Asia Europe Journal

https://doi.org/10.1007/s10308-019-00536-4
ORIGINAL PAPER

Leadership-building dilemmas in emerging powers’

economic diplomacy: Russia’s energy diplomacy
and China’s OBOR

Xiaoguang Wang 1

Received: 9 July 2018 / Revised: 4 January 2019 / Accepted: 28 January 2019

# Springer-Verlag GmbH Germany, part of Springer Nature 2019

Abstract
Discussions of the roles of emerging powers in a changing world have been simmering
for many years, with many arguing that non-Western powers should build an alternative
global order given the growing influence of their money, natural resources, manpower,
and products. Focusing on Russia and China, this article argues that both Russia’s
energy diplomacy and China’s One Belt One Road policy are mostly ‘mercantile’ in
handling their respective domestic challenges over the short and medium terms and do
not help build political leadership. The economic structures of the two strongest
emerging powers do not support strategies that require the disbursement of economic
resources to build an alternative global order—if these two countries truly have such a
strategy. This article challenges the myth of emerging powers and suggests that the
economic strength of these emerging powers is insufficient to radically shift the
diplomatic status quo of a Western-dominated world order.

Introduction

Barely one decade after the end of the Cold War, which marked the triumph of the
global West, the rise of non-Western powers became an intriguing topic in international
politics, and it has been argued that these countries might fundamentally change the
power distribution and global governance (Hurrell 2006; Quah 2011; Cooper and
Farooq 2013; Nayyar 2016). The BRICS, Brazil, Russia, India, China, and South
Africa, are considered the representative group of such powers, and the group was
originally constituted to search for an engine of economic growth beyond the Western-
dominated G7 (O'Neill 2001). However, this group has been gradually politicised. Are

* Xiaoguang Wang
wangxg@cup.edu.cn; wangxiaoguang2003@hotmail.com

1
International Political Economy, China University of Petroleum, Fuxue Road 18, Changping,
Beijing 102249, China
 X. Wang

emerging powers throwing down the gauntlet to the established Western powers as
uncertainties in the West exemplify the rise of alternatives?
Scepticism regarding that assertion can be framed in two ways. One cohort doubts
the real might and cohesion of groups of emerging powers, arguing that they, partic-
ularly the BRICS, are not sufficiently powerful in terms of economic sustainability,
hard power build-up, or cultural-institutional attraction (Hart and Jones 2010; Cox
2012; Sharma 2012; Pant 2013; Nossel 2016) and that they do not cooperate strategi-
cally, at times even clashing (Armijo 2007; Laidi 2012; Tudoroiu 2012; Brütsch and
Papa 2013; Hopewell 2015) in the international arena. Another cohort, focusing on the
global structure addressed by emerging powers, questions their ability to compete with
Western powers, arguing that the rise of non-Western powers, especially the BRICS,
depends on the status quo of the global political order and capitalist system established
and maintained by the West (Lieber 2014; Stephen 2014; Robinson 2015).
Unlike this group-to-group comparison of established and emerging powers, this
article observes the behaviours of individual emerging powers regarding practical
issues in international politics to evaluate their impacts on the global order through
the lens of economic diplomacy. Russia’s energy diplomacy and China’s One Belt One
Road (OBOR) initiative (also known as the Silk Road Economic Belt and the twenty-
first-century Maritime Silk Road Initiative and by the acronyms BRI or B&R) will be
examined.
The article examines Russia and China because they are the emerging powers most
likely to revise the current global order. In terms of economics, China is the second
largest economy in the world, and Russia has the highest GDP per capita of the BRICS.
Regarding military aspects, with both nuclear and conventional arsenals, these coun-
tries are better armed than are other emerging powers. In the arena of international
politics, Russia and China hold permanent seats on the UN Security Council. In the
post-Cold War era, both countries have advocated for a so-called ‘multipolar’ world
order (Turner 2009).
Russia is regarded as the major heir of the Union of Soviet Socialist Republics
(USSR or the Soviet Union). Russia’s socioeconomic foundation, especially its high
living standard and well-educated citizenry, and its interest in international politics
differ from those of other emerging powers (MacFarlane 2006; Aslund 2010a). In
addition, the histories of the Tsarist Empire and the USSR give Russia an exceptional
reputation and the skills to be a great power in terms of organising and maintaining
strategic leadership; post-Cold War Russia does not even deny its ambition and efforts
to restore this state of glory (Clunan 2014). Hydrocarbons represent one of Russia’s
most powerful diplomatic instruments in realising this goal (Lough 2011; Newnham
2011).
In contrast, China’s influence on international politics is mostly due to its rapid
economic growth in recent decades, especially compared with the other BRICS
countries (Pant 2013, pp. 97–98). Unlike Russia, China does not have extensive
experience in international leadership in modern history. However, in recent years,
China has begun to actively fight for a stronger voice in international affairs. The
OBOR initiative is the deepest investment in economic diplomacy in the republic’s
history and is one of the largest economic projects in human history (Hancock 2017).
With the historical and political implications of OBOR, China is trying to establish a
Leadership-building dilemmas in emerging powers’ economic...

series of international institutions, particularly the Asian Infrastructure Investment Bank

(AIIB) (Ren 2016; Yu 2017).
As illustrated above, Russia and China make the West nervous about geopolitics
(Wright 2015). At the 54th Munich Security Conference, Sigmar Gabriel (2018), the
then-German Foreign Minister, listed ‘China’s increasing leadership aspirations’ and
‘Russia’s claims to power’ as two issues causing a ‘massive shift in our world’, and he
noted that the two countries ‘are constantly trying to test and undermine the unity of the
European Union’. On the US side, the Trump administration, in its National Security
Strategy report (2017, p. 2), described Beijing and Moscow as actors who ‘challenge
American power, influence and interests, attempting to erode American security and
prosperity’.
This article begins by conceptualising economic diplomacy and highlighting the two
dimensions of the concept, namely, mercantile and strategic, and the different political
effects they involve. Subsequently, Russia’s energy diplomacy and China’s OBOR will
be examined within an analytical framework of economic diplomacy to understand the
leadership dilemma in terms of the external economic activities of the two countries.
Finally, the article will discuss the emerging powers’ leadership-building paradox and
its apparent economic magnitude.

Leadership building in economic diplomacy

The relation between politics and economics is the key to the evaluation of leadership
building in economic diplomacy. Is economic diplomacy economic or diplomatic? This
question leads to various conceptualisations of economic diplomacy, although common
sense easily determines the major issues around the concept, such as political
promotion/restriction of production, trade, investment, and migration across national
borders.
In addition to economic interests, can the state pursue political and strategic aims via
economic relations as ‘economic statecraft’ (Baldwin 1985)? Some scholars believe
that economic statecraft is a special form of economic diplomacy (Lee and Hocking
2010, p.4). Others suggest that because of their opposing logic, economic diplomacy
and economic statecraft are mutually exclusive terms (Hill 2003; Woolcock and Bayne
2013); economic diplomacy ultimately proposes to ‘promote national prosperity and to
conduct a foreign economic policy to that end’ (Hill 2003, p.142), while economic
statecraft involves an ‘actor [who] can pursue its goals using economic instruments,
even when the content of the goal is not centrally economic’ (Hill 2003, p. 148).
Although the terms have different usages, one commonly finds that in external
economic relations, politics sometimes serves the economy, and the economy some-
times serves politics.
This article accepts a flexible definition of economic diplomacy, which covers both
economic statecraft and a narrowly defined, economic-based definition of economic
diplomacy, but it uses the terms ‘mercantile’ and ‘strategic’ to describe their differ-
ences. In the mercantile interpretation, the aim of economic diplomacy is economic. In
strategic economic diplomacy, material and financial wealth are mere resources that
serve strategic political aims. This dichotomy has been observed and variously identi-
fied by scholars in empirical studies as ‘economic motivation/political motivation’
 X. Wang

(Inada 1990), ‘business end/power-play end’ (Okano-Heijmans 2011, p. 7), and ‘di-
plomacy centring on economic issues/diplomacy with economic weapons’ (Smith
2014, p. 36).
Mercantile economic diplomacy, generally speaking, emphasises wealth in interna-
tional relations, such as international trade surpluses, protection of domestic industries
and employment, access to stable raw materials, and safe return of overseas investment.
To secure these aims, the state should mobilise its political instruments and influence.
Empirically, mercantile economic diplomacy is not sporadic, as it is probably employed
by almost all countries simply because economic interests are increasingly widespread
in international relations. An economic diplomacy programme launched by a devel-
oped country can also have mercantile features. For example, the funding priorities of
Japan’s Official Development Assistance (ODA) are securing access to stable resources
and expanding Japanese companies overseas (Hook and Zhang 1998; Tuman and
Strand 2006). In terms of the political implications of Japanese ODA, civilian, rather
than geopolitical, targets are prioritised, and Japan’s ODA follows the geopolitical
preferences, if there are any, of the US, Japan’s major ally (Inada 1990; Sawada 2014).
However, profit-driven mercantile economic diplomacy does not reflect the logic of
leadership building in international politics. Instead, most leadership-building efforts
uphold the strategic approach, which sees geopolitical (re)construction as its ultimate
purpose and economic policies as mere tools. Leadership is different from profit-driven
policy because it ‘rejects exploitation and implies an often critical function in the
provision of public goods’ (Kindleberger 1981, p. 242). In the process of leadership
building, abundant material resources must be disbursed as the leading state provides
public goods when subordinates are willing to free ride on the economic advantages
and accept leadership, as the international system is ‘hierarchical’ (Lake 2009). This
philosophical tradition echoes analyses of the rise of empires (Buzan and Little 2000,
chapter 8) and the ‘hegemonic stability’ discourse (Kindleberger 1973; Gilpin 1981).
Due to the enormous amount of economic resources that must mobilised to provide
public goods, leadership-building-based economic diplomacy is, unsurprisingly, the
privilege of Great Powers, such as the USA, which led the Marshall Plan, or the USSR,
which led the Council for Mutual Economic Assistance (COMECON).
To stabilise the economy and politics of post-WWII Europe, the USA initiated the
Marshall Plan, pouring billions of dollars into Western Europe. The Marshall Plan was
not merely a stimulus package for economic recovery but promoted the democratic
consolidation and regional integration of Western Europe and laid the groundwork for
the USA to become the superpower of post-War World politics. The Marshall Plan has
been widely recognised as one of the most successful economic diplomacy efforts in
terms of both its economic assistance and its political-institutional effects (De Long and
Eichengreen 1991). The US replicated, to some degree, the Marshall Plan in East Asia.
By providing economic aid, industrial support, and raw materials to its Asian allies, at
the cost of its economic interests, the USA supported the re-industrialisation of Japan,
the rise of the so-called ‘Asian Tigers’, and more importantly, the US-led East Asian
order during the Cold War (Cumings 1984).
COMECON is another, albeit less successful, example of strategic economic diplo-
macy. The COMECON stemmed from the USSR’s motivation to defend its political
territory in Eastern Europe (Roberts 1994; Cox and Kennedy-Pipe 2005). To support
the programme, the USSR provided inexpensive raw materials and energy in exchange
Leadership-building dilemmas in emerging powers’ economic...

for manufactured products from other members, and from a purely economic perspec-
tive, Moscow did not gain obvious economic benefits, as it subsidised its allies under
the COMECON framework (Marrese and Vanous 1983). Soviet leaders explicitly
stated that proving economic assistance to the European Communist Bloc served the
USSR’s political strategy and stood against the ‘narrow, purely budgetary, approach to
trade and economic relations with the Communist countries in Central Europe’ (Zubok
2009, p. 120).
Therefore, leadership building, which is based on the logic of strategic economic
diplomacy, may be a bellwether of change in global politics. In the context of emerging
powers, this article evaluates Russia’s energy diplomacy and China’s OBOR policy. If
these policies qualify as strategic approaches, they might be game changers in interna-
tional politics. If not, then these two countries, which are perhaps the strongest
emerging powers given their considerable economic magnitude, are not yet in a
position to alter the status quo of the international order, which was designed and has
been dominated by the West.

Russia’s energy diplomacy

Energy, especially oil and gas, is the most crucial pillar of Russia’s economic structure,
and Russia has not concealed its ambition to use energy to increase its political
influence. However, after investigating the logic of Russia’s energy diplomacy towards
the European Union (EU), the Commonwealth of Independent States (CIS) and East
Asia, three of the most important regions for its energy strategy, we find that Russia’s
willingness to pay economic prices to serve political ends, as the USSR did during the
Cold War, is highly questionable.
In short, Russia’s energy diplomacy is mercantile. The primary purpose of Russia’s
energy diplomacy with the EU and East Asia (except North Korea) is to maintain and
maximise business profits. By contrast, Russia’s energy diplomacy is twofold regarding
the CIS: Russia uses energy to influence some CIS countries politically to build
ramshackle leadership. However, profitmaking is still Russia’s central aim in the CIS,
which weakens its political relationships with CIS energy competitors.

Russia’s energy diplomacy with the EU

The EU and Russia have been energy interdependent due to historic connections,
geographic advantages, and market scale. However, several interruptions in the natural
gas supply, the Yukos case, and the rise of state-controlled energy companies in Russia
have unnerved Europe (Hannibal 2014) and have been partially responsible for the
overestimation of the political implications of Russian energy.
In fact, most Western European countries are not vulnerable to Russian gas inter-
ruptions, and energy security concerns about Russia are essentially an Eastern Euro-
pean issue (Richter and Holz 2015); the major EU member states are in advantageous
positions over Russia in economic relations (Harsem and Claes 2013, pp. 789–790).
Additionally, under the proposed EU Energy Union, Eastern European countries,
themselves the most active proponents of the energy initiative, would be protected by
a Europe-wide market and internal infrastructure connections (Austvik 2016). At the
 X. Wang

same time, EU regulations are increasingly effective in preventing Russia from occu-
pying a monopoly position as a gas supplier, and Russia has gradually, although
reluctantly, adjusted its strategies in accordance with these regulations, as Europe is
an irreplaceably important buyer of Russian gas in the short and medium term
(Skalamera and Goldthau 2016).
Russia’s energy business strategies in Europe should not be over-politicised in
interpretation. For instance, interruptions in gas flowing from Russia to the EU were
mostly spillovers from Russo-Ukrainian commercial disputes over natural gas, energy
pricing, and debts rather than venomous attacks by Russia against the EU per se (Van
de Graaf and Colgan 2017). Russia is motivated to control energy assets in Eastern
Europe to eliminate barriers to trade in Russian gas with Europe (ironically, this move
has resulted in further unease in Europe). In many cases, Russia uses diplomatic
instruments to maintain its European market, as damaging its reputation as a ‘reliable
supplier’ of energy would have serious consequences (Feklyunina 2012).
In its energy cooperation with Europe, Russia intentionally keeps a low political
profile and creates a cooperative atmosphere. Russia actively invites former European
politicians, such as Romano Prodi (who did not accept), Gerhard Schröder, and Hans
Jörg Schelling, onto the senior management teams of Russian energy companies and
invites European energy companies to become shareholders in Russian-led energy
projects in Europe, the newest examples of which are the Nord Stream and Yamal
liquefied natural gas (LNG) projects. Putin, in a less strategic tone, describes the
politically controversial Nord Stream 2 project as ‘an exclusively economic project’
(Tass 2018).
Russia is more interested in forging business opportunities between its energy sector
and its European clients through public relations and business approaches than in vying
for leadership. Scholars have noted that many studies of EU-Russian energy relations
fall into a geopolitical ‘reductionism’ trap, relying on an oversimplified power struggle
paradigm to address multifaceted and complicated energy issues (Judge et al. 2016).

Russia’s energy diplomacy with the CIS

Russia’s energy diplomacy towards the CIS is more politicised than that towards the
EU, but the situation is multifaceted. On the one hand, in recent decades, Moscow has
tried to revive Russia-centred geopolitics in the former Soviet space through economic
incentives, including low-priced energy and aid for energy projects. On the other,
Russia’s energy diplomacy is profit-driven such that Russia controls the energy re-
sources and transit routes through these republics and, ultimately, serves its economic
interests (Saivetz 2012, p. 406).
Russia’s energy diplomacy has political ends in some CIS countries, which are
mostly petroleum poor and economically lagging. The infrastructure and economic
connections in former Soviet spaces help Russia influence these countries; for example,
‘petro-carrots’ in the form of low-priced Russian energy were offered to Belarus,
Armenia, and Kuchma’s Ukraine and traded for the tacit political obedience of these
countries (Newnham 2011, pp. 138–140). It is no coincidence that most members of
Putin’s Eurasian Economic Community (EEC) receive low-priced energy and infra-
structure and energy project assistance from Russia.
Leadership-building dilemmas in emerging powers’ economic...

However, Russia does not have a firm hold on the reins of leadership via energy
leverage. The major dilemma is the balance between strategic ambitions and economic
interests. When the economic cost is low, Russia has an interest in political leadership;
however, when the price is too high, it always puts leadership building aside. In fact,
eliminating Russian energy subsidies to the CIS was a key policy after the demise of
the USSR (Woehrel 2010).
The commercial aspects of energy policy drive Russia towards economic, even
political, tension with the CIS countries, which certainly undermines Russia’s leader-
ship. The most salient examples include famous natural gas import disputes and a
pipeline explosion in Turkmenistan in 2009, Russia’s role in the negotiation of the
trans-Caspian natural gas pipeline (Saivetz 2012, pp.407–408; Blagov 2009), and
several gas cut-offs to Ukraine and Georgia (Newnham 2011, pp. 140–142; Proedrou
2017). Russia is sometimes able to neglect long-standing political partnerships in
favour of economic goals. In 2008, Russia accepted the position of Azerbaijan in the
Nagorno-Karabakh dispute with Armenia, which was surprising given that Yerevan is a
traditional, and perhaps it’s closest, CIS ally, to ensure energy deals with Baku (Hashim
2010, p. 270).
At the same time, Russia is aggressive in demanding short-term consider-
ations for its energy favours, and the mercantile strategy of controlling energy
assets in the CIS costs Russia politically because this approach naturally
increases tension and resistance from the CIS. When CIS countries cannot
pay Russia for energy, their energy assets are transferred to Russia, an ‘assets
for debts’ model (Maness and Valeriano 2015, p. 109) that resulted in Russia
seizing Belarus’s Beltransgaz, Armenia’s massive energy assets (Woehrel 2010),
and nearly the entire gas infrastructure of Kyrgyzstan (Ott 2014). Russia’s
behaviour blurs the line between leadership and coercion and shows that its
energy diplomacy is more focused on economic goals. Some CIS countries,
such as Ukraine, which depend on Russian energy but occupy transit routes, are
resistant to engaging in politics with Russia (Pallin 2016), and Russia’s demand
to control Ukraine’s gas pipeline contributed substantially to the Russo-Ukraine
crisis.
Finally, the political effect of energy is limited from a comprehensive
economic perspective simply because Russian energy cannot solve every eco-
nomic development problem in the CIS. Even EEC members are interested in
having more advanced partners, such as the USA and the EU, assist them in
their development (Minasyan 2015; Moshes 2016). Kazakhstan, which is energy
rich and the most prosperous Central Asian state, sits uneasily in the EEC due
to the higher prices of non-Russian goods under its customs union with Russia
(Spechler and Spechler 2013, p.4).
The balance between economic and political goals also explains why the CIS
countries trapped by the influence of Russian energy are always economically
small and vulnerable. By contrast, Russia’s energy diplomacy is problematic for
CIS countries with rich reserves of oil and gas, key transit routes, and alternative
energy partners. Those oil and gas producers in Central Asia and South Caucasia
increasingly compete against Russia in the international energy market, especially
in Europe, China, and South Asia.
 X. Wang

Russia’s energy diplomacy with East Asia

East Asia is a new focus of Russia’s energy marketing and diplomacy. Russia’s energy
policy towards East Asia is also mercantile, aiming to build a prosperous Russian Far
East and to dominate the regional energy market in East Asia (Shadrina 2014). Russo-
Chinese and Russo-Japanese energy relations are twin cases showing that Russia is
profit seeking and prevents politics from reducing economic benefits. Similarly, Mos-
cow is commercially pragmatic in avoiding dramatic moves with Seoul and preferring
stable profits. Russia’s energy relationship with Pyongyang is an exception, as Russia
provides energy aid to North Korea as a part of a strategic but makeshift political
arrangement to relieve tension.
China is widely viewed as Russia’s political partner, but this relationship does not
contribute substantially to Russo-Chinese energy cooperation. The post-Cold War
political honeymoon did not produce quick energy cooperation (Eder et al. 2009). In
the crude oil business, Putin declined the proposed Angarsk-Daqing pipeline favoured
by Beijing and shifted support to the Japanese-influenced plan for a pipeline terminal
on Russia’s Pacific coast in order to diversify the East Asian market and develop
Russia’s Far Eastern region (Paik 2012, chapter 7); both purposes were economically
oriented. The most remarkable oil deal was propelled by the ‘oil-backed loan’ model in
which China must provide financial support. In natural gas dealings, negotiations
continued for two decades; the major impasse was the pricing mechanism, since Russia
wanted China to pay standard European prices but China resisted (Liu and Xu 2014 p.
6). Thus, the purpose is for Russia (and China) to maximise commercial profits.
Correspondingly, energy does not produce increase Russia’s political influence in
China, as ‘Russia’s market share will not likely be sufficient to provide Moscow with
enormous political leverage over Beijing’ (Jaffe et al. 2015, p. 5).
Soviet/Russo-Japanese energy cooperation has been and remains economically
reciprocal (Sugimoto 2013; Motomura 2014), an inversion of the Russo-Chinese
relationship between politics and economics. Unlike the Russo-Chinese political part-
nership, Russia and Japan have a dispute over the Northern Territories/Kuril Islands in
bilateral relations, and Japan is a US ally; however, political tension does not hinder the
Russo-Japanese energy partnership. Russia appreciates Japan’s financial and techno-
logical capacities and its diversification effect in the market; in politics, Russia prag-
matically allows political issues to remain separate from business (Sevastyanov 2017).
Japan is the largest Asian investor in Russia, overshadowing China, and the great
majority of Japanese investment in Russia goes to the energy sector (Eurasian
Development Bank 2017); thus, Japan has key upstream assets in Russian natural gas
that China has long sought. However, Russia is not always dovish in its energy dealings
with Japan and does not hesitate to bare its teeth at Japanese firms, as with the shares of
the Sakhalin-2 project sold under duress to Gazprom (Economist 2006).
On the Korean Peninsula, Putin’s energy plan was originally commercial, aiming to
develop the two Koreas as energy clients (Blank 2008), but this blueprint has been
interrupted by North-South tensions and the underdeveloped North Korean economy.
Currently, Russia’s energy diplomacy in this region, including providing energy sup-
port to the north and selling LNG to the south, is temporary. North Korea may be the
only East Asian location where Russia uses energy strategically. In its relations with the
isolated North Korean regime, Russia is a key energy provider, especially of crude oil,
Leadership-building dilemmas in emerging powers’ economic...

even under UN sanctions (Maza 2017). Given that North Korea cannot be a profitable
energy market for Russia over the short or medium term, the only reasonable explana-
tion is retaining its political influence and counterbalancing the USA on the Korean
Peninsula (Ramani 2017), especially since assistance to Pyongyang is affordable.
Because of their territorial separation, Moscow-Seoul energy cooperation is heavily
dependent on the ‘Northern factor’. Thus, Russia prudently reached a deal with Seoul
only to sell LNG from Sakhalin, which yields stable Russian profits. However, Russia
has been cautious about the feasibility of geopolitically coloured energy projects, such
as a trans-Korean pipeline and an underwater pipeline from Vladivostok to South
Korea (Joo and Lee 2018, pp. 90–93).

China’s One Belt One Road initiative

Compared with Russia’s decades-long energy diplomacy, the OBOR policy launched
by the Chinese government is a nascent economic diplomatic programme. Officially,
the Chinese do not portray OBOR as a geopolitical strategy, even resisting such a
definition. The leitmotif of OBOR, according to the Chinese state-run media, is
‘pragmatic cooperation’ (Xinhua 2016).
The mercantile features of the OBOR policy are also reflected in practice. OBOR
comprises several key priorities in economic relations, such as energy, infrastructure,
finance, and trade (Xi 2013). The rationale behind these policy priorities emanates from
China’s desire to fix problems with its domestic economy, especially the export-
oriented manufacturing sector, rather than from a desire to flex its muscles in interna-
tional politics. The slowing growth of the Chinese economy has prompted OBOR
policies that strongly address the bottlenecks plaguing the country’s domestic economy,
namely, external energy dependence, industrial overcapacity, overinvestment, and the
currency competitiveness dilemma. Through its externally oriented OBOR policy,
China highlights ‘the principles of achieving shared growth through discussion and
collaboration’ (Xi 2017a), eschewing an image of OBOR as a China-centred project.
From diplomatic wording to policy priorities, the major dynamics of China’s OBOR
policy are not geopolitically driven but seek external cooperation in areas such as
energy, markets, and financial support to revive the export-oriented manufacturing
sector and encourage Chinese economic growth. In OBOR, the Chinese government
is more interested in policies that can refuel its domestic economy than in staking a
leadership claim in the global arena.

Official and diplomatic standing of OBOR

In diplomatic terms, OBOR’s muted tones aim to mobilise domestic economic re-
sources to serve international political aims, especially through hierarchical relations.
China’s official position intentionally downplays OBOR’s political implications. In a
speech at Nazarbayev University in Astana, where the OBOR policy was first intro-
duced to the international community, Chinese President Xi (2013) emphasised, ‘China
has no interest in interfering in the domestic issues of Central Asian countries, nor in
building up its political territory, especially when Russia’s influence in this area is
 X. Wang

respected’. Since its inception, China has been very careful in handling the geopolitical
aspects of OBOR.
In the various speeches delivered at domestic and international conferences, Xi
(2017b, 2018a) emphasised the open and nonconfrontational features of the OBOR
policy. Based on the most updated vision, OBOR is too flexible to be fundamentally
geopolitical, as its geographic limit has nearly vanished; rather, it is a blueprint for
economic cooperation that extends beyond the original concept of the Silk Road,
including many remote areas such as Africa and Latin America.1
The guidance document issued by the Chinese government regarding the OBOR
policy corresponds to Xi’s speeches, underscoring that OBOR is explicitly based on
‘market rules and international norms’ (State Council of China 2015) and muting the
policy’s political colour. In addition, official media sources repeat the non-political,
non-hegemonic, and open characteristics of OBOR, some experts even view it as
furthering the economic integration of China into the current global system and
labelling it the ‘third opening-up’ period since Deng Xiaoping’s reform in 1978 and
China’s accession to the WTO in 2001 (Wei 2015).
OBOR is still in its infancy, which limits the analysis in this article. However,
judging from China’s official stance towards flagship projects of economic diplomacy,
OBOR is largely economically based. China is not prepared to chase its political aim to
build leadership at an economic cost. Therefore, many scholars believe that if there are
geopolitical aims within OBOR, most efforts in China are centred on calming regional
conflicts (Tekdal 2018), and the geopolitical implications are mainly ‘defensive’ (Wang
2016) in order to prevent containment by the USA and its Asian allies (Ferdinand 2016,
pp. 953–955).

Energy and natural resources in OBOR

Energy and raw materials are significant pillars of the OBOR framework. China’s
energy self-sufficiency was built during the Mao era but faded incrementally in the
early 1990s when China’s engagement with globalisation accelerated. China became a
net crude oil importer in 1993 and later imported all types of fossil energy (Wu 2014).
Similar situations developed for many kinds of raw materials.
Therefore, cooperation with global partners to ensure energy security and raw
materials is a direct demand of the Chinese economy, and unsurprisingly, this has been
one of China’s key diplomatic considerations for almost two decades (Ziegler 2016).
Given that Chinese national oil companies started their overseas ventures in the early
1990s, China’s international cooperation in energy and natural resources predates
OBOR. In hindsight, the OBOR energy focus is an extension of a mature external
economic policy framework rather than a revolutionary policy revision.
In addition to energy security, China wishes to promote the competitiveness and
influence of its energy industry in the international energy market. This goal can be
accomplished through OBOR by promoting China’s role in energy-related transactions,
technical services and industrial standards (Lu et al. 2015) because overseas

1
Joint Communique of the Leaders Roundtable of the Belt and Road Forum for International Cooperation,
2017. http://www.xinhuanet.com/world/2017-05/15/c_1120976819.htm Accessed 9 Dec 2018
Leadership-building dilemmas in emerging powers’ economic...

investments and operations are crucial for Chinese energy companies to gain the
international experience needed for development (Patey 2017).
Although diplomatic efforts have always been coupled with its overseas invest-
ments, especially in energy and natural resources (Li et al. 2013), China does not wish
to see geopolitical competition compromise economic profits. In its economic cooper-
ation with Central Asia, as Xi Jinping said in Astana, China intentionally avoids
clashing with Russia’s political ambitions, especially since the balance between OBOR
and Putin’s Eurasian Economic Union is delicate (Kaczmarski 2017). In dealing with
the politics of the Middle East, a key region for its crude oil supply, China is also
pragmatic and distances itself from trouble in this region, although China believes that
changes in the Middles East could provide strategic opportunities (Sun and Zoubir
2014).
In addition to exercising restraint in politics, China is economically calculating
within OBOR, even with regard to its politically bound partners. As with Sino-
Russian energy cooperation, China does not want to pay above-market prices. In
cooperating with Venezuela, a key global oil partner, China is not prepared to endlessly
subsidise the country (Gillespie 2016). In agricultural cooperation in Central Asia,
many projects conducted under the OBOR banner are not driven by strategic planning
but by bottom-up actions from individual companies seeking profits (Hofman 2016).
The energy and natural resource issues around OBOR have strong domestic and
economic orientations, especially as China has no leverage in energy, such as ample
natural resources or advanced technology, through which to build leadership. In
addition, China does not want to see energy cooperation under the OBOR banner
become a hodgepodge of money, might, and mining; it prefers a lucid, depoliticised
strategy for energy security and profitmaking. Another remarkable result of
depoliticisation is that China has been increasingly involved with Western countries
and companies in the global market for energy and natural resources (BP 2015) rather
than being an alternative player.

Infrastructure and the AIIB in OBOR

Industrial overcapacity has been a decades-long conundrum in Chinese macroeconomic

reform and an even greater issue following the global economic crisis in 2008. OBOR
is closely related to the Chinese domestic economic situation, as the National Devel-
opment and Reform Commission is in charge of planning both macroeconomic policy
and OBOR policies (Pu 2016, p. 113). Arguably, demand for OBOR projects is
internally oriented, although the approach is externally oriented, as China seeks
overseas markets to assuage domestic industrial overcapacity (Kenderdine and Ling
2018).
Both the demand for and the economic philosophy of the infrastructure focus of
OBOR come from Chinese domestic policy, wherein China evaluates infrastructure
projects according to their effects on macroeconomic development, while Western
observers are inclined to judge the viability and economic performance of the projects
themselves. This approach leads China to invest more aggressively in infrastructure;
indeed, China needs to profit from its investments to pay back its loans (Bataineh et al.
2018). Thus, the infrastructure investments made under OBOR are not motivated by
issues beyond economics.
 X. Wang

The establishment of the AIIB was an important step that highlights the important
role of infrastructure and institution building in OBOR. However, rather than forming
an ambitious political plan, China has ceased using the Chinese Renminbi (RMB) as its
institutional loan currency, which is always the privilege of a leader country. At the
same time, the AIIB has adopted a multilateral development bank (MDB) framework
that is not suitable for politicising investments; as David Dollar (2015, p. 165)
commented, ‘it would be difficult for China to use the AIIB to finance projects in
favoured countries over the exclusion of other members’.
In its relations with the West, the AIIB is far from a rival as Westerners occupy five
of eight seats on the founding senior management team.2 In terms of corporate
governance, the AIIB describes itself as an internationally qualified and competitive
investor rather than as a political arm (Anderlini 2016). In the first group of approved
programmes, four were jointly financed with Western financial institutions.3 Sir Danny
Alexander, a former Scottish politician and Vice President of the AIIB, noted that the
‘AIIB is not about creating a China-led alternative to the post-World War II US-led
Bretton Woods system of global governance’ (Moody 2017).
Lastly and similar to other OBOR pillars, profit demand is central to the AIIB, which
distinguishes the China-influenced financial institution from Western-led strategic
economic diplomatic programmes such as the Marshall Plan, as the latter provided
mostly aid (Economist 2018). In an interview, Jin Liqun, President of the AIIB, said
that profitmaking is the ultimate goal of the AIIB, which cannot afford sluggish
programmes (Zhang 2016); thus, the AIIB has no role as a politically based financial
institution.

Internationalisation of the RMB in OBOR

The internationalisation of the RMB was part of the ambitious OBOR vision. During
the last several decades of deepening integration into the global economic system,
China has accumulated considerable foreign currency reserves through trade and
foreign direct investment (FDI), which has shaped the narrative of a successful ‘China
Model’ and has caused some criticism of China’s role in global imbalances. Promoting
the RMB as an international currency serves various economic aims, notably, enhanc-
ing the Chinese financial system’s efficiency, mitigating the risks of exchange rate
fluctuation, saving on transaction costs and government reserves, and establishing
international seigniorage (Ito 2011). Except for international seigniorage, which ad-
dresses both global public goods and national self-interest (Kindleberger 1981, p. 248)
and requires the RMB to function as an international reserve currency, these aims are
practical and domestically oriented.
China does not view the internationalisation of the RMB as part of a geopolitical
agenda within OBOR. In a low-profile statement, Chinese Premier Li (2015)
emphasised that internationalising the RMB ‘should be a market-driven process’. In
regard to the RMB’s role as an international reserve currency, Chinese policymakers

2
AIIB Official Website of Senior Management, https://www.aiib.org/en/about-aiib/governance/senior-
management/index.html Accessed 9 Dec 2018
3
AIIB Website: BApproved Projects^, https://www.aiib.org/en/projects/approved/index.html Accessed 9
Dec 2018
Leadership-building dilemmas in emerging powers’ economic...

have not demonstrated their intention to strategically set the RMB as a rival to the US
dollar, which plays the leading role in global finance (Kwon 2015). Thus far, the
internationalisation of the RMB has been narrowly defined, namely, expanding its use
in international transactions.
RMB convertibility and capital liberalisation, which are the most strategic and
decisive moves in the RMB’s internationalisation (Park 2010; Gao 2013), are also
important steps in undermining the hegemony of the US dollar. However, it is believed
that the internationalisation of the RMB is a solution-based policy to alleviate the
financial and economic pressures on China, as the Chinese government is always
cautious of the consequences of capital liberalisation (Bowles and Wang 2013). As to
whether the RMB will be convertible and freely flow in the international capital market
as the US dollar does, Li (2015) vaguely affirmed, ‘we will gradually achieve’. This
reluctance is multifaceted, as China’s financial regulatory capacity and domestic
financial market must be improved to address the risks of opening up the capital
account due to bottlenecks in China’s fundamental macroeconomic conditions, such
as poor innovation, low-end international trade, and a decline in private investment
(International Monetary Institute of Renmin University 2016). China is not prepared to
challenge the hegemony of the US dollar.

Analysis: the dilemmas of economic magnitude and political

leadership

The motivation behind Russia and China’s economic diplomacy programmes is not
fundamentally different from that of most ordinary countries: to use a political instru-
ment to protect/expand one’s economic interests. However, this logic runs counter to
leadership-building demands, which require spending economic resources in the inter-
national arena to construct a political order. Russia and China, perhaps the mightiest
emerging powers, are not interested in pursuing political ends through external eco-
nomic policies in practice. Therefore, empirical studies do not support a power shift
towards emerging powers in political leadership.
Scholars have argued that in the leadership-building process, material resources do
not necessarily correspond to political influence (Reich and Lebow 2014), which is
important to consider when accounting for the cases of Russia and China in this article.
Some scholars have questioned the capacity of rising powers to translate economic
might into political purpose (Hart and Jones 2010, pp. 70–71). This article provides
detailed examples. Although Russia and China have great economic weight, their
leadership-building dilemma is reflected along two dimensions, including the domestic
and global levels.

Economic competition between domestic and diplomatic aims

The economic resources that Russia and China can mobilise for economic diplomacy
are concentrated in a few sectors of the domestic economy. As mentioned above,
Russia’s weapons in economic diplomacy are centred around oil and gas, while China’s
advantage lies in its export-oriented manufacturing sector. However, both countries
face tensions between domestic consumption and the external deployment of their
 X. Wang

skewed economic resources. In other words, Russia and China are unable to translate
their economic strengths into leadership because spending economic resources to serve
political ends is commercially prohibitive from the domestic perspective.
The energy industry is a peerless contributor to the state budget of Putin’s Russia.
The Russian energy industry is also responsible for providing affordable energy to
domestic consumers, which makes the domestic energy market far less profitable for
Russian energy companies. The international energy market is key to profitmaking,
especially given the regulated prices, taxes, and mismanagement to which companies
are exposed in Russia, which means that the external energy market feeds Russia’s
economy in the energy sector (Kryukov and Moe 2013). At the same time, Russian
national energy companies are in the hands of Putin’s clique, and any major compro-
mise in the international oil and gas market would be uncomfortable for Putin’s power
base, as the state-business relationship is ‘symbiotic’ (Bilgin 2011). Therefore,
deploying energy weapons to serve Putin’s political ambitions in international politics
would be an expensive move. Simply put, considering the burdensome tasks and
conflicting logics facing the Russian energy industry, diplomacy must be deprioritised.
Therefore, using oil and gas as weapons (e.g., threatening cut-offs) in external
relations with traditional energy market partners, such as the EU, would occur at the
expense of Russia’s economic pillar. Thus, in the EU energy market, Russia largely
maintains a defensive position to ensure its current market share, while the EU
increasingly tries to use institutional tools and alternative resources to tame Russia.
This concern also explains Russia’s energy strategy in East Asia: in this very young
market, Moscow’s main interest is obtaining commercial gains from oil and gas, with
the exception of transactions with North Korea.
The Russo-CIS energy relations more explicitly exemplify the tension between the
economic sector and strategic goals. Money plays a very significant role in the energy
relations of Russia and the CIS; manipulation among the CIS states provided Gazprom
with profits but also caused conflicts between Russia and the CIS states (Aslund
2010b). The most ‘diplomatic’ disputes between Russia and CIS countries, typically
Ukraine, Azerbaijan, and Turkmenistan, derive from Russia’s concern with the impor-
tant European energy market. This concern explains why Russia’s oil and gas weapon
are more effectively wielded in political games against smaller and poorer former
Soviet republics than against larger, resource rich and strategically advantaged coun-
tries, as the latter group is more expensive to capture economically.
China faces the same dilemma. Since the beginning of the 1990s, Chinese economic
growth has been marked by cash inflows from international trade and FDI and soaring
manufacturing capacity and raw material consumption, which were crucial to the
Chinese government’s employment and social stability goals. Therefore, economic
growth, especially the survival of the export-oriented manufacturing sector, has signif-
icant domestic implications for both economic prosperity and political legitimation, and
economic growth must be in an unparalleled and unshakeable position in the minds of
top decision makers in China (Yue 2016). Like the Russian energy industry, China’s
export-oriented economic growth is too important to slow down for politics.
Although China is seen as a rising player with strong economic capacity, Beijing
cannot bear the consequences of a long-lasting money outflows and economic stagna-
tion. Therefore, China’s foremost motivation in economic diplomacy, as in the OBOR
policy, is to improve the current economic system to spur economic growth, especially
Leadership-building dilemmas in emerging powers’ economic...

in the export-oriented sector (Huang 2016). As discussed above, most of the OBOR
policy priorities, such as energy, infrastructure, and the internationalisation of the RMB,
illustrate a strong pragmatic focus on solutions to short- and medium-term challenges in
the Chinese domestic economy, especially in the export-oriented manufacturing sector.
The economic orientation of OBOR reflects the fact that revising the status quo of the
global order would be pointless and detrimental to China in terms of the economic
costs. The political tone of OBOR, at least from an official standpoint, is even more
muted than that of Russia’s energy diplomacy.
The economic engines of these two emerging powers function by transferring profits
made in external markets to the domestic economy and by buttressing domestic
economic prosperity and socio-political stability, all of which contribute to their
survival and ‘rise’. Therefore, their economic diplomatic programmes try to maintain
inflows of economic resources in a mercantile manner, which runs counter to the logic
of international leadership building in which economic resources are cast outwards.
Thus, states face a clear leadership-building dilemma: certain policies cannot simulta-
neously serve polarised purposes.

Global structure constraining economic power

Fundamentally, reasons based on a global perspective may account for the leadership
dilemma discussed here. The most important economic sectors in Russia and China are
subject to the markets, capital, and technologies of a global economic structure,
preventing them from being self-sufficient and competitive at the international level.
In particular,with regard to technological and management know-how, the most
emphasised developmental factor, both countries perform modestly.
The Russian petroleum industry was inherited from the USSR, and Soviet-
constructed oil and gas fields, infrastructure, and external energy relations are the most
powerful instruments of Russia’s energy diplomacy. However, in Russia, ‘development
of extractive industries was largely based on imported technology and equipment. In
some sectors, the dependence on imports has approached 90 percent’ (Kryukov 2017,
P.58). As a direct result of Western sanctions, the technological and financial bottle-
necks of Russia’s petroleum industry have hampered the exploration and development
of new oil and gas fields, especially in potentially resource-rich areas such as East
Siberia and the Arctic (Stegen 2011; Aalto and Forsberg 2016). At the same time, the
technology-driven development of new forms of hydrocarbon resources (such as shale
gas/oil and LNG), newly constructed energy facilities, and growing interest in renew-
able energy not only decreased international petroleum prices and reduced Russia’s
energy incomes but also actively made some former Soviet nations and markets less
dependent on and even competitive with the Russian energy industry.
In a parallel case, the major OBOR policy priorities are focused on solving problems
with China’s developmental model going back to the 1990s, with deep integration into
the global capitalism system and substantial reliance on foreign capital and technolo-
gies. Scholars call this development model ‘technologyless industrialisation’, and it
limits China’s strategic moves (Yue 2008). Chinese manufacturers have not success-
fully established their international competitiveness in technology. Rather, many so-
called high technology companies in China are dependent on foreign innovation, with
their job being to develop the local market (Kimura 2011). According to the Chinese
 X. Wang

Minister of Industry and Information Technology, Chinese manufacturing is

characterised by third-tier technology and is unable to compete with the USA, the
EU, and Japan at a global level (China News 2015).
The vulnerability of the Russian and Chinese economies to external change illus-
trates their dilemma. Favourable international circumstances in recent years have
assisted Russia and China in making their economic sandcastles seem strong, but when
these external conditions fade, both countries will have to be economically defensive
and politically meek in their external affairs. Once-strident Russian energy diplomacy
was mainly supported by soaring oil prices and historic interdependence among the
countries of the former Communist Bloc. When oil prices plummeted and an energy
transition began to re-shape the global energy industry, Russia’s traditional energy
weapon had to be checked (Kropatcheva 2014). In an extreme case, a warm winter in
Europe could even render Russia’s energy weapon useless (Van de Graaf and Colgan
2017, p. 61). Similarly, in the very comfortable period before 2008, China realised
remarkable economic growth, although this did not eliminate or reduce its dependence
on external energy, markets, capital, or, notably, technologies. Although ‘changing the
economic growth model’ has long been emphasised in official documents, it remains an
unsettled aim of economic reform of China.4 When the global economic environment
turns bleak, China truly has no option but to seek alternative external support to refuel
its domestic economic machine, which constitutes the central motivation behind
OBOR.
Simply put, Russia’s petroleum sector and China’s export-oriented economy are
their major weakness from a strategic perspective, as they are too significant to fail but
insufficient to serve diplomatic aims. In fact, both countries have recognised the
significance of the independent development of their key economic sectors, as Russia
planned economic reform and import substitution (Mau 2017), especially in the energy
sector (Kryukov 2017), and Chinese President Xi (2018b) announced key technologies
that must be self-controlled.
The ‘power shift’ narratives are indeed the inflated by misinterpretations of the
external economic activities of these two emerging powers, as these countries lack the
determination to launch such a shift. This article supports frequently mentioned
critiques of the power shift discourse around emerging powers. In particular, it confirms
the academic importance of the global structure perspective in the scholarly debate over
the issue.
Stiglitz (2010, p. 198), in his description of the 2008 global financial crisis, said ‘the
model of nineteenth-century capitalism doesn’t apply in the twenty-first century’. This
statement is also applicable to the power view, as evaluating power in global age from a
fundamentalist Westphalian nation-state perspective is not justified. The economic
magnitudes of Russia and China, and perhaps of other emerging powers to different
degrees, are affects by the global economic system, and their economic booms have
benefited from foreign capital, raw materials, markets, and, most crucially, technolo-
gies. Therefore, the rise of nations in an age of globalisation is different from their rise
in the age of Napoléon, Bismarck, or Meiji, naturally spawning different political
consequences. This is the origin and the crux of the power shift puzzle.

4
The ‘changing economic development model’ [改变经济增长方式] was mentioned in the 9th Five-Year
Economic Plan issued in 1996, and it remains a key point in the 13th Five-Year Economic Plan issued in 2016.
Leadership-building dilemmas in emerging powers’ economic...

Conclusion

In this article, two of the most influential emerging powers, Russia and China, have
been examined through the lens of economic diplomacy. We find that for both of these
countries, economic diplomacy does not have (adequate) strategic features, a
leadership-building process of constructing political allies by exporting economic
benefits. Therefore, although these emerging powers are increasingly visible and
important in global affairs, their leadership building is too questionable to support the
concept of a ‘power shift’ in global politics.
In energy diplomacy, most of Russia’s efforts in the EU and East Asia focus on gaining
an advantageous position in the energy market to maximise commercial profits. Russia
uses its political instruments to serve economic ends. Regarding its relations with CIS
countries, Russia strives to build leadership using energy as a weapon and has been
partially successful in building the politically influenced EEC. Nevertheless, the decline
of leadership is another critical side to Russia’s energy diplomacy with the CIS countries,
as an increasing number are becoming competitive in energy markets and transit routes,
which undermines Russia’s political influence and even pulls it into geopolitical snares.
In contrast, the OBOR launched by China is even less strategic than Russia’s energy
diplomacy. Since its genesis, Chinese political elites have intentionally shunned the
geopolitical tone of the OBOR. The key OBOR priorities are focused on China’s
domestic economic challenges. In implementing OBOR, China has insisted on the
inclusive and market-based features of projects, and OBOR-related institutions have
complied with current Western-designed standards. Because the OBOR is in its infancy,
its political impact remains unclear. Thus far, there are no indications that China is
trying to alter the global status quo through the initiative.
As is common in developing economies, the economic advantages of Russia and
China are limited and vulnerable due to the stagnation of indigenous technological and
management know-how, which also limits their political influence on the global eco-
nomic system. This system curbs their economic might by limiting exports of public
goods used to establish political leadership; thus, Russia and China must face the fact
that their domestic economic advantages cannot be traded for external political influ-
ence. This tension can deteriorate when external circumstances are no longer favourable.
The logic behind Russia’s energy diplomacy and China’s OBOR policy is largely, if
not completely, mercantile. This type of economic diplomacy is very common in inter-
national economic relations, but if emerging powers seek to build political leadership,
such diplomacy contributes minimally to that ambition. Therefore, the political implica-
tions of an emerging power’s economic influence should not be overestimated. Thus, it is
too early to assert that global power is shifting from the West to emerging powers.

Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in published maps and
institutional affiliations.

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