China’s entry into the World Trade Organization (WTO) on 11 December 2001 marked the culmination of the country’s long-standing effort to integrate into the global economy, following its repeated economic reforms since the late 1970s. In the last two decades, the world economy and China’s place within it have changed dramatically. The country’s gross domestic product (GDP) has grown more than tenfold from just over $1.3 trillion in 2001 to $14.7 trillion in 2020. It was the world’s fifth-largest exporter of goods in 2001, with a 4.7 per cent share of global exports; that figure stands at almost 15 per cent in 2021, making it by far the largest exporter. Even against the backdrop of the COVID-19 pandemic, China’s share of global exports has continued to increase.
In addition, China is also the largest sovereign creditor in overseas development finance and is now ranked third in terms of voting share and voting power in the International Monetary Fund (IMF) and the World Bank, respectively. The country is increasingly assertive in pushing for WTO reforms and is a driving force behind many regional trade agreements. More recently, China has also co-created new institutions that provide development finance, such as the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB). After 20 years as a WTO member, what do these developments say about China’s global economic governance objectives and strategies?
This paper argues that the discontinuities between the approaches of China and the West to trade and development finance should not be overstated, despite recent rising tensions. China has consistently adopted a multifaceted approach to global economic governance since joining the WTO – and this is likely to continue. In this paper, ‘multifaceted’ refers to Beijing’s pursuit of a mix of cooperative and confrontational approaches to economic governance, and often a combination of both, particularly where ‘outside options’ exist. Outside options are the alternative mechanisms that China uses to achieve goals that are difficult to secure within multilateral institutions. For example, the use of regional trade agreements to secure recognition of China’s market economy status, which the WTO does not acknowledge. While China has generally pursued consistent goals, its growing assertiveness, improved economic position and outward economic expansion – rather than any fundamental change in policies and objectives – have led to increasingly tense confrontations with the West.
The concerns of Western states vis-à-vis China have remained relatively consistent in the past two decades. These persist over the role of indirect state subsidies via China’s state-owned enterprises (SOEs), China’s status as a developing country in the WTO, forced technology transfers from Western multinationals, poor environmental and social governance in Chinese-funded development projects, and a lack of policy conditionality on its development finance initiatives. Clearly the role of SOEs, the advantages China derives from its developing-country status at the WTO, and its development finance initiatives have an increasing impact on global economic governance as the country’s share of world GDP grows. It is unsurprising then that the Western response to the country has intensified in line with China’s economic development.
Many countries are now querying whether China’s approach to global economic governance strengthens or undermines the liberal international order. However, asking this question has little value. China is already a crucial component of the economic liberal international order and has benefited substantially from being integrated into it. The international trade regime has ensured that China has faced relatively low tariffs for its exports, allowing it to maximize its advantage of low labour costs. China’s WTO membership and international trade rules have also allowed it to commit credibly to economic liberalization in ways that would have otherwise been difficult. Similarly, China’s participation in the global investment regime, in the form of 145 bilateral investment treaties and membership of the International Centre for Settlement of Investment Disputes (ICSID), has allowed Beijing to attract foreign investment.
Many countries are now querying whether China’s approach to global economic governance strengthens or undermines the liberal international order.
While the liberal international order has been crucial in facilitating the economic development of China, countries around the world are now more reliant than ever on China-based manufacturing and supply chains. The country’s deeper integration into the global economy has already changed the liberal international order, due to the unique relationship that exists between state and market in China and the country’s centrality in the global trading system. China’s overseas development finance is offered mostly in the form of non-concessional loans from national development banks, state-owned commercial banks, other investment corporations and non-financial SOEs. As is the case for its domestic development projects, the central government does not subsidize loans for foreign investment; instead, creditors raise funds in the domestic and global capital markets. This model is described as ‘market-based, state-supported’, rather than fully state-backed. This could be interpreted as China exporting its domestic development finance model, which reflects its unique state–market relationship.
Furthermore, China’s rapidly expanding role in development finance and its growing share of global trade have led to broader geopolitical concerns as well as questions over environmental contamination, labour treatment, land acquisition and gender equality. To address these issues, the international community must pay more policy attention to developing countries, where Chinese-funded projects have real impacts on local communities, instead of overemphasizing debates around China vs the West. In line with its previous approach, it is likely that China will continue to adopt a cooperative stance on the multilateral level while keeping its outside options open through bilateral and regional cooperation. Understanding why China chooses to pursue this strategy demands a more nuanced assessment of the factors driving its preferences and strategies.