At the very least this gives “pro-China” forces in the target country some clout. China is not reckless in the use of this economic weapon. China rarely makes deals that harm Chinese economic interests.
But there are many economic decisions that can go several ways and China makes it clear it will trade with nations that do what China wants. This even works with the United States. Take the movie industry.
Just like Nazi Germany did in the 1930s, American movie makers are pressured to keep things out of movies that make China look bad. For years this worked for the Nazis and it has worked for China as well. A recent example is the movie “Gravity”.
Key plot points include a Russian satellite blowing up (and creating a lethal swarm of debris in orbit) and a Chinese space station. In reality it was China that blew up a satellite several years ago (to test, as the movie makes clear, an anti-satellite weapon) and the Chinese space station shown in the movie is much larger and impressive than anything the Chinese expect to have up there for many years.
No mention of the fact that China is barred from the International Space Station because of fears that China would steal technology.
Because China can apply economic pressure it does. Several other major movies have been modified to please the Chinese. Without these changes a movie will not be allowed to screen in China, which has become a major movie market, just as Germany was in the 1930s when the recently introduced use of sound made movies a huge part of the entertainment industry.
A recent example of this is China suggesting that South Korea not sell its new T-50 armed jet trainers to the Philippines. This effort may fail, but it might succeed and even if it does not the threats leave an impression, one that makes it very clear that China must not be defied.
Taiwan has been the major target of all this Chinese economic and international pressure for decades and remains independent and defiant. China considers its efforts to regain control of Taiwan as successful. Slow but steady brings eventual victory and resistance is futile. The Taiwanese are also Chinese (at least culturally, ethnically it’s a different story) and believe the long game favors them.
That is growing increasingly difficult as the corruption and mismanagement so typical of communist police states continues to anger Chinese. Violent resistance by Tibetans and Turkic Uighurs continues. Chinese police respond by using violence to shut down Tibetan and Uighur anti-Chinese demonstrations.
The long-term Chinese policy of moving Han Chinese into Tibet and the northwest (where most Uighurs live) is what prompts the growing violence because the Chinese have long used migration and the development of the economy (by the more entrepreneurial and productive Han) to conquer hostile populations.
One reason sparsely populated Tibet is so important to China is because it is where five of the largest rivers in India and East Asia begin. These rivers supply water to 40 percent of the world population. India, Vietnam and Burma fear that Chinese dam building on these rivers will eventually divert water and leave less for non-Chinese.