China's Contributions to Global Economic Governance
By Li Gang
IN his speech in London last year, Chinese President Xi Jinping pointed out that, as its national strength ascends, China will guadually shoulder more international responsibilities within its means, contributing its wisdom and strengths to world economic growth and improvements in global governance. As the world’s largest developing country and the locomotive of global economic growth, China stands as a bridge spanning East and West and the developing and developed worlds, and is instrumental in steering global economic governance onto the path to greater justice and rationality.
China’s Practice in the Reform of Global Financial Governance
The current global financial system was established in the post-WII years under the stewardship of developed countries. It no longer accommodates the changes to international politics and economics of the current era, as manifested in such problems as under-representation of emerging countries, slack financial coordination and supervision, and imbalanced currency management. Under such circumstances, China is exploring a new model of global financial governance, and has realized progress through reform.
First, China has proactively proposed, established and participated in multilateral international financial institutions in its efforts to find a new model of global financial governance. On January 16, 2016 the Asian Infrastructure Investment Bank (AIIB) was inaugurated in Beijing. The first multilateral financial institute initiated by China, the bank has 57 founding member states, with 37 in Asia, and the remainder in other regions, including developed powers like the U.K., Germany, France and Australia. This diversity confers greater influence upon AIIB as an international financial institution, and lends new dynamics to the reform of global financial governance. On July 21, 2015 the New Development Bank of BRICS launched its operations with the mission of funding infrastructure construction in the BRICS and other developing countries. A belief prevails that it is accelerating development of infrastructures in the five BRICS countries, and boosting connectivity and financial cooperation among them. The bank, also initiated by China, is the first development bank established by developing countries, and embodies Chinese wisdom in the reform of global governance.
Second, China unwaveringly seeks a greater voice for the developing world in the existing international financial system. Several national currencies have been selected to function as global currencies, but the composition thereof is a far cry from reason. The predominant U.S. dollar epitomizes the grievous imbalance in global currency management. As a result, developing countries are under-represented in the global financial governance system.
To change this situation, China has been working to internationalize the RMB, and is further pressing for reform of existing international financial organizations so as to increase the representation of developing countries. On December 1, 2015, the International Monetary Fund (IMF) resolved to include the RMB within the Special Drawing Rights (SDR) basket. Effective from October 1, 2016, the RMB will become the fifth international reserve currency, along with the US dollar, the euro, the Japanese yen and the British pound. It will have a weighting of 10.92 percent in the new SDR basket, while the respective weighting of other currencies will be 41.73 percent for the U.S. dollar, 30.93 percent for the euro, 8.33 percent for the Japanese yen and 8.09 percent for sterling, according to the IMF. China’s quota will increase from 3.996 percent to 6.394 percent, and its voting power from 3.8 percent to 6.1 percent. The developing world in general will have its quota share and voting power boosted, which will better present developing countries’ standing and interests in global financial governance.
Third, China actively participates in existing multilateral financial organizations of the developed world, and is endeavoring to find a new pattern of financial cooperation between developed and developing countries. One flaw in current global financial governance is the lack of an effective inter-nation supervision and monitoring mechanism. A manifestation of this problem is the sub-mortgage crisis in the U.S. that touched off the European debt crisis, which then plunged the world economy into a quagmire. Without effective coordination between financial supervision authorities of various countries, latent risks in the capital market can easily spill over into the real economy and cross borders. Strengthening supervision of the global financial market through better international coordination to prevent financial risks from spiraling into crisis, and containing the spread of a crisis that has already erupted have therefore become pressing issues besetting global economic governance.
Another major event in global financial governance last year was China’s accession as a shareholder in the European Bank for Reconstruction and Development (EBRD) on December 14, 2015. China’s EBRD membership will open up new opportunities for Sino-European financial cooperation, and provide a new financial conduit for projects under the Belt and Road Initiative as well. Moreover, such endeavors for cooperation and coordination between China and the multilateral financial organizations of developed countries provide a means of accumulating experience to serve as a reference for future reforms to global financial governance.
Active Participation in the Reform of Global Trade Governance
As a key member of the global trade system and a major global trading nation, China is a vocal advocate of free trade and firmly against trade protectionism in any form. While earnestly advancing reform of current global trade governance, it is exploring new avenues for regional economic cooperation.
Since the Doha round of world trade talks stalled, reform of global trade governance under the WTO framework has progressed at a snail’s pace, and the WTO’s multilateral trade system has experienced many more challenges. China, with its leading position in world trade, insists that global trade governance should revert to the track of the WTO multilateral trade framework. Thanks to its efforts to reach consensus and bring about substantive results, the WTO’s 10th Ministerial Conference last December produced several seminal agreements, including one to comprehensively cancel agricultural export subsidies, and the expansion of the Information Technology Agreement. These have given new impetus to the WTO system.
The implementation of the strategy of free trade area is a key element of the new pattern of promoting international trade cooperation. And headway was made last year – free trade agreements with Australia and South Korea came into effect. The two pacts are key to advancing the Regional Comprehensive Economic Partnership (RCEP) and kick-starting negotiations on the Free Trade Area of the Asia-Pacific (FTAAP). Thus far, China has signed and implemented 14 FTA agreements, involving 22 countries and regions in Asia, Latin America, Oceania and Europe (see Chart 1). They are conducive to advancing trade and investment between China and its partners, enhancing mutually-beneficial cooperative ties between concerned parties, and accelerating economic integration in East Asia as well.
Focusing on promoting regional connectivity and cooperation on production capacity, the Belt and Road Initiative represents another attempt by China to explore new methods of regional economic cooperation. Last March, China released the Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road, which was warmly received by the 60-odd countries along the two routes. The initiative has significantly boosted trade and economic ties between China and these countries, and brought about changes for the better in their people’s lives.
According to data from China’s Ministry of Commerce, from January to November, 2015, Chinese enterprises directly invested US $14.01 billion into 49 countries along the “Belt and Road,” rising 35.3 percent year-on-year. The top destinations for this money were Singapore, Kazakhstan, Laos, Indonesia, Russia, and Thailand. In the field of project contracting, Chinese businesses inked 2,998 deals in 60 countries along the “Belt and Road,” for a total value of US $71.63 billion; this accounts for 43.9 percent of that of all agreements of this ilk that China signed during this period, and marks an 11.2 percent year-on-year rise. Chinese investment in other “Belt and Road” countries is buoying local economic growth, creating new jobs and bringing tangible benefits to their people.
Contributions to Global Development Governance
In tandem with its robust economic growth since the advent of the policy of reform and opening-up, China has constantly moved up on key social development indexes. Per the corresponding World Bank standard, almost the entire Chinese population lived below the poverty line in 1980. By 2010, the share had dropped to below 20 percent of the population. Lifting so many people out of destitution is the greatest contribution China has made to global development.
Last September, the United Nations Development Summit officially approved the post-2015 development agenda, revealing the direction for national and international development in the coming 15 years. China has expressed full support for it, and pledged substantive measures to promote the common development of humankind. They include an assistance fund for South-South cooperation, support for other developing countries in implementing the post-2015 agenda, more investment in the least-developed countries, exemption of debts on the outstanding intergovernmental interest-free loans owed by the least-developed countries, establishing a knowledge center for international development to research and communicate with other countries on development theories and practices suitable to their respective national conditions, and lifting 70 million or more of China’s rural residents out of poverty in the coming five years.
The foregoing abundantly attests to China’s steadfast advocacy in both words and deeds of reform of global economic governance. Its endeavors, however, meet with suspicion and aspersion. China therefore needs to engage in greater communication and exchanges with the rest of the world in the course of advancing reform of global economic governance. It must hew to the principle that the world should be governed through discussion and participation by all parties concerned, and that the fruits of global governance should be shared by all.
