The Chinese Way of Reforming Global Economic Governance: An Analysis of China’s Rising Role in the Group of Twenty (G-20)

Abstract

Since the Global Financial Crisis engulfed much of the world in 2008, the Group of Twenty (G-20) has emerged as the self-acclaimed “premium forum” for international economic cooperation and policy coordination. The ascendency of G-20, of which China is a part, indicates the world’s preference for a more inclusive and informal economic governance model, moving away from the relatively restrictive Group of Seven (G-7) and the legalized Bretton Woods settings. This article analyzes China’s participation and increasingly critical role in the G-20. China’s main priorities in relation to the G-20 evolved over time. The initial focuses on containing financial contagion and reforming Bretton Woods institutions were followed by attempts to resolve bilateral trade issues with the US and to fight the Coronavirus Disease 2019 (COVID-19) pandemic. China aspires to transform the G-20 from an ad hoc crisis management platform to one promoting proactive long-term global policy cooperation, partly in support of “a community with shared future for humanity” and the Belt and Road Initiative. However, public distrust of international economic interdependence, populist backlash against neoliberal globalization, as well as geopolitical, ideological, technological tussles between China and the West collectively present significant challenges to the G-20.

KEYWORDS:

• China;
• global economic governance;
• Group of Twenty (G-20);
• Bretton Woods system;
• great power competition

Acknowledgement

This research was supported by The International Political Economy of the Global Currency System Platform, Major Innovation & Planning Interdisciplinary Platform for the “Double-First Class” Initiative, Renmin University of China. Special gratitude is owed to Jenn-Jaw Soong. Any shortcomings that remain are ours alone.

Notes

1 This reflects a state-centric understanding of what constitutes global economic governance. However, Moschella and Weaver (2014) offer an alternative explanation. They define global economic governance as “the international rules-based framework through which economic actors (be they states, firms, institutionalized agencies, organized groups or individuals) seek to resolve collective action problems and promote cross-border co-ordination and co-operation in the provision or exchange of goods, money, services and technical expertise in defined issue areas of the world economy.”

2 Notable losses include the collapse of several highly-leveraged US hedge funds, which brought about a close to US$4 billion recapitalization exercise by the Federal Reserve, and the Russian government defaulting on its sovereign debt.

3 Some argue that the reference to “systemic importance” reflected the self-aggrandization of the G-20 countries. Others such as Payne (2008) took it was merely a polite way to say that these countries’ national financial problems may negatively affect the global system as a whole; in other words, the inclusion in the G-20 is as much as indication of the economic weight as an indication of the potential or actual financial fragility for the participants.

4 This episode saw excessive risk taking by (mainly) Western financial institutions that bet on the US housing market and related securities. Prior to the COVID-19 induced recession, the GFC is considered by many economists as the most serious downturn since the Great Depression of the late 1920s.

5 China’s share increased from about 3 to 6.41 percent, making it the third largest shareholder at the IMF.

6 The Renminbi was eventually added to the SDR basket in 2016.

7 The economic slow-down by itself, as Loke (2018) argues, is unlikely to negatively impact China’s ambitions with respect to global economic governance for “there are key material, historical and ideational drivers at play here.”

8 Protectionism was running high in several highly indebted European countries including the infamous grouping of PIIGS (Portugal, Ireland, Italy, Greece and Spain). Part of the reasons was that they wanted to protect domestic jobs while earning foreign reserves to pay back some of the debts to international creditors like the IMF.

9 In fact, this hawkish stance was started by the Obama administration; Trump merely continued what Obama left behind. A key difference between both administrations is Trump’s greater willingness to adopt a more confrontational stance.

10 China also needs to improve its decision-making model in relation to the G-20. For details, see He (2014b).