We need China inside the global economic tent

China has been a passive participant in the international economic governance order since the late 1970s when Beijing ended its isolationist policy. It has to a large extent accepted and acknowledged the Western dominated international economic order.

The Chinese government has embraced and accepted a multitude of international organisations such as the World Bank, International Monetary Fund and the World Trade Organisation. Joining the WTO is arguably one of the single most transformative events in modern Chinese economic history; signalling the country's willingness to join a rule-based international trade system.

In recent years, a plethora of Chinese nationals have served as senior executives at leading economic organisations such as the IMF and the World Bank. Min Zhu, a former deputy governor of China's central bank is serving as deputy managing director of the IMF. Justin Yifu Lin, a prominent Chinese economist recently served as chief economist at the World Bank.

However, China is only a marginal player at these important multilateral organisations. To use the World Bank as an example, China's voting shares at the World Bank was only increased from 2.8 per cent to 4.2 per cent in 2010 after years of haggling. This still left it trailing Japan at 6.8 per cent and the US on 15.8 per cent. This is not to mention that Americans have always served as the president of the World Bank since its inception.

For years, Beijing has reluctantly accepted this state of affairs. However, recent evidence suggests that China is increasingly unwilling to accept the American dominated international economic order and is prepared to flex its muscle.

Henry Kissinger, the former US Secretary of State has warned presciently in his new book World Order that the Chinese have accepted the Western order reluctantly and dislikes the fact that the country has not participated in making the rules of the system.

“But they expect -- and soon or later will act on this expectation -- the international order to evolve in a way that enables China to become centrally involved in further international rule making, even to the point of revising some of the rules that prevail.”

At the APEC meeting in Beijing, the Chinese want to push for a free trade zone within APEC. It is an attempt to counter-attack the US's pivot to Asia through the so-called Trans-Pacific Partnership Agreement (TPP) which has so far excluded China.

In the first round tussle, the US have beaten the Chinese. Though APEC officials have agreed to a strategic study, they specifically avoided calling it a feasibility study --trade lingo for the start of negotiations. The Americans also managed to pressure Beijing to drop a target date of 2025 to finish the proposed trade deal.

Washington fears the new Chinese-backed deal could impede progress on its own regional trade deal, the TPP. The Chinese pushback came only weeks after the fracas over the Beijing-sponsored Asia Infrastructure Investment Bank. Americans have pressured its key allies Japan, Australia and Korea to stage an effective boycott of the Chinese-backed bank.

At the APEC meeting, Chinese President Xi jinping also announced Beijing's intention to contribute $40 billion to set up a Silk Road Infrastructure Fund to improve connectivity across Asia. Lets not forget that the Chinese are also behind the establishment of the so-called “BRICs Bank,” a new multilateral development bank, operated by Brazil, Russia, India, China and South Africa.

These Chinese backed multilateral organisations are either side-stepping or even challenging traditional Western dominated organisations such as the Asian Development Bank. This will pose challenges for the international economic governance structure as China decides to flex its economic and financial muscles.

How should the West respond to China's new challenge?

As the former President of the World Bank, Robert Zoellick has said before, China needs to become a responsible stakeholder in the international system. This involves not only China accepting international norms and rules, but also offering China a more active and bigger role in decision-making as well as rule setting.

If Beijing believes it is in its own interest to be part of the existing international system, it is unlikely to undermine it by setting up rival institutions. Beijing's marginal role in major multilateral institutes such as the IMF hardly reflects the rapidly changing nature of the global economy. For example, France has 4.29 per cent voting power at IMF, while China has only 3.81 per cent. And China's economy is more than three times larger than France.

America's determination to marginalise China at multilateral organisations will, in the longer term, undermine the relevance of these institutions as Beijing grows more in size and stature. It is in everyone's interest to keep China in the system.

As for Chinese sponsored multilateral organisations, countries should seek to bring best international practices and standards to these organisations. More importantly, international involvement could prevent China from dominating these institutions completely. Foreign stakeholders can provide a check and balance.

If China is not offered a more meaningful role in the current system of international economic governance, we should not be surprised when Beijing strikes out on its own. We have just seen the first round of this tussle between the US and China for global economic governance, we can expect it to become more frequent and intense in the future.