In 2005 Robert Zoellick, as US deputy secretary of state, proposed that China might play the role of a “responsible stakeholder” in helping to shape the international agenda. But despite its meteoric rise, most observers now do not see Beijing playing this role. China is often seen as uncooperative on issues ranging from trade and investment flows to intellectual property rights, climate change and the acquisition of natural resources. This has created the impression that Beijing is more inclined to use its clout to advance core interests than strengthen partnerships.

Some observers have interpreted President Xi Jinping’s “China dream” to mean that he will adopt a more nationalistic policy. But in advance of his first state trips to Russia and Africa, Mr Xi stressed that China’s “great national renewal” would benefit the world and that “as its strength increases, it will assume more international responsibilities” and contribute to “world peace and development”.

Yukon Huang
Huang is a senior fellow in the Carnegie Asia Program, where his research focuses on China’s economy and its regional and global impact.
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Mr Zoellick may have been right, just a decade premature. Evolving circumstances could lead China to becoming a responsible stakeholder but much will depend on the actions of China and western powers.

China is becoming a more “normal” economy – relying less on centrally driven investments in moving to a more market-driven growth path. But normality means slower growth and greater vulnerability to cycles. The country can no longer maintain stability by controlling interest and exchange rates and limiting capital movements, while internationalising the renminbi involves greater risks. This has made Beijing less secure and reinforced historical tendencies to focus on internal needs.

The result is that for many global issues, Beijing’s instincts are reactive rather than designed to forge longer-term solutions. Its economic success is pushing it to act as a major player but prematurely, since it lacks the institutions to deal effectively with other powers.

China’s tensions with the west intensified as its trade surpluses surged beginning in 2005 and then peaked in 2008 as a share of gross domestic product before declining to more modest levels. These surpluses have been depicted rightly or wrongly as the result of exchange rate manipulation and unfair subsidies with the outcome that China has become the number one target for World Trade Organisation complaints.

Beijing’s intentions to upgrade its indigenous technology supported allegedly through intellectual property right violations has also been under attack, while its search for natural resources has generated hostile receptions in many countries.

And while Beijing’s support for climate change objectives exceeds that of Washington, it is nevertheless perceived as being uncooperative for its unwillingness to commit to absolute reduction targets which it sees as being inappropriate for developing countries.

China’s long history also affects its thinking. Unlike the other powers, whose ascendancy represented a broadly continuous process, China is a returning economic power – one that accounted for 30 per cent of global production two centuries ago but saw its share fall to less than 5 per cent by 1950, and even today at 15 per cent it is only half of what it once was.

Moreover, China’s ability to escape the middle-income trap is not guaranteed. Only a handful of middle-income countries have made the transition in the past four decades, and none with China’s formidable handicaps. Foremost among these is that China will become old before becoming rich with the needs of the elderly representing a huge financial burden. And while its exports to the west are seemingly technologically advanced, the more sophisticated components come from elsewhere.

Many observers do not appreciate that China ranks only 90th internationally in per capita income. China also recognises the reality that if it ever succumbs to a debilitating economic crisis, adequate external financial support is unlikely to materialise because of its sheer size. Thus, contrary to expectations, its successes do not translate necessarily into greater self-confidence.

All this suggests that China may not be ready to move into the role of a responsible stakeholder. But more positive outcomes are possible as China’s interests become more naturally aligned with global norms and its status in the international financial system is recalibrated to reflect its enhanced economic standing.

Beijing has strong incentives to take the lead in supporting more open markets domestically and fighting protectionism. This would help China counter criticisms of its trade practices and put pressure on those developed countries that are inclined to raise barriers.

As China seeks to increase its outbound investment, Beijing needs to support a level playing field at home to ensure reciprocal treatment and allay security concerns. As IPR suits increasingly involve Chinese companies against other Chinese companies rather than just foreigners, respect for such rights will become ingrained in the system.

On climate change, Beijing recognises that rapid progress in energy efficiency is essential to sustained rapid growth and will forge ahead with greener technologies and enhanced pollution standards.

As services become a more important driver of growth than manufacturing, its voracious demand for natural resources will eventually moderate by the end of this decade.

And greater use of the renminbi as an international currency would contribute to the stability of an international system dominated by the dollar and the euro.

Nudging China in the direction of becoming a responsible stakeholder will gain momentum if Beijing has more say in the system. There are lessons from the way that the US has been pushing the Trans Pacific Partnership. If it had been more flexibly designed, China might have seen itself as having a stake in developing a productive outcome rather than seeing little to be gained by participating.

Criticism of China’s foreign economic policies affects Beijing’s perception of itself as a responsible stakeholder if it believes it is suffering from a system not of its making. The key is convincing China that its longer run interests are best served by forging solutions through compromise and co-operation and reassuring Beijing that its concerns will be heard.

This article was originally published by the Financial Times.