ARTICLE | The Rise of China and the International Economic Order

By Jianfu Chen, La Trobe Law School

This is a follow-up paper for the 2016 SDN Encounter with Yu Keping.

Globalisation: cross-currents and counter-currents

Professor Yu Keping has helpfully reminded us that globalisation is a process that is promoted and resisted, enhanced and undermined, praised and condemned by various forces and interests. While inter-dependency, especially in economic form, is often emphasised as the principal force that propels globalisation, globalisation is more precisely a movement struggling with cross-currents and counter-currents. In economic globalisation, forces besides the Bretton Woods system, such as regionalism and bilateralism, and sometimes unilateralism, drive or undermine globalisation.

If trade liberalisation and economic gains are the only considerations involved in regionalism and bilateralism, our tasks are then no more than dealing with what Professor Jagdish Bhagwati described as the “Spaghetti Bowl Effect” caused by regional trade agreements (RTAs/FTAs). Unfortunately, that is not the case; the origin of global governance and institutions has long sown the seeds for discontent.

Put simply, the rise of the developing countries, in number and in strength, has changed the landscape of international relations and posed some serious challenges to the global institutions in the name of establishing a “New International Economic Order”. With the rise of Asian economic powers, in particular China and India, serious challenges have now been mounted against the existing global economic order, at both multilateral and regional levels. Meanwhile, the US-led western powers have all recognised the importance of the Asian region and, hence, geo-political re-engagement, repositioning and rebalancing strategies have come to play their roles in multilateralism and regionalism.

WTO & RTAs: geo-political repositioning and rebalancing

While the global trade system, the GATT/WTO, allows for the development of Regional Trade Agreements (RTAs), such concession was made for specific purposes, and various limitations have been imposed to restrict their expansion. As such, the GATT scheme seemed to work reasonably well: in the period between 1948 and 1994, the GATT received 124 notifications of RTAs. However, in contrast, as of 1 December 2015, some 619 notifications of RTAs had been received by the WTO. Of these, 413 were in force. But more fundamentally, the recent emergence of the “super” or “mega” RTAs began to change the very fundamentals of such agreements.

These proposed RTAs, eg. the Trans-Pacific Partnership (TPP – now signed), the Trans-Atlantic Trade and Investment Partnership (TTIP), and the Regional Comprehensive Economic Partnership (RCEP), are referred to as being “super” or “mega”. This is not simply because of their size and coverage but, more importantly, because of their inclusion of issues relating to governance and institutional harmonisation, common approaches to the formulation of trade policies, industrial and competition policies, state owned enterprises, stronger protection of IP, the protection of investment and investors, labour standards, environmental protection, and other “social issues”. In the language of the negotiators, these agreements are comprehensive in coverage, of high quality standards, and deeply integrated. Thus, in the name of economic integration, political and semi-political agendas are now being included in such super RTAs as part of geo-political repositioning and rebalancing strategies of the nations concerned.

China’s position & practical reality in relation to multilateralism and regionalism can be summarized as follows:

China’s official position on international economic law is rather simple, and one may even describe it as being simplistic: it supports multilateralism and developing countries. The reality is however far more complex, and sometimes confusing.

China is in fact one of the most active Asian countries in negotiating FTAs/RTAs. As of the end of March 2016, China has signed 16 FTAs, with 7 more in negotiation. It should be noted that China did not have a single FTA in 2001, when it joined the WTO.

China’s efforts in negotiating FTAs can be explained by many factors, including its rivalry with India and Japan for leadership in Asia. When the US decided to re-enter Asia, China’s initial motivation to counter-balance the growing influence of its rivals in East-Asia then became geo-political on a global scale. To many Chinese policymakers, the negotiation of the TTIP and the TPP was nothing but “a tool to economically contain China’s rise”. Not surprisingly, the People’s Daily (18 April 2013) has this to say:

‘The rise of China’s economic power and the strengthening of the East Asian economy have broken the existing global trade structures. Western powers now intend, through the negotiations of TTP and TTIP, to rewrite trade rules and regain their leadership powers in international trade.’

The race to regionalism is thus perceived as a showdown between the existing and emerging powers for leadership and domination.

Is there a China strategy?       

For most of the time since China joined the WTO, its policies on RTAs/FTAs seem to be defensive, responsive and counter-balancing in nature. China’s initiatives in the “Asian Infrastructure Investment Bank” and the “One Belt One Road” suggest some kind of charm offensive. But, these policies obviously contradict China’s official position on international economic order, which is that China has no intention to establish new institutions and mechanisms outside the existing establishment, and that China will continue to work in and with the existing multilateral institutions. Trust is the very key for any international initiatives to succeed, and China’s practice in relation to disputes in the South China Sea have clearly undermined international confidence and trust and, as such, also seriously undermined its efforts to present itself as a reliable international player representing more opportunities than risks.

Inevitably, one must ask whether China has a coherent strategy on multilateral and regional development in international economic law? More exactly: what does China mean when it talks about “global governance” – a major theme in Professor Yu’s writing on globalisation – when China has consistently rejected “universal values” such as human dignity, constitutionalism, and the needs for checks and balances – notions that are applicable at both domestic and international levels?