EAI Fellows Program Working Paper Series No.28

Author

Steve Chan is Professor of Political Science at the University of Colorado, Boulder, with research interests in power-transition and balance-of-power theories, democratic peace theory, economic statecraft, and East Asian political economies. He served as department chair during 2003-07, and as Treasurer for the International Studies Association for the 1999-2002 term.

He was the recipient of the Karl W. Deutsch award in 1988, Boulder Faculty Assembly award for Excellence in Research in 1994, CU Parents Association's Marinus Smith Award in 2004, the Sasakawa Peace Foundation Award and the Distinguished Scholar Award of the Foreign Policy Analysis Section of the International Studies Association in 2009.

His research interests cover power-transition and balance-of-power theories, democratic peace theory, economic statecraft, and East Asian political economies. His work has appeared in journals such as the American Political Science Review, Comparative Political Studies, International Interactions, International Studies Quarterly, Journal of Conflict Resolution, Journal of East Asian Studies, Journal of Peace Research, Security Studies, and World Politics. His books include China, the U.S., and the Power-Transition Theory (2008); Coping with Globalization (2001); Economic Sanction As Statecraft (2000); Beyond the Developmental State (1998); Foreign Direct Investment in a Changing Global Political Economy (1995); Defense, Welfare and Growth (1992); The Evolving Pacific Basin in the Global Political Economy (1992); Flexibility, Foresight and Fortuna in Taiwan's Development (1992); East Asian Dynamism (1993, 1990); International Relations in Perspective (1984); Foreign Policy Decision Making (1984); and Understanding Foreign Policy Decisions (1979). He can be reached at steve.chan@colorado.edu.

 
This paper was submitted to "EAI Fellows Program on Peace, Governance, and Development in East Asia" supported by the Henry Luce Foundation based in New York. All papers are available only through the online database.

Abstract

In conducting research, international relations scholars typically seek to confirm their empirical expectations (or hypotheses). This paper adopts the opposite approach, focusing on the unexpected to highlight what is likely to be more informative for theory and policy. Specifically, it discusses the seeming puzzle from the neorealist perspective that China and the U.S. have become a very large creditor and debtor (respectively) to each other. Why would these two potential adversaries want to enter this relationship if it can have significant security externalities? That is, if security concerns should always trump economic interests, why would they knowingly expose themselves to the risk of loan boycott or debt repudiation that can be used as a leverage to advance a country’s political agenda and military position? I argue that this phenomenon signifies mutual reassurance to maintain cordial relationship. Heavy international loan/debt signals credible commitment because both parties can clearly anticipate the severe consequences should their political and economic ties become destabilized. In contrast to various realist formulations that focus on relative national capabilities and power shifts, this paper directs attention to how analysts may discern states’ preferences and intentions by examining the extent to which they are willing to undertake costly commitments. These commitments to maintain good relations are credible to the extent that the parties arrange self-enforcing deals entailing severe ex ante costs should either side engage in opportunistic behavior.

Introduction

Even a casual observer of recent foreign policy analyses generally and discourse pertaining to East Asian relations in particular cannot fail to notice that a considerable amount of attention is being paid to the ongoing power shifts between China and the U.S. Much (though clearly not all) of this scholarship, at least written by Americans, has followed the standard script of whether China should be engaged or contained. Other American analysts have followed the well-worn theories of balance of power or power transition.

Because there are many more Americans or at least non-Chinese writing for Western-oriented or –dominated venues, especially scholarship published in the U.S., it is not surprising that there has been much more concern about how an extant hegemon should deal with a rising latecomer than the other way round. Thus, for example, there has been much interest about how China may be socialized or otherwise converted into becoming a “responsible stakeholder.” As well, there has been considerable interest in studying how China’s nearby neighbors and the U.S. can “enmesh” and even balance against a rising China. There has, however, been concomitantly less interest in analyzing how a rising, though still substantially weaker, power can go about managing its relations with its neighbors and especially the extant hegemon.

This asymmetric attention reflects understandably the power-transition theory’s claim that power shifts to the relative detriment of an extant hegemon augurs international instability and even the danger of systemic war. According to this theory (Organski and Kugler 1980), a rising power is apt to challenge the international order in its effort to displace the extant hegemon. Perhaps, such attention may be even understandable from the perspective of balance-of-power theorizing when applied to a regional context – based on the supposition that a rising China will be more threatening to its nearby neighbors which will therefore seek support from a more distant, albeit more powerful, U.S. for security protection.

With some notable exceptions (e.g., Glosny, n.d.; Goldstein 2005), there has not been much attention paid to the question how a rising power may or can manage its relations with other states, especially the extant hegemon. Arguably, this rising power faces an even more acute security concern than the hegemon. Until it overtakes the hegemon, it has to deal with the possibility of a preventive war launched by the latter to block its ascent (Copeland 2000; Levy 1987, 2008; Mueller et al 2006). From the rising power’s perspective, the period of power transition is the most dangerous and vulnerable time.

The rising power can resort to a variety of means to reassure other states, including the extant hegemon, about its peaceful disposition. For instance, Prussia was apparently able to avoid balancing reactions from the other European powers in the Danish-Prussian War of 1864 by signaling self-restraint, invoking common norms, and appealing to their self-identity (Goddard 2008/09). Subsequently, Bismarck pursued a series of strategic partnerships so that Prussia became a pivotal, indeed indispensable, linchpin in an interlocking set of alliances (e.g., Crawford 2003; Goldstein 2003; Joffe 1995) Diplomatic assurances, however, can be construed as “empty talk,” and interstate alignment can be reversed (Snyder 1997). Why should the other states believe that these assurances are sincere and that commitments made today will be kept tomorrow?...(Continued)