the countries where the airlines were headquartered had instead banded together to counter the threat, the outcome would likely have been very different.
The emergence of a counter-coercion strategy
A number of foreign governments, including those of Australia, Canada, Japan, India, the UK and the US, are starting to call out the CCP’s coercive diplomacy as it happens and are working on ways to develop an effective counter-coercion strategy.77 For example, Australia set the foundations for a counter-coercion strategy back in June 2017 during the 16th Shangri-La Dialogue when then Prime Minister Malcolm Turnbull stated that ‘a coercive China would find its neighbours resenting demands they cede their autonomy and strategic space, and look to counterweight Beijing’s power by bolstering alliances and partnerships.’78 The Australian Government then enacted new national security and foreign interference legislation, citing ‘disturbing reports about Chinese influence’.79
Three years later, in June 2020, Prime Minister Scott Morrison formally declared that Australia won’t be intimidated by threats from the CCP and won’t trade its values in response to ‘coercion’.80 In August 2020, Morrison affirmed that Australia wants to ‘see international engagement framed by agreed rules and norms, not crude economic or political coercion’ in reference to the CCP and ‘will call it as we see it’.81
Another example was in August 2020 when the Five Eyes intelligence alliance issued a joint statement demonstrating grave concern over the disqualification of pro-democracy candidates in the Hong Kong Legislative Council elections and condemning the suppression of Hong Kong citizens’ rights and freedoms following the imposition of a new national security law by the CCP.82 The joint statement came after the CCP threatened countermeasures against all five member states for suspending extradition treaties and providing assistance to Hong Kong citizens.83 While counter-coercion strategies remain unclear for the rest of the world, they’re likely to increase in the future as the CCP continues with its coercive tactics.
Future challenges and recommendations
Coercive diplomacy is an important tool of Chinese foreign policy that the CCP will continue to use against foreign governments and companies, particularly in democratic countries. The CCP’s practice of coercive diplomacy is very broad in its targets, intentions, methods and levels of retaliation. Therefore, this report seeks to offer flexible policy options that can be implemented across different levels of society.
Recommendation 1: Increase global situational awareness about coercive diplomacy
The current failure of countries and companies to effectively deter coercive diplomacy suggests that there’s limited appreciation of its prevalence and limited discussion of effective countermeasures. Governments could remedy this by tasking their foreign ministries to track coercive diplomacy and use that data to identify potential coalitions, particularly in the areas of economic cooperation, trade liberalisation and technological development. Research institutions could also be encouraged to systematically track instances of coercive diplomacy.
Recommendation 2: Respond via coordinated and joint pushback
Responding to coercive threats in an individual capacity, whether as a state or as a company, will only work for the US, given China’s current size and heft. To be effective, governments need to counter the CCP’s divide-and-conquer tactics by pursuing coordinated and joint pushback through multilateral forums such as the G7, G10 and European Union and by building minilateral coalitions of countries affected by the same coercive methods. Those coalitions could be used to publicly call out examples of coercion in the same way that’s currently used to attribute cyberattacks, and follow that up with countermeasures. In many cases, it would be unethical and against core values to reciprocate with like-for-like countermeasures (for example, arbitrary arrests and executions), so countermeasures will need to target alternative areas, such as through joint statements, economic sanctions or official travel restrictions.
Recommendation 3: Establish a 5 Eyes collective economic security pact
The Five Eyes countries should consider adopting a collective economic security measure, analogous to Article 5 of the North Atlantic Treaty establishing NATO (“an armed attack against one or more of them in Europe or North America shall be considered an attack against them all”). Using their collective intelligence arrangements, the Five Eyes countries could make authoritative joint attributions of any coercive measures levied against any of the five members and take collective economic and diplomatic measures in retaliation. Such an arrangement could also involve an agreement to abstain from taking advantage of any coercive trade measures imposed by the CCP (for example, refusing to fill the shortfall created by banning Canadian pork). While this approach may be less attractive to the current US Administration it may be of interest to future administrations and would be highly effective in deterring the use of coercive diplomatic measures.
Recommendation 4: Develop protocols in collaboration with the business community to counter coercive measures targeting companies
Affected governments should work more closely with business groups to develop protocols on how to best respond to economic coercive methods applied by the CCP. The increasing risk of economic coercion by the party should be assessed as a structural matter in economic and trade policies, not just as isolated or unexpected acts in response to particular decisions and events. In cases of coordinated action against companies, the dispute should be elevated to a state-level discussion to prevent individual companies from being picked off and being forced to capitulate. In the case involving 36 global airlines, a more effective approach would have involved governments assuming the lead in responding to the ultimatum, working to form a global coalition of countries and their airlines that refused to be pressured, and countering the coercion by threatening reciprocal bans on access to their markets.
Recommendation 5: Factor in the heightened risk of doing business and building economic relations with China
As the CCP uses economic coercion more often, and more overtly, foreign companies with business operations in China need to factor in the increasing risk to trade flows, supply chains and market share. That risk is significant enough to warrant board-level attention and will no doubt be a standing topic in audit committees because of its bottom-line impact. This requires board-level involvement to protect shareholder value and is also likely to require companies to work more closely with their home government policymakers.
Appendix
Readers are encouraged to download the report PDF to access the extensive dataset which details cases of CCP coercive diplomacy targeting foreign governments and companies.
https://s3-ap-southeast-2.amazonaws.com/...dCLts4kbY=