WTO: China’s Role in Global Economic Governance

By WTO Director-General Pascal Lamy

Extracts from his Speech delivered at the China Development Forum in Beijing, 24 March 2013

WTO Director-General Pascal Lamy

Few could possibly disagree that China’s economic performance since 1979 has been miraculous. A poor and inward-looking economy with a per capita income of 180 USD has been transformed into a middle-income country with a GDP per capita of around six thousand dollars. Hundreds of millions of people have been lifted out of poverty. No other country has achieved an average of 10 per cent growth over such a long period of 30 years. The world has clearly benefited from China’s growth, its affluence, its strength and of course, it is feeling its increasing global impact. These achievements are not without challenges.

On the macroeconomic front, China faces some imbalances, including over-investment, over-production capacity in some sectors, and over-supply of liquidity.

High unemployment rates threaten social stability. So for a long time, China will need high growth rates to create sufficient jobs to ensure social harmony. With its not-well-developed private sector, the main responsibility of creating new jobs lies on the shoulders of the government.

China’s remarkable achievements and future challenges, combined with the size of the country, have understandably focused China’s leaders’ attention on domestic issues. Ensuring political stability and such formidable transformation and reforms has been priority number one for the government. But today, in China like elsewhere, the borders between domestic and international issues are cracking.

“Few could possibly disagree that China’s economic performance since 1979 has been miraculous.”

In today’s globalised world, where countries are so closely interconnected, China cannot solve its problems alone. China’s problems are no longer China’s only. A large proportion of Chinese economic activities and production are intertwined with those of other trading partners, thanks to value chains.

For example, the cooling down of China’s real estate market has a direct impact on international steel prices and investment plans of Australian and Korean producers. The purchase decisions by COFCO impact US and Brazilian soybean producers.  Without China’s participation, there is no way that the world’s efforts to reduce CO2 emission could bear fruits. Without China’s participation, the expansion of the WTO’s Information Technology Agreement will not be commercially viable, as China already accounts for over 25 per cent of global trade in IT products.

In a rapidly changing world, it is increasingly hard for big powers such as US and China to address their domestic issues without global policy coordination or to devise domestic economic policies without them having a global impact.

But this new reality is also challenging the architecture of global governance as it has been shaped during the 20th century, with its distinction of North and South, of developed and developing countries.

Is China now a developed country? Yes, in the eyes of some. Or a developing country?  Yes, in the eyes of others. A superpower to replace the US in ten years’ time? Good in the eyes of some, bad in the eyes of others. A rich country with many poor?  Or a poor country with many rich?

In my view, there is no simple answer to these questions. China is unique. Never in human history have we seen a country featured both as the second-largest economy, while being an economy with a per capita income ranking number 100 in the world.  This is today’s China.

In the WTO Doha Round negotiations, Chinese negotiators have stressed the fact that its GDP per capita is very low, so it is entitled to benefit from flexibilities given to developing countries. While on the other side, advanced economies have argued that as Chinese products are so competitive globally, China should do much more than other poor and weak economies and should not use its developing country status as a cover to avoid taking more international obligations. The confrontation on what should be the appropriate balance of rights and obligations between advanced economies and emerging countries has largely contributed to the Doha Round stalemate.

This debate is not exclusive to the WTO. We have also seen it in the UN climate change negotiations.  It is no longer an economic issue but a political matter. If held as a matter of principle by both sides, any compromise will be extremely difficult to find. If not handled properly, it could turn into a major barrier for China to play a more influential role in the future agenda setting of global governance. However, I did notice some interesting signals by the new Chinese leadership. In a recent interview, President Xi Jinping said that “China will shoulder greater international responsibilities and make a greater contribution to peace and development”. I think we are all encouraged by these words.

As an increasingly heavy weight in the global economy, China definitely has a huge stake in making sure that multilateral systems work effectively. So far, China has actively participated in various configurations of global economic governance. But it has not yet taken a proactive role. China is still a “partial stakeholder” in global governance, although a member of the UN Security Council or of the G20.

Which are the trade-related areas where, in my view, both the world and China would benefit from China taking a more active role?

The first is on investment. As a large recipient and as a large investor in the next decades, China has a strategic interest in leading towards a Multilateral Investment Framework (MIF) in the WTO.

The journey of China’s overseas investment has not been smooth. A new international investment agreement could help provide a predictable and safer framework for Chinese overseas investments. This is particularly important for China not only because of the barriers to entry but also because it will be more difficult for the Chinese government to support overseas operations through industrial policies or fiscal incentives. Creating a level playing field for Chinese investors will be a more effective option.

A second area is joining the WTO Government Procurement Agreement. China committed to start its GPA accession negotiations when it joined the WTO.  The negotiations are under way and I believe it would be beneficial for these negotiations to be concluded as soon as possible. It is a good means to ensure value for money. It is also an effective instrument to curb corruption which, as we all know, is a huge tax on the poor.

A third area might be China’s contribution to a more balanced and stable international monetary system, given the growing weight of the Renminbi in international exchanges of goods, services and capital.

A fourth area would be China’s active participation in fostering regulatory convergence in the area of technical standards, sanitary and phytosanitary measures, or food safety regulations. These are important domestic issues, as we know, for China. But also an area where the size of the Chinese market would allow China to influence global rules.

Let me conclude with four messages.

First, China’s continuous growth and its success in changing its growth model will be vital to the world’s economic prosperity. We have every reason to sincerely wish China success in this endeavour.

Second, China’s economic take-off benefited from a stable external environment. Its sustainability depends on a well-functioning global trading system. As a key stakeholder, China should take a more proactive role in international economic governance, including pushing for an early-harvest Doha Round package to be agreed at the Ninth WTO Ministerial Conference in Bali this December.

Third, a harmonious society in China will be difficult to achieve without a more harmonious world.  China has to become an agent of convergence in global issues. I listened carefully to Vice Premier Zhang this morning when he said that China will take a greater role in global governance.

And finally, the debate on the right balance between benefits and contributions to global economic governance is deeply rooted in values. To address this politically sensitive issue, mutual understanding of different values is a prerequisite. Differences in politics are often rooted in differences in perception. Perceptions are often rooted in different values. As an old civilization, China is well placed to promote a frank exchange on values among different civilizations. I believe this exercise could help in enhancing mutual understanding, in searching for common values and in laying down a firm basis for better global economic governance for the future.