At this year's Davos meeting, Chinese President Xi Jinping announced to a surprised audience that China would be the world's new champion of globalization.
In his remarks, the Chinese leader said: "Economic globalization has powered global growth and facilitated movement of goods and capital, advances in science, technology, and civilization, and interactions among peoples.... [T]he global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries, and people between economies, and channel the waters in the ocean back into isolated lakes and creeks, is simply not possible." President Xi finished by saying, "China stands for concluding open, transparent, and win-win regional free trade arrangements and opposes forming exclusive groups that are fragmented in nature."
Is President Xi being delusional, cynical, or forthright with his suggestion that China will be the world's globalization champion? Critics charge that while globalization has been good for China, China has not been good for globalization. China has devalued its currency to gain trade advantage (and now is supporting its currency merely to avoid capital flight), manipulated WTO rules while failing to meet its agreed-to commitments, and built up a mountain of excess supply capacity that has thrown a wet blanket of disinflationary pressure over the world economy. China championing globalization, they say, is like the chairman of Volkswagen saying his company is the champion of the benefits of fuel economy standards. Others say China is sensing a global leadership vacuum in the world as developed economies are turning toward more populist, inward-focused leadership.
C. FRED BERGSTEN
Senior Fellow and Director Emeritus, Peterson Institute for International Economics, and author, The United States, China and The Global Economic Transtormation (forthcoming)
The rise of China to inevitable global leadership is the most important structural feature of the world economy in the twenty-first century. There are two fundamental questions: How will China interact with the incumbent leadership, especially the United States? And will China work to support the existing international architecture or will it seek to replace it with rules and institutions of its own?
It is doubtful that the Chinese authorities themselves have definitive answers to these questions (although numerous individual Chinese have made proposals that cover a wide spectrum on both). Much will depend on the economic performance and systemic behavior of the United States and other major players. Much will also depend on China successfully carrying out its economic reforms and laying a new foundation for sustainable as well as rapid growth.
The central issue is whether China will turn out to be a revisionist power or a revolutionary power. Revisionist powers seek change within the existing system. Revolutionary powers seek to alter the system itself.
To date, China has done some of both. On trade, it has benefited enormously from the rules of the World Trade Organization (and its dispute settlement mechanism), and indeed used them aggressively in the early 2000s to promote internal economic reform. But China has offered a starkly alternative model to that of the United States for regional integration: the Asia-only, much softer, and much less comprehensive template of the Regional Comprehensive Economic Partnership, in contrast to the Asia-Pacific membership and more rigorous and wide-ranging disciplines of the Trans-Pacific Partnership, and the totally different approach to trade and investment of the Belt and Road Initiative.
On finance, China has sought an ever-increasing role in the International Monetary Fund (including its management) while simultaneously rejecting some of its basic rules (especially banning currency manipulation) and sponsoring regional mechanisms (the Chiang Mai Initiative, the monetary component of the New Development Bank) that are potential competitors to the Fund. On foreign assistance, it provides substantial funding for the existing multilateral development banks but created the Asian Infrastructure Investment Bank to offer a new model--albeit one that has sofar worked very closely with the incumbent institutions.
These developments suggest that, at least sofar, China has decided to pursue both revision and revolution though with a decided emphasis on the former. This is consistent with its internal economic choices: increasing the role of markets and private companies, which make it both more competitive and more compatible with the global order, while simultaneously guarding the prerogatives and role of state-owned and state-managed enterprises, which create tensions within that order.
The future will depend importantly on the stance of the United States. If the Trump Administration and/or the U.S. Congress abrogate U.S. leadership of the extant system, or worse yet withdraw from active participation in it, China will be sorely tempted tofill the void either aggressively now or more gradually over time. But this still leaves open the key question: would it do so by seeking to assume a dominant role in the existing institutions or by looking to construct a largely new order in its own image?
China's rising economic (and broader) power assures a challenge to the traditional leadership structure. The incumbents will have tofind ways to accommodate, consistent with their own national interests and sense of how the world economy should work. Conflict is certainly not inevitable although some historical transitions of this type have gone very badly. The issue must be confronted squarely in all the major capitals, especially Beijing and Washington, and by the present institutions as they experience the jockeying for power over the coming years and probably decades.
The transition period itself could be very difficult. Economist Charles Kindleberger famously attributed the Great Depression largely to the failure of the United States as the rising power to assume world leadership and provide global public goods, while the United Kingdom as the incumbent power lost its ability and will to do so. A similar "G-0" could emerge today if the United States falters and China hesitates. Functioning "G-2" cooperation between these superpowers, as we have seen at least fleetingly in response to the global financial crisis and the perils of climate change, would provide the most promising insurance against the replication of such a disaster.
Founder, DRPM Group and H Robotics, and author, Signals: The Breakdovvn of the Social Contract and the Rise of Geopolitics (Grosvenor House, 2015)
No one can be blamed for wanting to believe that China is leading the world economy into the future when it seems that no one else can or will. The United States under President Trump is a hard-to-like, isolationist power that neither inspires nor desires international confidence. Europe is not growing and all its energy goes into preventing a break-up of the euro if not the European Union itself. So Xi Jinping can go to Davos and play the role of Guardian of Globalization. But the pretty photo ops cannot hide the ugly direction China seems to be pursuing.
China has announced many things that go unnoticed. They must be incredibly grateful to President Trump for filling the headlines so that no one notices that it is now no longer legal in China to access the world's top fifty websites. Chinese citizens can't rely on a virtual private network to reach global search engines, because virtual private networks have just been made illegal.
All this is part of the effort to staunch the striking flight of capital, which reflects a breakdown in confidence. Without much notice, China has shifted from being the country with endless reserves to one that has fallen below the safe level in spite of repeated warnings from the International Monetary Fund. It seems only yesterday that many thought China might save Lehman Brothers. Now China might not be able to save itself.
And yet China is committed to the most expensive and grand infrastructure build-out the world has ever seen: One Belt, One Road. The grandeur of the vision is striking. The new Asian Infrastructure Investment Bank opened in May 2016 with a balance sheet larger than that of the World Bank. It will finance the many ports, airports, bridges, roads, and railways that are springing up every-where from Nicaragua to Africa to Croatia. China has completed the longest railway journeys in history in the last year from Yiwu in Eastern China to both Madrid and London. Nations everywhere are lining up to benefit from the largesse.
Seen from another angle, China is doing this because it simply cannot generate GDP at home any more. Chinese workers are no longer competitive, having priced themselves out of the market. Mexico is emerging as the new China, where wages are 20 percent cheaper (before the devaluation) and world-class quality control is possible. One Belt, One Road is an effort to create special economic zones outside the country. China's leaders are trying to generate GDP and demand for excess capacity abroad.
But anyone can see that this is going to take too long. The leadership in China has promised to double national incomes by 2020. So the whole country waits for growth, while the personal freedoms required to innovate are being quietly restricted. Consider China's new "social credit" system. It's an Uber ranking system for people. Paying a bill late or running a red light will now be part of your record. The government intends to track individuals using the RFID chips that are embedded into every garment and every household appliance, every car, every bus, and every bicycle. This will be triangulated with data from CCTV cameras, phone data, and more. The eventual introduction of electronic money will ensure that every transaction...