China’s Economic Rise and Regional Trade

Abstract

In the context of a current global economic crisis and an unfinished World Trade Organization (WTO) Doha Round, multilateralism is at its weakest point. The proliferation of bilateral and regional trade agreements seems to be the natural consequence of failed multilateralism. In this difficult context, this chapter argues that the attitude of China - one of the three global economic superpowers - to multilateralism is questionable or unclear. China poses a major challenge to the world economy by virtue of being a new global economic superpower.

For a country to be considered a global economic superpower, it must meet three criteria: 1) it must be large enough to significantly affect the world economy; 2) it must be sufficiently dynamic to contribute meaningfully to global growth; and 3) it must be open enough to trade and capital flows to have a major impact on other countries. China meets these criteria, but is a unique global economic superpower in three ways. First, it is still a poor country with a Gross Domestic Product (GDP) per capita of around $6,000 in terms of purchasing power parity. Second, China is not yet a democracy in the Western conception of the term. And third, it is not yet a market economy according to some WTO members. Nevertheless, China’s rapidly growing economic, political, and cultural engagement and influence in today’s world is both undeniable and remarkable, even if China’s rise in global power is not yet at the level of the U.S. during the 20th century or Great Britain during the 19th century.

China’s trade expansion started in 1978, when the country initiated reforms and opening-up policies. For the past decade, its position as a strong player in international trade has been remarkable. Structural reforms in China, including trade liberalization, have resulted in annual real GDP growth rates in excess of 10% over the past 4 years, rising per capita income and poverty reduction. In the process, China has become the world’s second largest trader. And yet, it is argued that China should play an even more prominent role in international economic institutions and governance and assume a responsibility commensurate with the benefits it derives from the world trading system. Why? Because with greater power and a greater voice comes greater responsibility.

As opposed to playing a proactive role in the world trading system, China attempts to establish itself as a gravity center in Asia by concluding many low-quality, politically motivated bilateral free-trade agreements in the region (for example, the China-ASEAN FTA or China in the APEC context). In this sense, the chapter argues that China’s trade policy strategy is the creation of a powerful Asian trading bloc, given China’s strong position in Asia. In fact, few regional initiatives are undertaken by other countries without first considering what China thinks or how China might react.

If multilateralism continues to weaken, the likelihood of an East Asia Free Trade Area led by China within the next decade is very high as part of China’s strategy of promoting regional identity. Should this crystallize, one could envisage a tripolar global trade regime with a new Asian pole to counteract the already existing power centers in the European Union and the U.S. Moreover, it would most likely mean further deterioration of the current multilateral trading system. Furthermore, China’s policy towards regional trade agreements will have a major impact on the international trading system, the debate about regionalism and multilateralism, and the policy of the WTO concerning regional trade agreements.

Keywords: global economic power, multilateral trade, regionalism, regional trade, WTO, East Asian Free Trade Area, Doha Round, accession to the WTO, China, status as developing country, role in Doha Round, attitude to multilateralism

JEL Classification: F10, F02, F13, F14, F15, F41, F43, K33, P26