Transformation of Global Economic Governance System and Role Played by China
After the outbreak of the International Financial Crisis in 2008, the world economic pattern entered a period of profound readjustment and changes in the global economic governance system sped up. In the past decade and more, reform and improvement on the global economic governance system have made remarkable results with concerted efforts of the international community but at the same time also faced a number of outstanding problems. Especially since 2018, uncertainty in international situation has increased; competition and contention between major countries have increasingly intensified; the global economic governance system has entered a crucial period of restructuring. As the world second largest economy and a major developing country that pursued opening up strategy, China has an important role to play in promoting changes in the global economic governance system.
Changing the Global Economic Governance System Is a Historical Megatrend
The current global economic governance system is based on the Bretton Woods system built under the leadership of the United States (US) after the World War II, whose three pillars were the International Monetary Fund (IMF), the World Bank (WB) and the General Agreement on Tariffs and Trade (GATT, which was replaced by the World Trade Organization-WTO in 1995). Taking economic liberalism for value guidance, multilateralism for governance approach and binding rules for governance means, the Bretton Woods system played a historical role in economic recovery and development of the postwar capitalist world by stabilizing international financial order and promoting liberalization of international trade.
Since its outset, the global economic governance system has always undergone changes for subsistence and development. In the 1960s and 1970s, against frequent occurrence of Dollar crises and economic crises, profound changes happened to the international monetary system, the Bretton Woods system being replaced by the Jamaica system. In spite of the collapse of the Bretton Woods system, its three pillars the IMF, the WB and the GATT continued to exist and function. Meanwhile, the emergence of Japan and West Europe gave rise to a new world economic power center, the Group of 7 (G7). Besides, a series of regional economic organizations like the European Union (EU) and the Association of Southeast Asian Nations (ASEAN) kept developing and growing in strength. In 1989, the Asia-Pacific Economic Cooperation (APEC) came into being. All this has continued to improve the framework of the global economic
governance system.
Since the beginning of the 21st century and especially since the outbreak of international financial crisis in 2008, the global economic governance system has encountered piling crises with profound changes happening to the international power structure and the world economy facing a severe situation. On the one hand, the rise of emerging economies and developing countries as a group underlined the legitimacy crisis of the global economic governance system for under representation of the former. On the other, the outbreak of financial crisis highlighted the defects of the global economic governance system and, on profound level, its malpractice guided by neo-liberal thinking. Against this background, the global economic governance system entered a period of accelerated change. New platforms for global economic governance such as the Group of 20 (G20) and BRICS came into being, the G20 being defined as a primary platform for international economic cooperation. In the framework of G20, reform on the international financial system sped up. In 2010, the plans for the WB voting reform and for the IMF share and governance reform were adopted (the plan for reform on IMF eventually entered into force in 2016), which increased the shares and voting power of the emerging economies. To strengthen international financial supervision, Financial Stability Board (FSB) with all member countries of G20 being its members was set up in 2009. As benchmark for global banking supervison, the Capital Accord (Basel III) entered into force in 2010. Besides, as the WTO-led process of trade liberalization was seriously disrupted, a number of negotiations for regional and transregional integration accelerated, among which there were the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Japan-EU Economic Partnership Agreement (EPA) led by developed countries, and Regional Comprehensive Economic Partnership (RCEP) led by the ASEAN and other arrangements for regional and transregional economic cooperation.
Though reform on the global economic governance system has delivered some remarkable results, post-financial crisis world economy recovery remains weak. Growth momentum for global economy is less than adequate. Especially since Britain’s decision for Brexit and election of Donald Trump as US President in 2016, de-globalization waves have, one after another, swept across the globe and tended to intensify, not only deteriorating global economic situation but also increasing deficits in global governance. This situation indicates that facing serious challenges, the global economic governance system needs to seek solution through change. Therefore, it is an urgent priority to accelerate changes in global economic governance system.
The Global Economic Governance System Enters a Crucial Period of Restructuring
The year of 2018 witnessed fierce competition and contention between major countries. Especially economic and trade frictions happened between China and the US, two of the largest economies of the world, frictions that produced very bad effects to the world at large as well as both countries. As great instability and uncertainty happened in international situation, the Global economic governance system entered a crucial period of restructuring.
First of all, major country competition has led to consensus crisis, resulting in changes in global economic governance system losing their way. Consensus is the basis for cooperation. Global governance is common cause of mankind, which calls for consensus and concerted efforts between countries. After financial crisis broke out, the international community reached extensive strategic consensus on stabilizing global economic growth and financial order, which facilitated the birth of G20 and a number of reform measures on global economic governance system such as share and voting power reforms of the IMF and the WB. However, as strategic competition intensified between major countries in 2018, global governance has encountered serious consensus crisis, characterized by fierce contention between force for globalization and force against it. The emerging, developing countries represented by China believe that economic globalization is an irresistible historical trend and that it is necessary to make economic globalization more open, inclusive and balanced so that it benefits different countries and people of different social groups. They call for building a global governance system guided by values for a community with a shared future for humanity. However, the Western developed countries represented by the US
Since 2018, uncertainty in international situation has increased; competition and contention between major countries have increasingly intensified; the global economic governance system has entered a crucial period of restructuring.
blame globalization for difficulties and problems in their development, seeking to reconstruct global economic order by adopting hard-nosed de-globalization policies of protectionism and populism. Fierce contention between the two forces for and against globalization makes changes in the global economic governance system losing their way.
Secondly, the US has, by pursuing unilateralism, seriously impacted multilateralism, the foundation of global governance. Multilateralism has always been the fundamental principle of global governance, embodying justice, mutual benefit and democracy in international relations and universality of international rules. However, raising the colors of America First and US national interest above all else, the Trump administration forces its way through the world with unilateralist diplomacy, frequently withdrawing from multilateral mechanisms of international cooperation that are perceived as harmful to US interest and unilaterally provoking trade frictions with China, Japan, South Korea and the EU. Long committed to promoting “effective multilateralism”, the EU has not played an effective role in safeguarding international multilateralism this time around owing to various challenges facing it. Though a number of the developing countries like China have held high the banner of multilateralism, they cannot effectively constrain US unilateralism on important platforms of international cooperation such as G20, WTO and APEC, as ultimately their power is limited. Therefore, multilateralism has been serious affected, global multilateral coordination mechanisms built and painstakingly maintained by the international community over the years being damaged.
Third, WTO is marginalized, the global trade governance system running the risk of disintegration. WTO is the most representative international trade organization in the world today. Since its formal establishment in 1995, it has played an important role in promoting liberalization of global trade and investment and facilitating global economic development. However, since the Doha Development Round started in 2001 came to a standstill, it has been gradually marginalized in global trade governance. The Trump administration proclaims that the US is prepared with withdrawing from the WTO and at the same time quickens its pace of pushing for exclusive bilateral and regional trade agreements going over the head of the WTO. Other countries begin to incline on conducting trade talks outside the WTO, too. All this has led to the emergence of various regional trade
arrangements, fragmenting the global trade governance system.
Finally, frequent trade disputes and the breakout of a trade war between China and the US reflect fierce contention for the power of making global trade rules. In 2018, the US Government under Trump provoked trade disputes across the globe, from declaring to place tariffs on steel and aluminum products from many economies including traditional US allies like the EU, Canada and Japan and to collect high punitive tariffs on imports from China at the beginning of the year to the outbreak of a trade war between China and the US, the two largest economies of the world in the mid-year lasting to date. Though since reaching a 90-day truce, China and the US have conducted highly concentrated trade consultations and produced fairly optimistic anticipations, there remains uncertainty on ending the trade war. Behind the trade disputes and the trade war provoked by the Trump administration is the contention for the power of making global trade rules and the leadership of world economic order. As the current international economic rules have turned against it, the US attempts to change the rules of the game by provoking trade disputes and to actively push for making targeted, high-standard rules for trade and investment liberalization that raise the threshold for the emerging economies and developing countries to enter international market. Such US conducts are strongly resisted by a number of countries, which intensifies the contention for power of making global trade rules.
In sum, competition and contention between major countries intensified in 2018. In the area of global economic governance, there was fierce contest between globalization and de-globalization; US unilateralism severely impacted global multilateralism; global trade system became fragmented; frequent trade disputes happened and China-US trade war broke out. All this illustrates that the global economic governance system has entered a crucial period of restructuring.
China’s Role in Changing the Global Economic Governance System
As the world’s second largest economy, the largest trading nation in goods and the principal trading partner for over 130 countries, China has long been a stable source of driving force for world economic growth. It is now also a key force for changing the global economic governance system. For China, it is not only the necessity for building favorable international environment but also its due, important international responsibility to actively facilitate changes in the global economic governance system towards more justice, reasonability and effectiveness. In the process of pushing forward changes in the global economic governance system, China has the following role to play.
First of all, it is a leader of new values. Changes in the global economic governance system cannot be separated from value guidance. Though the world today is still at the stage of nation-state system, economic globalization and IT application have deepened interdependence between countries in an unprecedented way, interests of various countries being highly mutually penetrating and the future being shared by all. In this situation, China put forward the concept of a community with a shared future for humanity, which is not only a new value orientation under the new historical conditions but also the core value that guides China’s diplomacy at present and the value guidance for China to take part in promoting changes in the global governance system. Under the value guidance of building a community with a shared future for humanity, China put forward the principle of achieving shared global governance through discussion and collaboration, standing for equal participation, joint construction and shared results for all actors in global governance. On changes in the global economic governance system, China calls for insistence on the principle of equality, ensuring equal rights, equal opportunities and equal rules for all countries; persevering with inclusive orientation, encouraging all parties to actively participate in joint construction; insisting on the objective of sharing, advocating results of governance to be shared by all. Against creeping protectionism and unilateralism, the concept of building a community with a shared future for humanity seeks to solve difficult issues of today’s world through proposing a new outlook of national interests. The new outlook believes that even though the principle of supremacy of national interests is not outdated, national interests should not be perceived in an isolated way but in a contextual and comprehensive way. Thus, it calls for all countries to accommodate the interests of other countries when pursuing their own interests
In the process of pushing forward changes in the global economic governance system, China has the following role to play: a leader of new values, a cobuilder of international institutions, a contributor to the global programs and a participant in collective actions.
rather than realize their own interests in disregard and even at the expense of the interests of other countries. China believes that to let the people in all countries to live a better life is the greatest justice and the moral responsibility of the international community.
Secondly, it is a co-builder of international institutions. Global governance depends on effective international institutions. It is necessary for the making and revision of international institutions to reflect the values and interests of the leading countries. However, as international institutions for global governance, they must reflect the greatest possible common expectations and universal code of conduct of the international community. As for the current global governance framework with the United Nations (UN) as the mainstay, China believes that though it is not perfect, it is no less than an important step forward by human society, having played an important role for peace and development of the world in the past decades. Therefore, it is necessary to firmly uphold the core position of the UN, persevering with the principle of multilateralism and, going by it, advancing reform on the global economic governance mechanisms such as the WTO, the IMF and the WB. At the same time, China actively promotes the construction of other multilateral platforms of international cooperation and the improvement of global economic governance institutions. At the G20 Trade Ministers Meeting of 2016, China facilitated the adoption of the G20 Guiding Principles for Global Investment, the first guiding global multilateral document on investment policy, laying an important foundation for a multilateral investment agreement in the future. China has always insisted on that the making of rules for global governance must be jointly done by the international community rather by those with big muscles or the powerful, even less be pragmatic and double-standard. It is necessary for the international community to jointly promote changes in the global economic governance system.
Thirdly, it is a contributor to the global programs. It is necessary for effective global governance to be achieved through practical programs. In the process of participating in reform on global economic governance, China has continued to contribute a Chinese approach to the international community, producing good effects. By making the Belt and Road Initiative, it has created a new model of international cooperation through promoting connectivity between countries and regions. By so doing, it has also provided global governance with a new approach. At the same time, China has initiated the Asian Infrastructure Investment Bank (AIIB) and set up the Silk Road Fund, promoting interconnectivity in Asia and continuing to improve mechanisms of Asian financial cooperation. China has also taken an active part in constructing the New Development Bank and the Foreign Currency Reserve Pool of the BRICS, further improving international financial system by the platform of BRICS cooperation.
Finally, it is a participant in collective actions. Ultimately, global governance needs to be implemented through actions, a core issue of conducting global governance being to coordinate collective actions by actors of plural values and interests. China has always stood for that on global governance issues, it is necessary to do first the things that can be done or are of broad consensus and to actively put them into concrete action. On global economic governance, China has insisted on building a governance system centering on development and aiming at inclusive growth. To help developing countries rid poverty, it has taken an active part in international cooperation: earnestly implementing the UN 2030 Agenda for Sustainable Development; promoting the building of a global development partnership that is more equal and balanced; promoting the formation of an international development cooperation pattern with the UN at the core, with North-South cooperation as the main channel and with South-South cooperation as an important supplement. To promote mutual benefit and a win-win situation with the rest of the world and to facilitate trade liberalization and economic globalization, it sponsored the First China International Import Expo in Shanghai in November 2018, setting up a new platform for all parties to enter into China market. To preserve the multilateral free trade institutions with the WTO at the core, China has effectively implemented the Trade Facilitation Agreement, cutting back on tariffs for four times in 2018 alone and reducing general tariff level to 7.5% from 9.8% in 2017. In short, China is a mover for promoting reform on the global economic governance system, all Chinese initiatives and Chinese approaches having become concrete actions.
It is worthy of special emphasis that global governance and governance of a country are closely related and mutually complementary. For China to play the above role fully and well in promoting changes in the global economic governance system, a key premise is to strengthen itself. At present, a new technological revolution and industrial changes represented by artificial intelligence is fast advancing, providing China with an important opportunity for catching up with and surpassing the advanced countries. To do this, it is necessary for the country to accurately understand major development trends of a new round of technological revolution and industrial changes in the world, going in-depth in implementing the innovation-driven development strategy, quickening the pace of making itself a country of innovators and a leader in science and technology, continuing to enhance economic creativity and competitiveness and to further improve its position in the international economic system. All this will enable China to play a still greater role in promoting changes in the global economic governance system.