China Steps Up to World Stage, Cautiously

PARIS: There is no better indication of the
fascination that China
now exercises than the comments surrounding its participation at the recent
G-20 summit. As the world leaders assembled in London,
the world’s focus was on the rising economic power China. One wondered how would China stake its position on the growing division
between the US
and EU over anti-recessionary measures. Also, would it make a contribution to
the IMF’s reserves, or claim instead a greater hand in IMF decisions, or
perhaps even openly question the role of the dollar as the major international
reserve currency? There was also the question of how, at this summit of world
leaders, it would behave with Europeans, after a year of rocky relations over Tibet. How China behaved
on all these issues could be an important pointer to the future.

When the
meeting ended, it was clear that China was not in a hurry to claim
the mantle of leadership, but neither was it willing to play the traditional
second fiddle. China
has in fact acted in a fashion that will be immediately familiar to long time
observers of the Middle Kingdom. It does not want to be perceived as an outlier
to the international community, and even less to be isolated. But neither will
it put itself on the line for major multilateral responsibilities.

Out of touch with any of
the main parties at the summit. China
does not want to be stuck with the agenda and the constraints of a
Sino-American G-2. Feuding with Europeans, even if it is on symbolic issues,
simply lessens China’s
options.

Other
declarations or gestures by China,
however muted, also spoke volumes. Vice-premier Wang Qishan, in charge of
economic issues, came forth with a public disclaimer of China’s ability
to save the world at the summit. Not only had China done its part already by
rescuing its own economy and going on an international shopping spree, but a
country’s ability to contribute to international currency reserves should not
be judged on the size of its own stash, he said. Characteristically, the
world’s third economy, soon likely to speed past a stalled Japan, was
again portraying itself as a developing economy.

China plunked down 40 billion dollars on the IMF’s table, but only as a
potential loan, when Japan
delivered a 100 billion contribution. It also avoided, in the final communiqué
of the summit, any reference to a global imbalance that would have implicated China’s role in the crisis, where President
Obama directly acknowledged America’s
own responsibility.

In other
areas, China
followed the same course. Europeans were promoting regulation for the global
financial system, but also more precisely control of off-shore financial
centers. Since China’s
inward and outward capital remittances largely flow through these centers, this
is no small issue. Thanks to unofficial leaks of the Summit’s discussions by a German newspaper,
we know that President Hu Jintao endorsed the principle of regulation. But China fought hard to avoid the inclusion of Hong
Kong and Macao
on a “grey” list of off-shore financial centers. In the end, they only figured
as a vague footnote to the list. It is unclear whether this implies future
action by China on Europe’s requests, or whether it has deflected all
pressure on the issue.

Let’s chalk up the
assessment of China’s
stand at the G-20. It was never openly negative to any of the proposals, and in
fact it went cautiously with every one of them. It certainly did not brandish
the implicit threat of a systemic change for the world’s reserve currency
system. On its potentially increased contribution and standing within the IMF,
the jury is still out. The G- 20 meeting was certainly not the occasion where
an IMF reform of quotas and voting rights could be agreed. But it’s hard to say
if China
really wants that change, or is happy to hide behind the reluctance of Western
members of the Fund to give more prominence to emerging economies.

Above all,
perhaps, in a summit of symbols and public gestures, any inkling that there was
a common group or position of the world’s emerging economies was absent, and China largely
moved as its own representative, and not as a leader of such a group. Posturing
was left to Russia’s
president on the side of the summit, but there was no particular initiative
either with Brazil and India.

The true
ambiguity of China’s
strategy on the international scene is there. Routinely, China is
strengthening ties and mutual interests with the world’s producers of energy
and raw materials, and is now even putting its own currency to use in long-term
cash for resources deals. But this does not form a strategic axis. Realist
calculus, simple and straightforward commercial competition, prevent it. More
broadly, China’s needs are
about reassurance from the West – and that includes Europe besides the US – towards
the stability of its financial earnings and the openness of its principal
external markets. And China’s
cultural tradition instinctively goes against taking charge of major
international responsibilities and the risks that go with them, let alone
promote wide systemic change.

The problem with this
course is that China’s
sheer economic weight now exceeds the prudent commitments it is willing to
make. Unavoidably, China
is center stage, and under the limelight. There may in fact be, in a stagnating
West, an exaggerated expectation by business and market leaders of China’s
potential to restart the global economy. China’s economic agenda is largely
self-centered, with international contributions often seen simply as an
unavoidable burden. The competitive response to the crisis by China’s firms
may inject as much of a deflationary trend into global markets as its
government stimulus packages create additional demand.

At the
G-20, China’s
leaders contributed pragmatism and cautiousness, rather than make the splashing
entrance into global financial affairs that many commentators expected. If China is to
play a role in helping to solve the global crisis, it will likely be in the
form of that country moving away from a major external saving imbalance to a
more consumer driven economy. Such a shift would require China to become a major player in the global
monetary and financial system, limiting Beijing’s
ability to control its economy, leading to a sea change in China’s
domestic policy and structure – an unlikely event in the near term. And since
we are much more likely to see only incremental domestic reform, we should only
expect incremental international influence.

François
Godement is Director of the Asia Centre at Sciences Po and co-author (with John
Fox) of “A power audit of EU-China relations”, European Council on Foreign
Relations, April 2009.

Reprinted with
permission from YaleGlobal Online ( www.yaleglobal.yale.edu). Copyright ©
2009, Yale Center for the Study of Globalization, Yale University.