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The Role of “Parallel Institutions” in China’s Growing Participation in Global Economic Governance

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Abstract

China is creating or co-creating new international economic institutions in areas such as trade, development finance, currency settlement and credit rating that parallel those that arose out of the Bretton Woods conference of 1944 or are tied to the interests of rich, developed countries. What are its reasons for doing this? What are the characteristics of the new institutions? How do the new institutions relate to the old institutions? Will China’s initiatives lead to better global economic governance? This paper attempts to answer these questions. Its main conclusions are that China is trying to create a new international economic order in which its political power is more commensurate with its economic power, its creation of new international institutions is an important part of this strategy, the institutions that China is creating are meant to be open and inclusive and to introduce “better practices”, and it is possible – though not necessarily probable – that China can make a major contribution to global economic governance provided it can overcome operational challenges, skepticism about its intentions and too narrow a view of its national interest.

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Notes

  1. “Crumbling old institutions” is used by Rafferty [88].

  2. This definition accords with the usage of the term in much of the literature where China is said to be creating parallel or alternative institutions [e.g., 50] or where the focus is on new norms that are being created or promulgated. For example, one organization, in the context of a discussion of non-violence in general, defines “parallel institutions” as “the social, cultural, and governance structures that a nonviolent movement builds of its own accord without reference to or even as a comprehensive replacement for the often oppressive existing institutions” [74] while another source, in the context of a discussion of aid, states that parallel institutions bypass “domestic institutions to provide public goods within well-defined sectors or territories” [144].

  3. This is a reference to the phrase “taoguang yanghui.”

  4. “Systems friction,” as articulated by Richard Steinberg [100], “is usually thought of as political tension between countries attributable to their economic interaction in the context of fundamental differences in the organization and operating principles of their respective political-economic structures,” while selective adaptation, a concept developed by Pitman Potter, “describes a range of localized responses to external regulatory standards” [86: 10]. An example of an explanation that focuses on the cost-benefit calculations of Chinese leaders is presented by Jean-Marc F. Blanchard [8] in a special journal issue that considers China’s first ten years of WTO membership.

  5. This expression is used by Jacobson and Oksenberg. As the Chinese government says, China, or more specifically The Republic of China, was an original contracting party to the GATT. However, China ended up undergoing an accession process for WTO membership even though it never accepted the decision by the Nationalists to withdraw from GATT in 1950 and applied to resume its original status in GATT in 1986.

  6. See, for example, Das [26], Yang [136], Bhattasali, Li and Martin [7], Torremans, Shan and Erauw [108], Ostry, Alexandroff and Gomez [78], Chan [14], Zeng and Liang [140], Harwit [46], Crosby [23], Chen and Shih [16], Wang, Zhang and Wang [117], Halverson [43], Fewsmith [31], Qin [87], Gao [35], Stoler [102] and Cass, Williams and Barker [13].

  7. Studies that focused on these issues include Guo [42] and Bhalla and Qiu [6].

  8. For examples of these portrayals, see Chen [17], Ostry, Alexandroff and Gomez [78] and Fung, Pei and Zhang [33].

  9. One of the best studies to deal with China’s socialization in international institutions is Social States: China in International Institutions, 1980–2000 by Alastair Iain Johnston [58]. Though the book is focused on security institutions, its key concepts of mimicking, persuasion and social influence seem applicable to economic institutions.

  10. One study that does touch on the BIS is The Evolving Role of China in International Institutions by Stephen Olson and Clyde Prestowitz [77]. This organization is put in the category of “lower impact organizations.”

  11. Much of the information in this paragraph comes from the WTO trade policy reviews for China for 2012 and 2014, both the Secretariat report and the report by China. See WTO [121–124].

  12. For academic analyses of China’s regional trade agreements, see Wang [115], Ravenhill and Jiang [89] and Zeng [139].

  13. According to Wang [115], China has not explicitly stated this, but a concern about being “left-out” is a “reasonable one.”

  14. Agreements that WTO members have been able to hammer out in recent years are ones on trade facilitation, concluded at the WTO’s ministerial conference in Bali in 2013, and the phasing out of agricultural export subsidies, which was agreed, along with other matters, at the WTO ministerial conference in Nairobi in 2015.

  15. This is a characterization of Xi’s views by Xinhua [128].

  16. Attention is now focusing on the ratification of the TPP agreement, which is necessary, per the content of the text, for it to enter into force.

  17. The term “path-breaking” is used by Dai [25].

  18. Details on these matters can be found in Anderlini [2], Hartley [45], Steinbock [101] and Feldman [30].

  19. An indication of the importance of currency matters to the Chinese central government is that they are mentioned in China’s Twelfth Five Year Plan (2011–2015). In a chapter dealing with financial system reform, one section touches on the managed floating exchange rate system, cross border yuan trade, renminbi capital account convertibility and other foreign-exchange related matters. For an English translation of the plan by the Delegation of the European Union in China [21], see the website of the British Chamber of Commerce in China at http://www.britishchamber.cn/content/chinas-twelfth-five-year-plan-2011-2015-full-english-version.

  20. The launch of CIPS happened in October 2015 in its first phase.

  21. For opinions on this issue, see “China Accelerates RMB Internationalization Process” by Yi Xianrong and “The Renminbi Bloc Is Here: Asia Down, The Rest of the World to Go?” by Arvind Subramanian and Martin Kessler. According to Yi, predictions that the renminbi could “parallel with the U.S. dollar to become one of the dominant currencies of the international market” by 2030 could come true if China achieves “a complete internationalization of the reminbi”[137]. According to Subramanian and Kessler, East Asia has already become a “RMB-dominated region” and in other parts of the world the Chinese currency is “starting to matter” [103].

  22. This view has been presented in an article by Mathew [73].

  23. On these matters, see “Chinese Agency Downgrades U.S. Credit Rating” [56], a statement by the European Securities and Markets Authority [29] on Dagong Europe and information from the U.S. Securities and Exchange Commission [114] on Dagong’s bid to do business in the U.S.

  24. For more on the China situation, see “Can All Chinese Debt Be Rated Top Quality?” [70] by Fiona Law in The Wall Street Journal. See also the complaints by Guan Jianzhong [10], the chairman of Dagong, which has itself been accused of being “politically motivated”, having to do with the practice of some Chinese companies giving better-than-deserved credit ratings to increase business.

  25. The company, China Credit Rating Co., “will charge investors rather than borrowers for assessments” [9]. See “China Rejects Moody’s Model on Ratings Firm Payments” by Bloomberg.

  26. It should be noted that Article 29 of the Asian Infrastructure Investment Bank’s articles of agreement [4], which uses the phrase “open, transparent and merit-based process” in regards to the election of the president of the AIIB by the Board of Governors, also says “He shall be a national of a regional member country [emphasis added].”

  27. This phrase is used by Curtis S. Chin [20] in articulating one possible position in the debate on the meaning of the AIIB.

  28. The idea [145] was put forth by then U.S. Deputy Secretary of State Robert B. Zoellick in 2005.

  29. On this topic, see Olson and Prestowitz [77], Gao [36] He [47] and People’s Daily Online [81].

  30. Articles that touch on these matters include “‘One Belt, One Road’ Likely To Raise China’s GDP” [116], “China Eyes Export Fillip in Modern Silk Road” [93] and “‘One Belt, One Road’ to Encourage Investments” [138]. Claims made about the AIIB are that it “can help solve” the North Korean nuclear issue [64] and promote Asian economic integration [28].

  31. These claims were made by Jin Liqun as Secretary General of the Multilateral Interim Secretariat of the AIIB. See Jin [57], Xinhua [132], Song and Hu [98], Zheng, [142] and Xinhua [130].

  32. Two important books supplying a wealth of detail on the negative effects of China’s foreign expansion are China’s Silent Army: The Pioneers, Traders, Fixers and Workers Who Are Remaking the World in Beijing’s Image by Juan Pablo Cardenal and Heriberto Araújo [12] and China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa by Howard W. French [32]. Among the problems chronicled are damage to the environment from resource extraction, poor working conditions at Chinese businesses, shoddy work on construction projects and support for undemocratic political leaders.

  33. For more on the notion of a “new great power coalition”, see Rosecrance [94]. An argument in favor of power sharing is presented by White [119].

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The author would like to thank Wei Liang and an anonymous reviewer for comments on an earlier version of this article.

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    James F. Paradise

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Paradise, J.F. The Role of “Parallel Institutions” in China’s Growing Participation in Global Economic Governance. J OF CHIN POLIT SCI 21, 149–175 (2016). https://doi.org/10.1007/s11366-016-9401-7

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