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China’s Coherence in International Economic Governance

  • RESEARCH ARTICLE
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Abstract

This article analyzes China’s coherence in international economic governance. When and how is China challenging the rules and norms of the prevailing international economic order? Has China adopted the current rules and norms across the board, or is it proceeding in an ad hoc or piecemeal manner? How can its (in) coherence be explained? To address these questions, I compare China’s profile vis-à-vis three dimensions of the global economic order: trade, investment, and development aid. I argue that in international trade and investment, China has neither sought nor brought about significant change. China is however, offering an alternative to the Western norms that until now have dominated the global development aid regime. China’s establishment of the Asian Infrastructure Investment Bank (AIIB) is notable in this regard, though it is still soon to determine if the Chinese-led development bank will break with existing norms. The article then considers possible theoretical explanations for the variation in China’s behavior across the three areas.

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Notes

  1. ‘Development aid’, ‘development assistance’ and ‘development financing’ are used interchangeably in the article. China’s aid is perhaps best described as ‘development financing’ since much does not fall into the commonly-used OECD-DAC definition of overseas development assistance. Shambaugh explains that China’s aid “straddles the line between aid and overseas investment, involves private companies, and [China] gives loans that often do not have a grant element over 25 %.” ([35]: 202–205).

  2. This article makes no judgment as to the merits of maintaining the existing norms and rules of the global economic system. On this, Scott Kennedy argues that the existing system is not perfect and that China should try to promote change ([45]: 11–12).

  3. Launched at the 21st ASEAN Summit in Cambodia in November 2012. According to estimates, the trade of participating countries accounts for about 40 % of world trade.

  4. Henry Gao argues that China has gone from rule taker to rule shaker and even rule maker in the WTO [33]; Peter Yu argues that China’s bilateral and regional trade agreements follow a different pattern than those of the dominant players, the US and the EU [105]; Nargiza Salidjanova suggests that China is “promoting alternate norms.”([75]: 30–1).

  5. On the new bank as a rival to the World Bank and Asian Development Bank, see [27].

  6. China joined the World Bank and the IMF in 1980, after almost a decade of preparation. On China’s interaction with the World Bank and the IMF, see [43].

  7. China’s willingness to make concessions to its FTA partners to the disadvantage of its domestic industry is well documented, for example in the case of its agreement with ASEAN. See ([18]: 289), ([73]: 31–32, 38–40). In China’s WTO accession negotiations, despite expected domestic unrest by farmers, and opposition by vested ministerial interests, Wei Liang notes that the drawn out negotiations were only concluded as a result of the personal intervention of China’s top leaders ([51]: 716–718).

  8. Thomas J. Christensen notes the growing number of bureaucracies that are involved in the foreign policy making process such as the military, energy companies, exporters, and regional party elites ([21]:60).

  9. For example, it has been suggested that Xi’s campaign against corruption is also serving to rid Xi of political rivals. Other measures such as the proposed law on foreign NGOs may impede the development of China’s civil society, and prevent critique of the government.

  10. UNCTAD defines mega regional agreements as “broad economic agreements among a group of countries that have a significant combined economic weight” ([88] XXIV). Whalley refers to such agreements as ‘large-large’ negotiations, in contrast to small-small or large-small regional trade agreements [93]. Melendex-Ortiz defines mega regionals as ““deep integration partnerships between countries or regions with a major share of world trade and foreign direct investment (FDI), and in which two or more of the parties are in a paramount driver position, or serve as hubs, in global value chains…”[55].

  11. Agreement between Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, US and Vietnam) finalized on October 5, 2015. The agreement covers about 1/3 of world trade and 40 % of global GDP [14].

  12. Negotiations between the US and the EU that started in July 2013.

  13. The WTO accession process is a one-way negotiating process. Acceding countries are asked to make concessions without being able to make reciprocal demands, while existing WTO members are entitled to make demands without making any concessions, thus subjecting acceding members to enormous pressure.

  14. For example, see ([50]:79–80); ([53]: 299–339); [82].

  15. WTO members make two kinds of commitments: rules-based commitments which are normally uniform for all WTO members and market access commitments which are made on a member by member basis and thus differ among members.

  16. For example, China agreed to a special transitional review for its first eight years in the WTO, and in its tenth year. For discussion of China’s WTO-plus obligations, see [72].

  17. China agreed to be considered a non-market economy (NME) until 2017 for calculating dumping in anti-dumping investigations, with the use of a higher cost surrogate country to determine the domestic price, thus making it more likely to find higher dumping margins. Similarly, in countervailing duty investigations, China agreed to an alternative benchmark in calculating its subsidies, thus increasing the probability of WTO members applying countervailing duties. In contrast to the NME provision in anti-dumping, the alternative benchmark provision regarding subsidies does not expire.

  18. This accusation has been cited in a number of articles. See for example, [52].

  19. Although withdrawing from an international organization/treaty appears farfetched, in 2013 South Africa terminated its bilateral investment treaties with Germany, the Netherlands, Spain and Switzerland. Bolivia, Ecuador (2009) and Venezuela (2012) have withdrawn from the ICSID Convention ([88]: 114). Italy recently notified its withdrawal from the Energy Charter, although its obligations will remain in effect for twenty additional years ([89]:107). At the WTO’s Bali Ministerial in 2013, some WTO members, in an unprecedented move, reneged on their original commitment to the Bali Package although agreement was eventually achieved [25].

  20. For more on China’s view of its implementation, see [102, 103].

  21. For example, Webster argues that China has only superficially complied with WTO rulings [92].

  22. For instance, by coming to an agreement for a ‘reasonable period of time’ in a timely manner, by holding discussions towards changing or eliminating its illegal measures, and by implementing its commitment in good faith and within the ‘reasonable period of time’[54].

  23. The US has spent years dragging out implementation of the WTO ruling on its Copyright Act, a dispute initiated by the E.C. in 1999. As of 20 May 2015, US implementation of the WTO ruling was still on the WTO agenda as a surveillance matter [99].

  24. For example, see [10].

  25. The 2008 Mini-ministerial is often cited as an example of China being responsible for the breakdown of the talks because of its support for India against the US on the Special Safeguard Mechanism. Scott and Wilkenson, based on interviews with participants, argue that China was trying to broker a deal between India and the US, rather than supporting India ([76]:776).

  26. As of July 2008 China had submitted over 100 proposals in the Doha Round negotiations [33].

  27. China’s proposals on anti-dumping are an example of this. For details of this argument, [36]. China’s position might be explained by the fact that it is the world’s largest target of anti-dumping action, and therefore its interests lie in stricter anti-dumping rules, nevertheless the bottom line is that it is promoting a pro-trade liberalization agenda.

  28. China, along with India and the Philippines, was particularly supportive of food security, one of the three potential deliverables at Bali. (The other two were trade facilitation and development.)

  29. The agreement is called the Environmental Goods Agreement (EGA). For the official statement see [44]. Negotiations were launched in July 2014.

  30. Though considered to be holding up the negotiations with its request for exemptions on a long list of goods, China and the US achieved a breakthrough in November 2014 after China agreed to a compromise [74].

  31. China’s request was rejected out of concern that China would hinder the talks [22].

  32. The US for example, has a history of using preferential trade agreements to promote norms that it would like to be incorporated into the multilateral framework. NAFTA is considered an example of this.

  33. For a list and description of China’s PTAs, see [61]. The Cross-Straits Economic Framework Agreement between Mainland China and Taipei is not included in the twelve PTAs.

  34. Articles on China’s FTAs include [32, 48, 105, 106].

  35. China resumed sovereignty over Hong Kong in 1997 and Macao in 1999. Both were members of the WTO prior to the People’s Republic of China, and are referred to as Hong Kong, China and Macao, China respectively in the WTO.

  36. For a description of China’s incremental approach to ASEAN, see ([105]:1007–1009).

  37. The link is implied by the WTO Secretariat ([96]: 45) and Kong ([48] 1203].

  38. ([105]: 962). Yu notes that the EU trade agreements cover “nontrade areas “such as competition policy, investment, improvement of business environment, cooperation in vocational education and training, labor and product standards, environmental protection, tourism, illegal migration, and the resolution of other non-economic cross-border problems”. Some of these areas are in fact also covered in US free trade agreements. Where the EU model differs is in the political aspects that it includes, for example, the political dialogue it calls for in its Association agreements.

  39. ([105]: 1011–1018). Yu notes that China does not use a template approach in its FTAs, nor is it interested in one.

  40. On China’s FTAs and services, see [91]. China’s services agreements take the GATS model of positive list approach, rather than NAFTA’s negative list approach where all services sectors are included except what is excluded.

  41. 6 original ASEAN members are Philippines, Singapore, Thailand, Indonesia, Brunei Darussalam, Malaysia, while the 4 newer (and less developed) members are Vietnam, Laos, Cambodia and Myanmar.. For an analysis of China’s approach to the negotiations, see [18].

  42. China’s FTAs with New Zealand, Singapore and Switzerland include provisions on labor standards and competition. China’s FTA with Switzerland refers to sustainable development and devotes an entire chapter to environmental issues (Chapter 12) [29]. On the acceptance of increasingly legalized dispute settlement provisions, see [38].

  43. At the end of 2013, there were 3236 BITs and other international investment agreements ([88]:114).

  44. Indeed, Bath and Nottage note that some countries have omitted investment chapters in their FTAs due to reservations about investor-state arbitration ([6]:2). Investor-state arbitration is also one of the issues holding up the ratification of CETA, the Comprehensive Economic and Trade Agreement, concluded in September 2014 between Canada and the EU.

  45. For example, OECD Council Recommendation on Recipient Country Policies relating to National Security.

  46. Efforts to achieve multilateral agreement on investment in the OECD failed in 1998. Investment, one of the four Singapore issues, was eventually dropped from the negotiating agenda along with government procurement and competition. Negotiations on the fourth, trade facilitation, culminated in the agreement in Bali.

  47. According to UNCTAD, in 2014, “at least 50 countries and regions were engaged in reviewing and revising their IIA models. Brazil, India, Norway and the European Union (EU) published novel approaches. South Africa and Indonesia continued their treaty terminations, while formulating new IIA strategies..” ([89]: xi).

  48. For a brief description of China’s ‘Going Out’ policy, see ([77]: 174–183. See also ([8]: 6). Berger describes the reasons that China’s outward FDI has grown: transfer of plants to lower wage economies, acquisition of technology and knowhow, use of brand names, and access to new markets.

  49. Leon Trakmen [86] describes three model BITs: one from the early 1980s, the second from 1992, and the third, from 1998 to contribute to its ‘going out’ policy. Shan, Gallagher and Zhang [78] suggest that the inclusion of a national treatment standard from 1986 in the China UK BIT characterized a new model in Chinese BITs.

  50. For example, Australia’s foreign investment regime has a ‘national interest’ exception which includes national security but also covers impact of investment on the economy ([5]: 87).

  51. Under the US foreign investment review system, the Committee on Foreign Investment in the US (CFIUS) makes a recommendation that is enforced by order of the US President. Headed by the US Treasury Secretary, CFIUS includes representatives of Justice, Home Security, Commerce, State, and Energy. Chinese telecom company Huawei backed out of the US market after a 2012 House Intelligence Committee Report came out discouraging US companies from partnering with Huawei, citing security concerns. See [84].

  52. There is some debate about the degree of discrimination towards Chinese investors compared to other foreign investors ([62]:2).

  53. One of the issues raised in the 2010 national elections was investment by Chinese sovereign wealth funds in Australia. In the past, Chinese investment has been blocked in the Australian telecom sector (2012) and mining sector (2009).

  54. SOEs, the scope of the national security exception and anti-monopoly law are the most difficult issues in the US-China BIT negotiations [41].

  55. The news report suggests that factors driving China’s concessions include its increased interest in investing in the US, and the slowdown in its economy.

  56. In contrast, Ngair Woods argues that new donors are not challenging the system outright, rather they are bringing competitive pressures into the system [95]. Deborah Brautigam argues that in fact, Chinese practices are not that far from those of traditional donors [12].

  57. The term was originally coined by John Williamson [94].

  58. Interestingly, despite efforts to coordinate aid among major DAC donors since the Paris Declaration, coordination has declined. Fuchs, Nunenkamp and Ohler have shown that this can be attributed to competition for export markets and political influence [31].

  59. For analysis, see [107].

  60. However, Chin notes that estimating China’s aid is difficult because: China does not use the DAC definitions of foreign aid, various agencies are responsible for providing aid, China may not want to publicize the real amounts of aid, given its domestic poverty, the figures don’t include unreported aid to Iran, North Korea, Cuba and other outlier regimes ([17]: 581–582).

  61. This may be construed as suggesting that domestic politics explain China’s aid. Shahar Hameiri argues that because China’s aid is driven by “commercial imperatives” it is not operating according to “master plan”, implying that a domestic interest paradigm is the main explanation for China’s aid policy ([35]: 3, 7–10). However, one does not preclude the other, and in my view, this is a type of mechanism used to implement an overall state strategy.

  62. This recommendation was amended in 2006 and 2008, 2011. The OECD rules are only a recommendation, related to LDCs, and some areas, such as food aid and free-standing technical cooperation, were excluded. Non-DAC donors such as China are considered to be challenges to efforts to untie aid even though China has endorsed Paris-Accra-Busan Partnership for Effective Development Co-operation in form of Global Partnership for Effective Development Cooperation.

  63. Chin points to the signing of the “Memorandum of Understanding (MOU) on Cooperation between the Export–Import Bank of China and the International Bank for Reconstruction and Development,” as evidence of this.

  64. For information about the China-Asian Development Bank relationship, see International Monetary Fund, People’s Republic of China 2013 Article IV Report ([42]: 10–12).

  65. For a short history of the AIIB, see Ba ([4]: 162–164).

  66. For example, see address by Mr. Zhou Ziangwu, the Executive Deputy Director-General of the Asia-Pacific Finance and Development Centre, associated with the Chinese Ministry of Finance at the 2015 Australiasian Aid Conference on February 13–14, 2015 [108].

  67. Chin concludes that China is not trying to undermine the World Bank, but rather reshape some of the norms ([16]: 223).

  68. Professor Peter Yu, in a private conversation, suggested to me that while there may not be external coherence in China’s policies over the three areas, there is internal coherence, and in fact, China’s policies in all three areas are shaped by its development needs.

  69. Stemming from concern over subsidies which give the foreign state owned enterprise a competitive advantage, or that there might be concern that they will pursue a non-commercial agenda.

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Harpaz, M.D. China’s Coherence in International Economic Governance. J OF CHIN POLIT SCI 21, 123–147 (2016). https://doi.org/10.1007/s11366-016-9400-8

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