China s Evolving Global Economic Governance Role

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1 China s Evolving Global Economic Governance Role Wang Wen Executive Dean Chongyang Institute for Financial Studies, Renmin University of China Executive Summary The G20, which was established at the turn of the twenty-first century and comprises 19 countries and the European Union, with representatives from the Bretton Woods institutions, provides a new way forward for transnational governance that works not only for China but also for the other major economies. This paper will explore the use of the G20 as an institution of transnational governance that, from China s perspective, is fit for purpose. In September 2009, the G20 designated itself as the premier forum for international economic cooperation, 1 and 2016 will be the first year in which China the world s second-largest economy will bear responsibility for coordinating the process. As China s growing economic strength translates into political influence and the Chinese government becomes more confident in taking an active role in global governance, the G20 is the best platform for China to deepen its involvement in the global economy. 2 China has high hopes for chairing a successful G20 Summit, one of the biggest diplomatic events of the year. Given the G20 s premier role in global economic management, 2016 will provide China with an opportunity to share its development experience and offer ideas on new global governance structures. As China s economy and its political ambitions continue to grow, so will its influence around the world; therefore, it is important for the rest of the world to understand China s views and practices with regard to global governance. Global Governance: China s View and Practices China s swift emergence as a global economic power is the most remarkable geostrategic transition of the last two decades. Although some international scholars and policymakers might disagree, China is a responsible stakeholder in the international system, the incentives for China to challenge the status quo are quite limited, and it is almost certain that China prefers to grow into the position of 1 In September 2009, the G20 leaders announced that, henceforth, the G20 would be the premier forum for international economic cooperation. Before this announcement, it was widely accepted that the G7, a smaller group of advanced countries, held this position. 2 Alex He, China s Goals in the G20: Expectation, Strategy and Agenda (CIGI Paper 39, Centre for International Governance Innovation, Waterloo, ON, September 2014), 5, accessed August 30, 2016,

2 economic rule setter from within the existing system. 3 Since China s return and integration into the international system, it has developed an appreciation of the norms created and led by the West. On the whole, although China has long been an active participant in international organizations, including the International Monetary Fund (IMF), the World Bank, the World Trade Organization, and the United Nations (UN), China thus far has largely been a follower rather than a leader in shaping the conventions of global governance. Just as China s economy has shifted support from investment and trade to internal demand in recent years, its views on global governance have also gone through dramatic changes. China s inward focus on domestic stability is gradually being augmented by an outward-facing emphasis on the country s emerging role as a regional leader, if not a global one, motivated by the China Dream (Zhongguomeng). 4 This is a natural function of China s growing might across the economic, social, and strategic spheres of the international system. China is trying to engage in global institution building of its own, 5 for example, by establishing the Silk Road Fund, the BRICS New Development Bank, and the Asia Infrastructure Investment Bank (AIIB) and by pushing, under its 2014 APEC (Asia-Pacific Economic Cooperation) presidency, for a Free Trade Area of the Asia Pacific to counter the U.S.-backed Trans-Pacific Partnership. These movements have cast China in an important new international role and reveal its willingness to expand its rulemaking influence. China is therefore embracing multilateral institutions and other elements of the world order built on Western normative and legal structures while gradually promoting reform from within these institutions to better accommodate China s interests. It is also true that China faces a steep learning curve as it attempts to integrate new forums and models of global governance into the existing global policy architecture. In this respect, the international community should not blame China as a challenger or a trouble maker in the current international system. On the contrary, China s new initiatives are not revisionist, but reactive. 6 There are two reasons for this. First, the BRICS New Development Bank and the AIIB are both designed to operate cooperatively with the World Bank and the Asian Development Bank, which indicates that China is supplementing existing international economic governance regimes and taking responsibility for providing public goods to developing countries. Within these 3 Hugh Jorgensen and Daniela Strube, China, the G20 and Global Economic Governance, Lowry Institute for International Policy, November 28, 2015, accessed August 30, 2016, 4 Put forward by Chinese president Xi Jinping in November 2012, the Chinese Dream is about Chinese prosperity, collective effort, socialism, and national glory. 5 Stephen S. Roach, China s Global Governance Challenge, YaleGlobal, June 9, 2015, accessed August 30, 2016, 6 Javier Solana, Welcoming China to the Table of Global Governance, World Economic Forum, March 31, 2015, accessed August 30, 2016,

3 multilateral structures, China relies on bilateral trade agreements to maintain and deepen its relationships with countries in Asia, Europe, Africa, and Latin America. Backed by US$3.21 trillion in currency reserves, 7 China has provided infrastructure investment in exchange for commodities in these regions, thereby becoming the world s largest provider of financing for developing countries. Although many in the West might disagree, China recognizes the widely shared values of global governance such as human rights, democracy (based on economic development and social stability), and the rule of law promoted by the West. However, China s incentive to bypass the main international financial institutions has long been driven by the West s refusal to offer China a role commensurate with its growing economic power. The IMF quotas provide one example. The G20 agreed in 2010 to increase China s quota from 3.65 percent to 6.19 percent, 8 which, from China s perspective and on economic balance, is only a tiny step in the right direction. However, the U.S. Congress has failed to ratify the agreement, preventing this reform from being implemented. China s increasingly active approach to global governance is in the interest of stakeholders across the world, and it is enhancing China s soft power. A lesson that the West can learn from this is that if emerging powers cannot gain access to existing global governance institutions, they will create their own. In this regard, the West should consider adopting an open attitude, welcome China to be more involved in global governance, and cooperate with the institutions that China is now creating. In broad terms, China may well have a greater need for global governance than the West. Compared with some countries of the West, China is in a geostrategically more dangerous position, it is less well endowed with natural resources, it is more vulnerable to the impact of climate change, and it is economically more dependent on an open international trading system. 9 Meanwhile, many global challenges such as environmental degradation, climate change, and financial crises are affecting countries with different political systems and ideologies. Thus, the need for international cooperation and policy coordination has never been greater, yet global governance the system of international institutions and rules intended to promote the common good is hardly adequate. If we look at the Doha Round of trade liberalization, the IMF quota reforms, or the G20 s efforts to coordinate economic and financial policies in recent years, not much is being achieved. The year 2016 provides an ideal time to push the global governance issue forward. If China, the European Union, the United States, and other major powers take this year to align their intentions based on common interests, they can make the most of the 7 Lingling Wei, China Foreign-Exchange Reserves Rise for Second Straight Month, Wall Street Journal, May 6, 2016, accessed August 30, 2016, 8 Solana, Welcoming China to the Table of Global Governance. 9 Philip Stephens, How a Self-Sufficient America Could Go It Alone, Financial Times, January 13, 2012.

4 2016 G20 Summit in China. In China, most people believe the G20 is a step forward in terms of enhancing the legitimacy and efficacy of the current global governance architecture. China has the opportunity through the G20 to be a part-time leader. 10 G20 Evolution: Global Governance Mechanism During the past 17 years, the G20 has become a major multilevel global governance platform. In addition to its vitally important Leaders Summit, the G20 is now divided into four levels and two systems internally and externally. 11 The four levels are the Leaders Summit, the Sherpa Meeting, Ministerial and Vice-Ministerial Meetings, and the Expert Working Group Meeting. Currently, there are six mechanisms for the G20 Ministerial And Vice-Ministerial Meetings, including meetings of the following ministers: Finance and central bank governors Labor and employment ministers Trade ministers Agricultural ministers Development ministers Tourism ministers There are nine Expert Working Groups focused on the following: Framework for strong, sustainable, and balanced growth Investment and infrastructure construction Employment Development Sustainable energy Anticorruption Private sector Finance inclusiveness Trade The four levels make up the internal system of G20 meetings. Additionally, there are various nongovernmental organizations and forums related to the G20 that together constitute a peripheral system. These organizations and forums include the B20 (Business20), T20 (Thinktank20), C20 (Civil Society20), L20 (Labour20), Y20 (Youth20), W20 (Woman20), and I20 (Innovation 20). These organizations and forums are gaining greater attention, playing vital roles in 10 Chen Dongxiao, China s Perspective on Global Governance and G20, China-US Focus, February 16, 2011, accessed August 30, 2016, -and-g20/. 11 Wang Wen and Jia Jinjing, The 2016 G20 and China (Beijing: CITIC Publishing Group, 2016).

5 G20 agenda setting and operating rules. For example, the 2014 Brisbane G20 Summit issued the G20 Leaders Communiqué with an attachment specifically acknowledging the strong support from B20, C20, L20, T20 and Y This embodies the growing heft of the G20 peripheral system. The G20 has also created the Financial Stability Board, and it has joined hands with the World Bank to initiate a number of globalized mechanisms such as the Global Infrastructure Projects and the Global Infrastructure Investment Fund. The G20 has thus been ceaselessly growing, improving, and enriching itself since the 2008 global financial crisis. It has transformed itself from what was initially a crisis response mechanism into a long-term governance mechanism. It has moved from addressing short-term issues of financial crisis, economic stimulus, and antitrade protectionism to long-term issues of economic rebalancing, growth and employment, and international financial framework reform. It has even started to address security issues. G20 members constitute 90 percent of the global economy, 80 percent of global trade, and two-thirds of the global population. The G20 s representativeness helped it reach consensus on stimulating the global economy, reversing international economic imbalances, and addressing the 2008 global financial crisis. In accordance with the G20 resolutions, all countries have strengthened regulation of their domestic financial institutions. Governments and nongovernmental organizations voluntarily revise and stipulate their own rules by referring to G20 policies and readily offer suggestions to the G20. For example, the International Chamber of Commerce has set up a G20 Consultant Board and Expert Panel and will convene B20 Summits before or during the G20 Summits. The B20 Expert Panel has specifically put forward the G20 Scorecard in order to estimate the implementation results of G20 resolutions. The G20 is currently a dialogue mechanism that enables leaders from most of the major economies to discuss crises and countermeasures. It draws its authority from the power of its members on the global stage, and in the context of wider global governance, it can provide a highly efficient decision-making mechanism. The G20: What Will China Do? As the chair country of the G20 Summit in 2016, China has the opportunity to profoundly influence the G20 s efforts to cope with global challenges. For the 13th Five-Year Plan beginning in 2016, China s economy is expected to maintain mid- to high-level growth and to realize doubled gross domestic product and urban-rural income by 2020 compared with This will help China play a lead role in facilitating healthy global development. Since 2015, the G20 has created a 12 G20 Leaders Communiqué, Brisbane Summit November 2014, accessed August 31,

6 commitment system that has been ceaselessly implemented and pushed forward. 13 Under this system, China must combine continuity and innovation, implementing the achievements of former summits while also offering new cooperation initiatives. This is especially true for providing solutions to slow global growth. China s economy is closely amalgamated with global systems. Its contribution to the global economy shows that China is necessary and able to advocate for innovative, invigorated, interconnected, and inclusive development of the global economy. From 2008 to 2014, China contributed more than 30 percent of the world s economic growth. During the last three years, that figure has reached as high as 44 percent. Even in the face of 7 percent growth at present, the yearly growth increment is as much as US$800 billion, exceeding the absolute growth amounts experienced during the double-digit growth era prior to the financial crisis. Therefore, China has served as a stabilizer of global growth. In view of China s integration into the global economy and its influence of the global industrial chain, it has far-reaching significance for the mid- to long-term growth of the global economy. China s hosting of the 2016 G20 Summit will allow it to push this influence into the realm of global governance. 14 During the 10th G20 Summit held on November 15 16, 2015, Chinese president Xi Jinping revealed the main theme and approach for the 2016 G20 Summit: Build up an innovative, invigorated, interconnected, and inclusive world economy. 15 This strategy will be pursued in four steps: (1) innovate the growth pattern, emphatically push forward reforms and innovations, carve out and grasp new opportunities, and improve the growth potential of the world economy; (2) improve global economic and financial governance, enhance the representation and voice of emerging markets and developing countries, and boost the world economy s antirisk capability; (3) construct an open-ended world economy, promote international trade and investment, and utilize its role in promoting growth; and (4) push forward inclusive and interconnected development, implement the 2030 Agenda for Sustainable Development, eradicate poverty, and realize mutual development. Each step is highly relevant in its own right. i. Innovate the Growth Pattern The world has entered a new normal in which many traditional problems are far from being resolved, while a raft of new problems loom. The interweaving of old and new challenges is making the international situation increasingly complicated. The international financial market unrest of 2015 suggests there is a long way to go toward 13 Wang and Jia, The 2016 G20 and China. 14 Wang and Jia, The 2016 G20 and China. 15 Xi Jinping, speech during the 10th G20 Summit, November 16, 2015.

7 solving systemic global problems. At the same time, a new round of technological innovation and industrial reform is springing up worldwide. Emerging markets and developing countries are rapidly pushing forward with industrialization, while the G20 faces the goals of coping with globalized risks and seeking new growth momentum. To cope with these challenges and open up development opportunities, the international community must set up a global innovation system based on strengthening global governance, reforming global development mechanisms, and creating production factors that allow goods and services to flow worldwide. The global community should also strengthen international capacity cooperation and build a universally beneficial global industrial chain that enables all countries comparative advantages, enhances innovation, allows resources to flow freely worldwide, and promotes mutual development across countries. The G20 should seek to construct new standards for global innovation so as to forge a win win, inclusive, and mutually progressive pattern of global development, expedite the transformation of old growth paradigms, and lead the global economic recovery. ii. Improve Global Economic and Financial Governance Seven years have passed since the financial crisis, and global economic growth remains weak. The world economy is still in a profound adjustment period; quantitative easing policies can only bring about deficiency heat for the economic recovery, and economic and financial reforms are still the top concern the world over. Within the G20 framework, equal participation and joint decision making between developed and developing countries is its essential characteristic and its strength on these matters. The G20 will continue to provide political support, promote global economic governance reforms, ensure that reforms seek justice and fairness, and provide space for the voices of emerging markets and developing countries. Pushed by the G20, existing international financial institutional reforms are advancing, and the capability for coping with crises is increasing steadily. The AIIB, driven by China, is a beneficial supplement to the existing international financial system that emphasizes cooperation rather than confrontation, embodying openness, inclusiveness, and constructiveness. As an innovation of the economic and financial governance mechanism, the AIIB will bring about opportunities for G20. iii. Construct a Complementary Global Economy The key for upgrading global governance mechanisms lies in constructing an open-ended world economy. Countries are at different phases of development and have different strengths for economic development. Constructing an open-ended global economic system and strengthening international capacity cooperation can

8 effectively match countries supplies and demands and realize mutual development between countries at different development levels. Developing countries are faced with the demands of urbanization and industrialization but lack technology, equipment, and infrastructure construction capability. Developed countries need to update their equipment and infrastructure facilities, but they are restricted by capital shortages and high costs. As a locomotive for developing countries, China can make full use of its advantages in high-cost performance of mid-level equipment, its capabilities in engineering and construction, and an abundance of foreign currency to help developing and developed countries align their capacities. Integrating these advantages through three-party cooperation can lower costs to satisfy different countries various demands and help each country break through development bottlenecks, enhance industrial upgrades, and push forward the integration of the global industrial chain. China s proposal of One Belt and One Road, for example, is different from the earlier free-trade zones. It is designed to bring together all participating countries development strategies and realize inclusive and sustainable development through joint consultation, construction, and sharing. The development of economic globalization will tie all countries interests closely, forming a cooperative status quo. Only by opposing trade protectionism, maintaining and strengthening multilateral trade mechanisms, providing adequate room for the development of various countries, ensuring regional free trade arrangements, offering support for multilateral development, strengthening international capacity cooperation, and establishing a new-pattern global value chain can the world economy realize stable and inclusive development. iv. Promote Inclusive and Sustainable Development Each country s development should interconnect with global growth, in a bid to realize the optimized allocation of global economic resources as well as the mutual integration and promotion of economy, society, environment, and governance. At present, the world economy is still in an adjustment period after the financial crisis, and the former mode of economic development can no longer solve the problem of economic structural transformation and sustainable development. At the same time, realizing fair, open, comprehensive, and innovative development is not only a moral responsibility but also a requirement for expanding economic development potential. The UN s 2030 Agenda for Sustainable Development has set new goals and provided new frameworks for global development. The global community should review the development path from a fresh perspective, address the relationship between sustainable development and economic transformation, implement global Sustainable Development Goals, cope with unequal and unfair problems in economic development, coordinate to address climate change and environmental degradation, enable countries in different positions in the global value chain to play to their advantages, and share the opportunities of development. By combining the 2030

9 Agenda for Sustainable Development with its own agenda, the G20 shall establish a new type of global partnership in the global economic governance process. By coping with the complicated situation and other globalized issues through connected macro-level policies, the G20 can realize all countries positive interaction and mutual development and make the G20 a long-term platform for promoting sustainable international economic development cooperation. 16 Conclusion The global economic recovery has progressed slowly since the 2008 financial crisis. This is because (1) the last round of technological and industrial revolution is coming to an end, and (2) an imbalance of development is far from being solved, while the deficits of the existing economic governance mechanisms are looming. In spite of this adverse backdrop, China has maintained a relatively high growth rate, continuously reinforcing the real economy s base. China s long-term economic growth performance and sustainable growth potential suggest that it has essential experience in promoting development. China s hosting of the G20 Summit means that the world will have the opportunity to share the Chinese remedy for realizing a future development that is robust and sustainable. The 2016 China G20 Summit theme of innovation, invigoration, interconnection, and inclusiveness briefly and accurately grasps the most critical issues in global economic governance and points out the path of realizing global economic balance and sustainable growth for the global community. Innovation is a fundamental approach for realizing the global economic recovery to release vitality and creativity through scientific progress. Invigoration emphasizes the high-speed economic development that will rejuvenate the world economy. Interconnection is a must for realizing overall global development. All countries interconnected actions can lessen uncertainties in economic development and realize the economy s steady development and mutual advantages. Inclusiveness emphasizes that the values of development should benefit all countries and peoples so as to release huge market demands. The 2016 G20 Summit will link the past and present. If the G20 can provide an example for the world in terms of innovation, invigoration, interconnection, and inclusiveness and form mutually beneficial outcomes, it will undoubtedly boost global economic confidence, stimulate economic recovery, release development potential, benefit people, and create a bright outlook for the future of global governance. In short, it is obvious that China is willing and able to play a greater role in global governance, and China is likely to take its G20 presidency in 2016 as an opportunity to strengthen its status as an economic rule setter and engage internationally in lieu of practical reforms to the traditional governance institutions. Moving forward, the G20 16 Wang and Jia, The 2016 G20 and China.

10 will continue to facilitate China s cooperation and coordination with other major powers to expand the country s and the world s interests. Author Biography

11 Wang Wen is Executive Dean of the Chongyang Institute for Financial Studies, Renmin University of China (RDCY). He also holds office as Secretary-General of the Green Finance Association of China, Standing Director of World Socialism Research at the Chinese Academy of Social Sciences, Special Analyst at Xinhua News Agency, and Visiting Professor at many prestigious universities. Wang was born in Yiwu City, Zhejiang Province, China, and has studied and conducted research at Lanzhou University, Hong Kong Baptist University, Johns Hopkins University-Nanjing University, and Peking University. Upon receiving his master s degree in 2005, Wang joined People s Daily and worked as chief Op-Eds Editor and Editorial Writer at the Global Times (he was also a member of the editorial board in charge of commentaries). He has interviewed hundreds of celebrities from about 20 countries, and he was the winner of the China News Award in Leaving the media sector in early 2013, Wang was instrumental in the establishment of the Chongyang Institute for Financial Studies at RDCY, a new-style think tank. He has participated in the G20 Summit for three consecutive years and therefore has the experience of face-to-face communication with most of the leaders of the G20 countries. At the symposium on philosophy and social sciences, President Xi Jinping hosted and delivered an important speech on May 17, Wang Wen was one of the youngest of the 10 scholar presenters. Wang Wen has won the honor of 2014 Top Ten Figures of Chinese Think Tank ( China Best Commentary Award ( and 2015 China Reform and Development Pioneers ( Since 2014, RDCY has been listed as 150 top think tanks in the world for two consecutive years, in the most internationally recognized 2014 and 2015 Global Go To Think Tank Index Report, launched by the university of Pennsylvania. RDCY is officially assigned as the leading think tanks to organize T20 events in 2016 and also one of council members of One Belt One Road Think Tanks Association of China. Wang has translated, co-edited and independently written about 20 books, including Anxiety of U.S., 2016: G20 and China, Theories of World Governance: A Study in the History of Ideas, and G20 and Global Governance, to name a few.