New Games, New Rules

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The instruction for drafting China’s 13th Five-year Plan （2016-2020） included the first open declaration that “increasing China’s say in the world economic governance” was now a national strategy.

China will chair the next G20 summit in September 2016， and at this year’s meeting， held in Turkey on November 16， Chinese President Xi Jinping pledged to transform the G20 “from a mechanism of crisis response to one of long-term governance” and shift its agenda from “short-term issues to deep-seated and longer-term ones.”

Two days later， at an APEC summit in the Philippines， he urged an acceleration of the process of building the Free Trade Area of the Asia-Pacific （FTAAP）.

Given the realities underpinning the G20 and the Asia-Pacific economic situation， these two projects seem to address core issues of global economic governance， and thus provide an opportunity for China to realize its ambition of having more say in managing and addressing these issues. The words and actions of China’s leaders in the past year have been regarded as signposts that the country is already well on its way to playing a bigger role in reshaping global economic governance.

It is also important， however， to listen to voices warning of challenges ahead. A small mistake made in this early stage of realizing an ambitious vision could mean major trouble down the road. China has a lot of homework to do.

Refreshing

In 2008， the G20， representing all major developed and emerging economies， was upgraded from a gathering of central bankers and fiscal ministers to a full-blown leaders’summit in response to the global financial crisis. The G20 was initially expected to assume a bigger role in coordinating global economic and trade policies than the G7 club of industrialized nations had been able to. However， the G20 faced criticism that it has become nothing more than a talk show in the past two years； as emerging economies suffered growth slowdowns， a lack of implementation of commitments against protectionism by G20 members has remained， and no progress has been made on enforcing the G20 decision to give emerging economies more power in the IMF. The G20 needs refreshed momentum to become an institutionalized platform for world economic governance. China’s GDP 2010-2014

On October 5， 12 of the 21 APEC members concluded negotiations on the Trans-Pacific Partnership， a US-led regional free trade protocol. “We can’t let countries like China write the rules of the global economy，” said US President Barack Obama in his statement that same day. By pushing through negotiations on the TPP ， the US was seemingly trying to block the revival of the FTAAP as discussed at the APEC summit in Beijing in 2014. APEC reached consensus on the FTAAP in 2006， but shelved the scheme after the US lost interest.

In this context， what China’s leaders have said and done in the past year reflects Beijing’s intention to project its newly acquired economic power in participating in a new round of rule-making in the world economy. China’s One Belt， One Road initiative to link Asia and Europe was launched early this year. The Asian Infrastructure Investment Bank（AIIB）， in which China is the biggest shareholder， is scheduled to go into operation by the end of the year. China’s Silk Road Fund， established a year ago， has already invested in infrastructure， manufacturing and energy projects in South Asia， Italy and Russia. A roadmap for building the FTAAP was passed at the APEC summit in November 2014 as a result of a Chinese proposal. Progress on strategic study of the FTAAP would also be reviewed at the same summit， according to a China Ministry of Foreign Affairs briefing on November 10.

On November 13， 2015， an IMF staff paper was submitted to the IMF Executive Board suggesting that the Chinese yuan be included in the basket of Special Drawing Right （SDR） currencies， an international reserve fund. Xi Jinping remarked in his speech at the G20 summit on November 15 that approval， once granted by the IMF at the end of that same month， would “help to lift the representativeness and attraction of the SDR， improve the international monetary system and safeguard global financial stability.”

Preparation

In China， these initiatives， especially One Belt， One Road and the AIIB， as well as the breakthrough on the internationalization of the yuan， are regarded as moves towards providing common good in the world economy， a key foundation for becoming a global economic rule maker. This point has been highlighted in several People’s Daily editorials regarding the G20 summit. In response to US and Japanese calls for the AIIB to adopt higher international standards， China’s Ministry of Finance repeatedly made it clear that its view was that there was no such thing as best international practice， simply stating that China would “seek better practices.”Many analysts within and outside China believe China is taking steps to counter US resistance to greater Chinese participation in the new economic order and a US “pivot to Asia.” Chinese analysts believe that the participation of European economies in the AIIB in particular will facilitate new arrangements in the sphere of global financial governance.

Professor Yan Xuetong， dean of Tsinghua University’s Institute of Modern International Relations， thinks a bipolar， ChinaUS power structure is the most likely future scenario in the world economic order. As he explained at the “World Order and China’s Role” forum in Beijing on October 30， the power gap between China and the US has been narrowing， and both economies have widened their respective gaps with other forces in global governance. Yan added that a “bipolar pattern” could emerge in the economic sphere before it became apparent in politics or any other area.

The instruction for the drafting of China’s 13th Five-year Plan dictates an array of opening up policies， including boosting imports， inbound and outbound investment， and foreign aid. These measures are expected to build a bigger and stronger Chinese presence in the trade and investment world.

China has also been stepping up efforts to expand free trade agreements with more economies， including investment agreements with the US and the EU. China used to be a leading recipient of foreign direct investment， but since 2014， China’s investment abroad has matched its FDI inflow. As Professor Marcos Troyjo， co-founder and？director of the BRICLab at Columbia University， told NewsChina， current and future globalization trends will be more about investment than trade， and China’s increasing overseas activity in this regard could help give Beijing a more prominent voice in global economic governance.

No Rush

At the same time， China apparently does not want to give the rest of the world the sense that it wants to establish an entirely new status quo. China has insisted that it remains a “participant， facilitator and contributor in the global and regional order，” not a“free-rider” or “challenger.” “The idea of [the] AIIB is not to reinvent the wheel，” said Chinese Premier Li Keqiang in an interview with the Financial Times in April 2015， but “is intended to be a supplement to the current international financial system.”

Some Chinese analysts have opined that China is already in the lead in terms of global economic rule-making. Yan Xuetong said this is an overstatement. China’s influence， he noted， remains limited to trade in goods， and has yet to expand into services. China still reports a huge deficit in this field， where， despite considerable growth， it continues to lag behind developed economies.

The overall quality of China’s investment abroad has also yet to improve. China’s Gross National Product， which includes both the GDP and the net value of goods and services from overseas assets of Chinese residents， remains smaller than the recorded GDP ， indicating the poor performance of China’s investments abroad relative to FDI in China. In an exclusive interview with the Chinese edition of NewsChina， Ba Shusong， a member of the panel drafting the country’s 13th Fiveyear Plan and chief economist of the China Banking Association and HKEx， noted this reflects a big difference between China and developed economies. He stressed that China needs to make more effort to invest abroad with a more global perspective.

Besides economic returns， China’s investment abroad should also pay more attention to its social impact. According to the 2015 Report on the Sustainable Development of Chinese Enterprises Overseas co-published in October by the UN Development Program China， the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce and the Research Center of the State-owned Assets Supervision and Administration Commission， Chinese companies are “troubled by insufficient knowledge， experience， human resources and capital，” influencing their ability to raise their capacity for sustainable development in overseas operations.

Many Chinese analysts are cautious about how much the inclusion of the Chinese yuan in the SDR can help the currency become international. The SDR itself， they argued， is effectively a marginalized tool of the IMF because it cannot be used directly as a currency and is thus rarely turned to.

There is consensus that a developed， open domestic financial market with an effective financial regulatory framework is the key to making a currency truly international Csomething China patently lacks. Ba Shusong said that China’s leading private equity manager runs a fund of only about US$3 billion， compared with the US$90 billion or more handled by its US counterpart. Financial reform in China still has a long way to go. The regulatory structure has yet to be reshuffled after the country’s recent stock market chaos， and divisions remain between analysts and officials on how best to tackle the issue. China’s mechanism to establish market-based interest and foreign exchange rates also has yet to be improved.

For China to both get its own financial house in order and blossom into a global economic rule maker， it appears， some growing pains are inevitable.