China wants to live in the house that the US once built

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Although the US and China just pledged more cooperation in trade matters, the persistence of today’s global institutional architecture is rather uncertain as a power shift manifests itself ‘from West to East’. While the US withdraws its support from international agreements and institutions such as the World Trade Organization (WTO), China largely continues to support the WTO’s work. So far China’s increasing global influence becomes most apparent in the areas of international trade and development banking. The question arises to what extent China fills the gaps that the US leaves behind as it abandons some of its international institutions – or ‘houses’, if you like – that make up the larger architecture.

What does China’s rise mean for international institutions?

Will there be compromises between the US and China to resolve tensions in international institutions? Or will this power shift result in the creation of a parallel global order? Based on current evidence, it looks as if the overall institutional structure will largely prevail. Yet, given China’s increasing economic and political influence, international institutions might also develop to represent a ‘thinner’ version of Western liberal values that puts less emphasis on the prominence of democratic governance, rule of law, and individual rights.

In today’s world, we can find evidence for two scenarios:

Scenario 1: China changes existent international institutions from within

Suisheng Zhao and proponents of the liberal international order not only maintain that ‘China is not in the position to replace the existing order’, but also highlight that China profits from collective benefits and is socialized by the liberal values enshrined in the rules and functioning of international institutions. It is no coincidence that China’s GDP has grown from $950 billion in 2000 to $22 trillion in 2016 after joining the WTO in 2001.

Nevertheless, China successfully ‘games the system’ of international trade by taking over the WTO ‘from the inside’. As a recent CNN article describes, China poses as the defender of global trade by filling the vacuum left behind as the US gravitates towards protectionist measures. Chin Leng Lim, a law professor at the Chinese University of Hong Kong, observes that ‘China wants to maintain the house that America built’. Furthermore, China’s President Xi Jinping explicitly states in his speech at the World Economic Forum in Davos (2017) that ‘[China] should adhere to multilateralism to uphold the authority and efficacy of multilateral institutions’. However, he also affirms that economic globalization is a ‘double-edged sword’ and emphasizes the need for innovation and reform of international institutions in global economic governance. Sticking with the ‘house’ metaphor, this scenario paints a picture of China renovating the WTO from the inside, while the sustaining walls and floor plan remain the same.

Scenario 2: China builds a parallel global order

If China is not able to change the rules of international institutions from within, Ikenberry and Lim (2017) claim that it possesses sufficient resources for counter-hegemonic institution building, as the creation of the Asian Infrastructure Investment Bank (AIIB) shows in the field of development banking. Due to China’s continued dissatisfaction with its lack of representation in prestigious positions at the World Bank, and the unwillingness of established powers to readjust voting rights in the International Monetary Fund (IMF) in China’s favor, China established the AIIB in 2015. Now, the AIIB may be competing with the US-controlled World Bank and IMF, which are built upon ‘thick’ liberal values emphasizing rule of law, democratic governance, and individual rights. Given that the AIIB’s Articles of Agreement make no reference to these liberal values, the AIIB creation may be a first step towards building a parallel global system that is not closely bound by traditional Western liberal values. In terms of the global institutional architecture, this scenario would envision China building an annex or even a duplex house adjacent to the existent institutional structures.

Market authoritarianism and ‘thinning’ liberal values in international institutions

As the scenarios above illustrate, it is not always profitable for China to work around or retract from international institutions and thereby risk losing international credibility – as the US is currently experiencing by pulling out of international agreements such as the Trans-Pacific Partnership and the Iran deal. China’s success in undermining international institutions arguably lies in its ability to separate capitalism from ‘thick’ liberal values propagated by Western states. Therefore, China’s increasing global power and spread of market authoritarianism likely leads to a ‘thinner’ version of liberalism reduced to (state-led) capitalism and free trade.

Does China’s growing institutional influence in international trade and development banking mean that the US and European states won’t have a say anymore? It most likely does not. As a proponent of ‘thick’ liberal values in international institutions, the EU could seize China’s rise as an opportunity to take on a stronger global role as the defender of the liberal international order. Particularly at a time when it can no longer rely on the US to do so, the EU emerges as the strongest advocate of human rights, rule of law, and democracy on the world stage. Yet, regardless of the actions of the US and the EU, China will continue to push for a reconfiguration of decision-making authority and voting power in international institutions. Overall, China’s strategy in trade and development banking embodies a mix of the two mentioned scenarios: China is likely to ‘gut the house’. Whereas the main structures and outside appearance remain unchanged, the interior arrangements are progressively remodeled to accommodate China’s economic and political preferences.

Since China’s influence is mainly visible in the WTO and development banking so far, only time will tell whether it will also play a more prominent role in other international institutions such as the World Health Organization or UN bodies that are not exclusively geared towards upholding free trade in the world.

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