China isn’t breaking any rules

At least not when it comes to global trade

Hannah Lee

Economics | East Asia

7 June 2019

China’s increasingly assertive role in the global economic system has been met with apprehension by the West. However, when it comes to global trade, China is merely following in the footsteps of the great powers before it, writes Hannah Lee. 

If you were to indulge in some reports from Western media you may be tempted to conclude that when it comes to global trade, China is a dangerous aggressor with no respect for international norms, whose rise must be stopped. However, whilst China’s economic power is growing, this ‘assertive rule breaker’ view of China is misleading.

China’s engagements with the global economic system show that it is content with the current rules but is proactively remoulding global trade norms to better suit its interests. While these new challenges could be worrying for western nations, we should expect nothing less from an economy of China’s size.

China’s dependence on exports will ensure that it maintains the current economic order as its role in global trade grows. Exports are the ‘lifeblood’ of China’s economy because they ensure a trade surplus and create jobs, which maintain social stability, which is something that is very important to a one-party state like China.

Whilst states such as the US and the UK withdraw from the economic order, China has increased its engagement. For example, despite current tensions with the US, China increased its overall export volume and decreased its general tariff rate from 10.5 per cent to 7.8 per cent in 2018.

China is also using its economic power to build an expansive network of trade routes under its Belt and Road Initiative (BRI). The BRI will increase market access for Chinese exports across its 70 member states by developing port and rail infrastructure.  In turn, by promoting global trade, China will likely succeed in its goal of doubling the 2010 GDP per capita income by 2020.

China’s commitment to the global economic order is further established by its conduct in the World Trade Organization Dispute Settlement Body (DSB). Because the DSB enforces the WTO’s neoliberal norms, compliance with its rulings is reflective of China’s acceptance of these norms. In the small number of cases that involved China, China revised its laws to ensure compliance with DSB rulings within a reasonable timeframe. Notably, unlike cases involving the US, Japan or the EU, no Chinese case has ever entered compliance proceedings.

China has also followed the path of many other established economies by pursuing regional trade agreements (RTAs). China is a member of 16 RTAs and is currently negotiating three.

These facts are evidence of China’s acceptance of the current economic rules. China owes its substantial growth to a system it is now proactively developing. As any other economy of its size would, China has embraced the economic order to further its development.

However, this also shows us that China is reshaping the economic order to better suit its interests.  For instance, the BRI will put China at the centre of global trade routes. Whilst the BRI promotes a ‘community of shared destiny’, it excludes competitors such as the US and Japan. This exclusion ensures an absence of states that could challenge China’s institutional primacy in the BRI.

More on this: Is Chinese influence in Timor-Leste cause for concern?

The Asian Infrastructure and Investment Bank is another example of China going beyond the mere promotion of the economic order and engaging in institution building to support its vision of the international system. As well as this, there is some evidence that Chinese institutions have engaged in opaque practices, that have included local government grants and suspiciously cheap loans from state-owned banks. These practices impede market access, cause uneven treatment of foreign investment and weaken enforcement of intellectual property rights, which further undermines WTO norms.

Overall, it is evident that China has embraced the international economic system and the liberal norms that underpin it. However, China’s proactive institutional building and selective subversion of WTO requirements reinforce China’s new position as an assertive re-shaper of global trade norms. As China’s economic significance expands, it will assume an increased rule-making role in international trade.

None of this conduct is different from what the US or EU would do with China’s economic power. For the past 30 years, the US and the EU have both sought to mould global norms to their interests through institutions such as the World Bank and the IMF. Both imposed harsh conditions on China’s WTO entry in an effort to restrict its economic growth and protect their economic dominance. However, unlike China, both have breached WTO DSB rulings repeatedly.

That China, an economy that was responsible for 40 per cent of global growth last year, should be expected to refrain from exercising its increasing influence is a position at odds with the reality of global trade. Economically, China is behaving exactly the same way any other economy of its size would. Perhaps the thought that China will pursue its trade interests to the same extent that Western nations have previously done is the real source of our concern.

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