China’s promotion of a low-cost international order

China’s promotion of a low-cost international order

Commentary

China's recent moves suggest it is working to lower standards in the global system.

Most thinking about China and the future of the international order focuses on a series of straightforward scenarios. It is indisputable that a global power shift is taking place, but with what outcome? One popular prediction is that China will “rule the world”.  Yet this faces the objection that China does not appear to have much appetite for international responsibilities, let alone global leadership. “Revisionism” – a Chinese effort to contest and subvert the established order, with an ensuing regression to Darwinist geopolitics, is another hypothesis; but this neglects the deep interconnection of China with the global economy and its most advanced sectors. “Convergence” was the prevailing hypothesis when reforms took hold in China a generation ago.  That is now undermined simply by China’s own forcefulness in denying it. In its place, “free-riding” has appeared, positioning China where Japan was once thought to be.  But how do you free-ride a bus if you weigh more than any other passenger? That would be the case when China becomes the Number One economy.

China does not appear to have much appetite for international responsibilities, let alone global leadership.

What if China made us change our own perspective? Like any open tender, the search for an international order implies a choice between quality and cost. If China becomes the lowest bidder, that will surely impel other suppliers to lower the quality of their offer in order to stay competitive.  The result would be a low-cost version of the international order – less ambitious but also less demanding than the outgoing order.  Rather than dominating or subverting the international order, China would be tweaking it.

This is already happening. The success of China’s launch of its AIIB proposal, neatly rounding up 56 nations – among them 14 European member states – who don’t know what the rules of the game will be, suggests that many of the founders of the post-war liberal order are ready to lower their sights in order to keep up with the race. China both integrates and emulates existing institutions, while setting up competing alternatives. And “if you can’t beat them, join them” now appears to be the guiding principle of many members of the old Western-led order.

Rather than dominating or subverting the international order, China would be tweaking it.

The coming bid for the Chinese yuan to become an IMF reserve currency may reinforce this trend. That the yuan deserves a place under the sun is obvious. But allowing the yuan to become an IMF reserve currency while China retains capital controls and a fixed or crawling peg would mark a major shift in global rules: since 1971, the Bretton Woods arrangements have been based on the principle of floating currencies. The expectation has always been that China would fully liberalize its currency exchange and capital regime. What if, on the contrary, it pushes the system back to fixed exchange rates?

A similar point can be made about climate change mitigation. In its desire to reach a deal with China, the United States agreed that the two countries should make a side-by-side commitment. However the price paid for this arrangement was that China, perhaps because it claims developing economy status, could delay the capping of its CO2 emission until 2030 (and US commitments themselves are mostly for the mid-2020s…). If the world’s first and second economy – and second and first polluters – have already agreed on such terms, what chance is there that other nations will make a better offer at the coming Climate Change Conference in December 2015?

On territorial conflicts, limited crisis management mechanisms (now in place between China and the US, contemplated between China and Japan) are replacing the search for legal or multilateral solutions.  On proliferation, where China has often mediated between North Korea and the West, it is ironical to hear Chinese experts reveal to their US counterparts in 2015 that Pyongyang has now acquired twenty nuclear weapons.

Finally, on human rights, there is a lively debate in Europe on whether the EU should pursue them as a subject in its relations with China, or if the priority should instead be to conduct a dialogue on the rule of law, where the chances of some success appear greater.

These are not all-or-nothing choices. Some in the West have criticised the proliferation of norms as a hindrance to growth, or as unenforceable in large parts of the world. Pragmatic arguments support a lowering of the bar in order to attract China and other emerging nations into long-lasting international commitments. At the same time, most of the largest Western states are suffering from intervention fatigue. They are also enacting a renationalization of policies, frowning on interference with sovereignty. How much of a degraded or hollowed-out order are we ready to accept for the sake of general agreement? At what level can that order function acceptably? What is the trade off between the entente among large powers that a low-cost order might generate, and minimal value and content requirements?

The project of a post-Cold War legal order and the dream (or fear) of a unipolar world are gone. Money talks.

The project of a post-Cold War legal order and the dream (or fear) of a unipolar world are gone. Money talks. China promotes an international system driven by commercial incentives, rather than soft or hard power. The question is what China’s partners, and singularly the West or competing emerging nations, are ready to compromise on in order to preserve their basic interests  – and what cannot or should not be negotiable. An analogy may be drawn with the airline market. There are, or have been, three types of companies. The first, belonging to the past and which could be called the Swissair model, was high class and has largely gone out of business. This is where much of the EU or Japan’s (pre-2014) normative approach to international relations has trapped itself. The second model is that of major airline networks (Sky Alliance, Sky Team and One World), comparable to the trinity of TTIP, TPP and the EU-Japan Free Trade projects: the benefits of belonging, and the convenience to customers, dictate these mega-groupings that are both sharpening and narrowing competition. But this second model is itself effectively challenged by a third category, of low-cost carriers.  They do not join alliances and cut corners on services and convenience (hopefully not on safety rules) in the interest of lower cost. The likes of EasyJet and Air Asia are multiplying, and it is where industry growth is located.  Will norms and values continue to be served as free drinks once were, or will the emerging order concentrate on basics like managing trade and avoiding big power conflict?

How much will China’s combination of competitive offers, growing military might and strategic restraint compel others to minimize their own commitments to the international order?  

How much will China’s combination of competitive offers, growing military might and strategic restraint compel others to minimize their own commitments to the international order?  How much, for example, will military intervention become such a high-cost proposition (from the political as well as the human point of view) that the red line for intervention is set higher and higher? Sanctions and conditionality are seen as substitutes that minimize actual conflict, but in almost every case backdoors exist that have been used by China, with the justification that it resists conditionality and promotes win-win. How much will developed societies cut down their norms to match the less optimal set of rules that sustain the dynamism of emerging economies? Is “strategic caution” a consequence of the long-term competition with China? What is a minimal human rights posture that is neither preaching into the desert nor contradicting our principles? It has become fashionable again to say that diplomacy is precisely about making compromises with people who are very different. But in an interconnected world, how much should we accept the possibility of “us” becoming more like “them”, rather than hoping for “them” to become more like “us”?

The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.

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