(This interview, with a research scholar who identified a ‘Dalai Lama effect’ on international trade with China, was published in DNA edition dated November 27, 2010.)
When jailed Chinese political dissident Liu Xiaobo was awarded this year’s Nobel Peace Prize, China responded angrily. It warned Norway, where the Nobel Peace Committee is based, that bilateral relations would be harmed; furthermore, it is now campaigning for third countries to boycott the award ceremony – or face Chinese retribution. It’s a threat that cannot be taken lightly, in the light of a recent research study that illustrates how China leverages its trade clout for political gain and “punishes” countries that antagonise it. Andreas Fuchs and Nils-Hendrik Klann, research scholars at the University of Goettingen, note that countries that receive the Tibetan spiritual leader Dalai Lama – against China’s wishes – see their exports to China contract in the two years following such meetings. In an interview to DNA’s Venky Vembu, Klann (in picture at right) explains the ‘Dalai Lama effect’ on trade with China – which works with karmic certainty – and the implications for China’s trading partners. Excerpts:
What precisely is the ‘Dalai Lama effect’?
It’s the negative effect on exports to China that a country experiences if its political leaders receive the Dalai Lama in the current or the previous year. These countries experience a contraction of exports to China because China punishes countries that receive the Dalai Lama at a political level. The extent of this export contraction varies between 8.1 per cent and 16.9 per cent. The effect depends on the level of importance of the foreign dignitary who meets the Dalai Lama: if the dignitary is more important, the effect is more pronounced. Exports of machinery and transport equipment to China are typically impacted. And the ‘Dalai Lama effect’ wears off after about two years.
What levers of bilateral trade does China employ to advance its political interests?
China communicates its displeasure with countries that receive the Dalai Lama in many ways. For one, it scales back the number of trade delegations to these countries. For example, around 2008, France, which was experiencing some bilateral conflicts with China, was excluded from two trade missions that went from China to Europe. That happened because the French President met the Dalai Lama the previous year, and there had been protests against the Beijing Olympic torch relay in Paris. In 2009, after France signalled it respected Chinese sovereignty over Tibet, France received a trading delegation.
Which countries are most significantly affected by the ‘Dalai Lama effect’?
Our model plots the effect over 159 countries, and we give the average effect for them. Looking at individual countries drastically reduces the amount of data and the model becomes less reliable.
How does India fare, given that the Dalai Lama spends most of his year in India?
The effect seems to hold with India, but it would be difficult to estimate the precise extent. India is a statistical outlier because the Dalai Lama lives there. To test the robustness of our model, if we exclude India – and France, which also has many Tibet support groups – the findings don’t change. But it appears that the Dalai Lama is received less in the Asian region; we speculate that countries that are geographically close to China avoid receiving the Dalai Lama. But it could also be that there is less interest in the Dalai Lama’s ideas or his talks in the region.
Are China’s trade partners buckling to pressure and not meeting the Dalai Lama?
We see anecdotal evidence of this. For example, the Dalai Lama is popular in South America, but around 2006, we noticed he was no longer received by a politician. At the same time, a lot of trade agreements were signed between China and these countries. It appears that politicians avoided meeting the Dalai Lama so as not to jeopardise trade agreements. The same was the case with Germany. The Dalai Lama was once received by the German Chancellor, and it led to complications. The next year when the Dalai Lama went to Germany, he was met by a leader of lower rank. We surmise that countries are wary of antagonising China, but they also don’t want to be seen to be doing what China dictates.
Does China too lose anything from such punishment mechanisms? If so, why do Chinese administrators persist with it?
When China imports less from Europe, of course European countries suffer, but China too suffers: it would have a hard time substituting these imports. But the Chinese administration gains politically at home, and that’s the trade-off it makes. But these political games wear off at some point: the loss from trade outweighs the political gains achieved, and at that point, the administration rolls it back.
Is China alone in leveraging its economic and trade clout for political gain?
Our study shows that trade relations between established industrialised countries and rising emerging economies work in a different way from trade between industrialised countries. In the former, bilateral relations are more important and these emerging economies place a larger weight on other countries respecting their political preferences. We believe the same findings might apply, for example, to Russia. But China is unique for two reasons: its economic size and the fact that the administration has a stronger leverage over its economy. Over time, China has become less covert about exerting its influence and warning its trade partners.
Since China plays one country off against another, how can China’s trading partners protect their interests?
At a theoretical level, countries could move towards coordinated receptions and joint meetings with the Dalai Lama. For instance, Germany could say it will receive the Dalai Lama – but only if France too does. If everybody goes together, it will generate less Chinese anger than if only one country did it. Of course, it could work the other way as well: if I know my neighbour is planning to receive the Dalai Lama, I may decide not to receive him in the expectation of being ‘rewarded’ by China.
But we don’t want to give countries’ leaders the message that they should not receive the Dalai Lama because it’s bad for trade. In fact, meeting the Dalai Lama lends credibility to these leaders’ message that they care about human rights and democracy – because it’s a ‘costly message’: it hurts them a little and for that reason is more credible.
Are the fears that China might cut back on exports of rare earth minerals as a strategic lever to make political gains valid?
We believe that it’s possible that China could leverage its position as one of the largest suppliers of rare earth minerals. But it should be careful not to overplay its hand: other countries will probably anticipate such a move and look for alternatives and be less dependent on China than in the past. China might appear to be a trading partner they might not be able to rely on. And there are other big markets – like India – which too are growing fast. Many Germany companies now look at India the way they saw China. So, there’s a certain potential for China to use its trade policies to leverage its political interest, but there’s also a certain efficiency of using it. It’s like a trump card: you can’t use it too often.