Three key elements are driving China’s approach to global economic governance: the domestic economy, strategic concerns and development experience. Firstly, especially since its investment- and export-driven economic growth started to slow in 2008, the Chinese government has implemented a series of measures to reform and ‘upgrade’ the domestic economy. It has striven to reduce overcapacity in traditional heavy industries; boost exports of China’s so-called ‘advantage industries’ including telecommunications, high-speed railways and renewable energy; push for technological upgrades in manufacturing; support central SOEs in strategic industries; and tighten financial regulation to maintain stability. Unsurprisingly, China mobilizes resources in international economic institutions to help achieve these domestic objectives.
Secondly, China’s increasing engagement in the global economy, through trade and overseas investment and lending, has also led to confrontation with its geopolitical and economic competitors and partners (including recipients of Chinese funds). To improve the outcomes of these clashes, China has sought to lobby the political elites in recipient countries and promise financial rewards to boost its strategic position in bilateral relationships. It has made efforts to increase its power in multilateral governance institutions to give China more say in establishing rules and norms in various economic areas.
Finally, China’s own development experience shapes the country’s approach to global economic governance. This includes prioritizing physical over social infrastructure, limiting foreign political intervention attached to economic assistance, maintaining the dominance of SOEs in key industries, and adopting a hybrid market-based economic model with state support mechanisms.
It is unsurprising that China has sought to change aspects of the global economic governance system that was largely constructed prior to its own dramatic economic development. However, its efforts have often been constrained by the resistance of other dominant states, a lack of leverage and institutional inertia. The responses of international institutions themselves have also varied. Sometimes these have adapted to China’s economic growth and demands for reform, as seen in the increase of China’s voting power in the World Bank. On other occasions institutions have been slow to respond, for example, in relation to China’s various reform proposals at the WTO. Research in this area suggests that the response of institutions often depends on the ability of dissatisfied states to exercise effective outside options by using or creating alternative institutions. China has more leverage to secure concessions when it has outside options and when its contributions to the institution are perceived as crucial. The availability of outside options depends, in turn, on the policy area in which an institution operates, with some areas exhibiting more institutional overlap than others. Countries such as China, dissatisfied with elements of existing institutions, must therefore select strategies that are tailored to specific policy areas.
