Thursday, March 31, 2011

How China should rule the world

“Reform and opening up” has been China’s mantra for more than three decades. The result has been not only the emergence of a new economic superpower but of one highly integrated into the world economy. A big question, then, is how China should use its influence. It is one I addressed in a speech at this year’s China Development Forum in Beijing. My argument was that China has achieved greatness and now has responsibility for the global system thrust upon it.

This colossus is now the world’s largest exporter and second largest importer (after the US), unless the European Union is treated as a single unit. It has the world’s largest trade and current account surpluses and owns a third of world currency reserves. Its flow of savings is the world’s biggest. It is the largest importer of many commodities and the price-setter for many products. China’s influence is, in short, both pervasive and growing. Yet it is also a developing country ruled by the Communist party. This is an unprecedented combination.

China needs to develop its own view of how to use its influence. In doing so, it will have to start from a definition of its national interests and objectives. China’s overwhelming interest lies, I suggest, in a stable, peaceful and co-operative global political and economic environment. Only in such a world can China hope to sustain rapid development. (read more)

How should China achieve its aim? Broadly, it would be best achieved via further development of the rules-governed, institutionally based global system. The obvious alternative would be a hierarchical arrangement, with China at the apex. But such an approach would, I fear, lead to unmanageable conflicts with the other great powers. With this idea in mind, let us consider trade, payments, finance and resources.