China, the G20 and global economic governance

As China prepares to take over the G20 presidency in 2016, many are asking what it will do with its new-found power?

The G20 may no longer be under Australia’s custodianship, but the show still rolls on. The leaders’ forum will head to Turkey in 2015, and in his final act as G20 chair for 2014, the Australian Prime Minister Tony Abbott confirmed 2016 will see leaders’ heading for China. The announcement is timely, although the G20 designated itself in 2009 as the ‘premier forum for international economic cooperation’, 2016 will be the first year in which China, the world’s largest economy in terms of purchasing power parity, will bear responsibility for coordinating the process.

Despite the crushingly voluminous literature surrounding China’s growing might in all spheres of international activity, the primary question underpinning most of the research is pretty much the same -- what will China do with its newfound power? In the world of global economic governance, this translates into looking at what China’s rise will mean for the future of the rules and institutions that underpin international economic activity: the flow of trade, capital and finance. 

Given the G20’s ‘premier’ role as a discussion forum for leaders on global economic management, 2016 will possibly provide an opportunity to hear directly from the Chinese elephant in the room on how it views this debate. Will China use the opportunity to double down on its adherence to the existing rules of the game? Or will it take the opportunity to promote an alternative vision of global economic governance with a bigger role for newer initiatives like the BRICS New Development Bank or the Asian Infrastructure Investment Bank?

At first glance, the incentives for China to upend the status quo, as far as the rules of the international economy are concerned, are pretty small. On the whole, the major institutions at the centre of global economic governance, the International Monetary Fund, the World Bank and the World Trade Organization, have facilitated a network of rules and practices, which although not always successful, are at least somewhat predictable. China’s share of global merchandise exports has grown exponentially since its admittance to the World Trade Organisation in 2001, it has worked closely with the World Bank on a number of development projects in China, and it has drawn on the technical advice of the IMF in coordinating its own fiscal and monetary policy environment.

Yet there is no escaping the reality that China’s representation in the World Bank and the IMF remains woefully inadequate relative to its actual share of global economic output. Even if the US Congress were to miraculously ratify the important but miniscule proposed readjustment of IMF voting arrangements, China would still hold less sway than a French -Italian countervote. And it is unlikely the dominance of the United States and the Europeans within the Bretton Woods Institutions, and the Chinese bugbear of Japan’s influence over the Asian Development Bank, will be disappearing anytime soon.

Over the last few years, China’s frustrations have become manifest through its experimentation with new forums and models of global governance. China’s massive currency reserves mean much of China’s ‘governance’ experiments have been in the area of development financing, visible in its capitalization of the BRICS NDB and the recently announced AIIB, both of which will operate in the space of the World Bank and the ADB. However China’s push under its 2014 APEC presidency for a Free Trade Area of the Asia Pacific, to counter the Trans-Pacific Partnership of which it is not a member, also points to an opportunistic and experimental willingness within China to expand its economic rule making influence, with or without the support of the G7 and the currently dominant institutions. 

Alongside Daniela Strube, I explored the question of China’s evolving global economic governance role in a number of interviews with Chinese scholars for a paper recently launched by the Lowy Institute. Our goal was to investigate and describe China’s global economic governance incentives, without making overly speculative and presumptuous statements about which path the Chinese government will ultimately take -- if I knew the answer to that, I would be in a much higher pay bracket.

The key concepts that kept on appearing during our interviews were ‘opportunism’, ‘pragmatism’ and ‘there’s no real grand plan here’. Frustrations with China’s inadequate influence as a global rule setter were plain, but there was also a general admission that there was no grand strategy underpinning China’s push to have more say at the top table, other than desiring the influence of a being there. In this respect, China’s interests are not especially distinct from any other country -- everyone would like more influence in the face of future ‘unknown unknowns’, China just happens to be in the box seat with an ability to realise its ambition. But there was also a clear sense that China would prefer to ‘grow’ into the position of economic rule-setter from within the existing system, provided this is meaningfully accommodated by other powers.

In short, China’s G20 presidency in 2016 is unlikely to be a watershed event where China reveals its master plan for the future management of the global economy. Indeed, China will be keen to avoid expectations about the implications of its presidency from overheating. However, China will likely take the opportunity to push its case, in typically pragmatic fashion, as to why it deserves a more influential place as an economic rule setter, and why it will continue to experiment with ‘less traditional’ forums of international economic engagement in lieu of meaningful reform of the traditional governance institutions. It is up to the other G20 members to determine whether are prepared to support a larger role for China within the existing system, or to keep incentivising China’s consideration and experimentation with of an alternative model. 

Hugh Jorgensen is a co-author of ‘China, the G20 and global economic governance’, a Lowy Institute Analysis, published 28 November. 

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