Solutions needed for changing global governance

This year marks the 40th anniversary of China’s reform and opening-up, and these four decades witnessed the most dramatic and fundamental transformations in international relations and global governance since the end of World War II, ushering in a totally new world with new challenges and a great deal of uncertainty. A closer examination of the real world is in order so that we can charter a better way forward to embrace the new world.

Pundits refer the last 40 years as “the best time of globalization” as demonstrated in the fast expansion of world trade, bringing about a highly interconnected and globalized market thanks to the wide-spread proliferation of information technology and free flow of capital. The world has coalesced into a “global village” of shared interests and if everything goes well it will traverse further toward “a community of shared destiny”.

That said, the way forward will not be plain sailing as the world has entered uncharted waters of a historical period of transition both in global balance of power and the world order including global governance. The international community now stands at a cross-road with one road sign pointing to a future of lasting peace and prosperity while the other leading to a “historical repeat” of confrontation and conflict, even wars among and between major powers. Whatever the future will be, traps and crises abound such as “Thucydides Trap”, “the Middle-income Trap”, “the Trap of Widening Gap between Rich and Poor”, financial crisis and economic crisis, to name just a few. The new world will be shaped and determined by how those traps and crises are tackled one by one.

The above is both true for China and for the rest of the world. It has relevance both domestically and globally. No country can claim immunity or escape unscathed from the new challenges in an emerging new world.

Among other things, there are four major eye-opening phenomenon that warrant our attention.

First, the turbulence and upheavals since the 2008 world financial crisis raised the ugly head of anti-globalization and political radicalization against globalization and political moderation, which deepened global governance fragmentation, disorder, raising greater uncertainty about the future world; and as Martin Wolf commented wryly that it is “an unraveling of the US-created, post-World War II liberal order into deglobalization and conflict”.

The chaotic and erratic American behavior in terms of global governance since Donald Trump took office a year ago provides a shocking example of a major power’s internal struggle between pro-globalization and anti-globalization. Trump’s recent decision to impose global tariffs of 25 percent on steel and 10 percent on aluminum presages the beginning of the end of the rule-based multilateral trading order with WTO at its center that the United States created in the first place. Protectionism is akin to infectious diseases likely to spread fast and wide as trade wars will inevitably entail retaliation and countermeasures. Globalization and global governance system are under siege!

Nevertheless, there is no need to panic for the whole picture is not totally dark. As globalization deepens, pro-trade and pro-investment sentiments still carry the day. TPP-11 (minus the US) has reached agreement on a package deal with 22 elements requested by the US frozen temporarily and Trump’s reaction is to say the US will consider renegotiation; the pace of RCEP negotiation is quickening; one suggestion floated by some countries is asking China to join TPP-11; world opinion favors free trade and investment.

Second, the world economy also sees a bifurcated future. On the one hand, financial risks are high enough to burst the bubbles with another financial crisis. Since the US and other major developed economies adopted loose monetary policy a decade ago, developing countries have accumulated a huge debt load of $40 trillion. For developed countries the story is no less sad with the 21 most advanced nations with combined outstanding debt of households, governments, corporations and financial institutions rising from 290 percent of their combined GDP in the 1990s to the current 380 percent. Trade is not growing as fast as before and investment in the real economy is stagnating. The uncertainty about the US dollar adds another road block to economic stability.

On the other hand, the world economy is finally seeing the light at the end of the tunnel with recovery taking place in almost all major economies and elsewhere. Even though the old drivers of global economic growth have been petering out for years, new drivers are cropping up like mushrooms ready to be identified as a forest of competing new technologies surfacing daily through large-scale innovation and much enhanced R&D across the world, which would no doubt bring the world economy into a new era of high growth sooner or later. The G20, OECD, APEC, BRICS, the UN system and major economies both individually and collectively are all focusing their energy and attention on promoting “the Fourth Industrial Revolution” or whatever label is given to the surging waves of tech-revolution, hoping to restructure their economies accordingly whether by “supply-side reform” or “return to manufacturing” etc.

Third, geopolitical tension has been rising for some years, casting long shadows over regional and global security arrangements, over the relationships between and among major powers and over resolution of regional hot spot issues. If we continue to let geopolitical entanglements fester and grow, global security that is sorely needed for global economic growth will face an uncertain future. The worst scenario could be another “cold war” or even open military confrontation. The crux is whether regional and global security should continue to be based on the US-led-and-centered military alliances or to build collective security arrangements on regional and global partnership of mutual benefit through win-win cooperation as proposed by China.

Security and the economy are always the two key areas of global governance which need to avoid a zero-sum mindset. There ought to be in place cooperative security institutional arrangements that treat participants as equal members of the international community with shared interests and shared destiny. Protectionism is poison and addictive which is harmful to all because there is no way to garner maximum benefits at the expense of others in this new era of globalization with shared interests and highly connected relationship.

The recently published US National Security Strategy that labeled Russia and China as America’s strategic competitors is typically a reflection of the zero-sum mindset. If global security and economic governance is done in such a fashion, there would be all losers and no possibility of any win-win outcomes.

The “Thucydides Trap” that US and China could fall into is something we must treat with great care and the two countries ought to handle their bilateral relationship and their interactions in global governance in the principle of “no conflict, no confrontation, mutual respect and win-win cooperation” and adopt appropriate modus vivendi accordingly. Much has been written about the US naming China and Russia as America’s “strategic competitors” as confirming the rivalry the three countries are locked into. Harvard professor Graham Allison’s book, Destined For War — Can America and China Escape Thucydides Trap?, should be read with an open mind. What the countries involved and others must do is to avoid such a disastrous path of confrontation and take cooperation as the only viable option both bilaterally and globally to decrease uncertainty and instability now permeating international relations and global governance. Major powers do have special responsibility to join hands and contribute to cooperative institution-building in this connection.

Fourth, as President Xi Jinping said, China’s developmental model and its success story offer another alternative to developing countries that have suffered a great deal economically and politically under the spell of “neo-liberalism and the Washington Consensus”. This has never happened since the Western industrialization a few centuries ago. To use professor Joseph Nye’s terminology, the soft power that is inherent in China’s 40 years of transformation through steady opening-up and reform within the current global governance architecture and international system has begun to gain traction and show attractiveness along with its growing hard power.

The unfair and unjust distribution of wealth of globalization has created a deep divide between rich and poor both domestically and among countries. In today’s words, it is “the imbalance between market efficiency and social justice” and the latter is often sacrificed in favor of market fundamentalism. Capital becomes the master of the world and world market tilts overwhelmingly toward capital fundamentalism. What had happened in the 1930s was a painful lesson that must not be forgotten. History will not repeat itself, but similar things do happen in history if lessons are not learned.

The US is not alone in sliding into this quagmire because the UK, Germany, Poland, Hungary and many other European countries have also found themselves in the same difficult situation. Donald Trump and France’s Emmanuel Macron are possibly the two representatives on opposite sides of globalization in the West, while China and the US under the Trump administration are possibly the two countries on the opposite ends of the global governance spectrum.

A new world is in urgent need of new thinking and new ideas in global governance.

First, it is impacting international institutions especially in global economic governance. On the one hand the US has abandoned TPP and continues to undermine the WTO while opting for better bilateral and multilateral trade and investment deals for itself through “America First” renegotiations or coercion. On the other hand, the EU, Japan, Canada and a few other Western countries, in response to the US’ partial withdrawal from the global governance system, are closing their ranks to form a united front against the US position, but it is mostly against so-called China’s abusive trade policies. As a result, global economic governance institutions such as the WTO, IMF, World Bank, NAFTA etc are in various degrees of stress in this tug of war.

The real worry from the West’s point of view, as aptly enunciated by Larry Summers, is China’s parallel actions in regional and global institution-building as exemplified by the Belt & Road Initiative and the subsequent establishment of the AIIB as an alternative source for infrastructure investments other than the World Bank and Asia Development Bank. This warped view of China’s contribution to global economic governance is harmful to the system and will mislead other countries into a zero-sum game of governance.

New rule-making is necessary to improve upon the governance system. Part of the structure of global governance under Pax Americana may endure, but other parts do call for reform and change to suit the changing political and economic landscape regionally and globally in order to create a system wherein the US, China and the rest of the world will feel comfortable to operate. In this connection, it is abnormal that after 15 years of the “grace period” since China joined the WTO, the US and the EU still refuse to recognize China as a “market economy” as promised originally.

The Belt & Road Initiative proposed by President Xi Jinping in 2013 and welcomed now by nearly 100 countries and regional organizations is an innovative and cooperative blueprint for better global governance through greater connectivity in developmental policy, infrastructure, trade, finance and people-to-people exchanges. There is no reason to obstruct and oppose such an idea that promotes common development and common prosperity.

The current global disorder and governance fragmentation is typical of the transition in the world order which should be taken in strides and addressed collectively and wisely. The new world is certainly not doomed for confrontation or collapse. It is in the hands of the international community to come up with viable and good solutions if we can have greater political willpower and harness stronger economic dynamics both regionally and globally.

China isn't just growing; it is changing, too

As we are all well aware, the most important economic phenomenon of the last 40 years has been the rise of China. This remarkable growth, which has accelerated since China's admission into the WTO in 2001, has seen the country's influence on the world stage steadily increase.

Perhaps understandably, China's remarkable economic success has caused concern in some quarters. In many instances, the response to China has been underwhelming, and the United States has charted a course distinguished by tough talk on trade practices and protectionist rhetoric. Very few have recognized that China is not just growing, but changing fundamentally as its economy moves rapidly up the value chain.

Growth has brought many challenges for China. The Chinese authorities, along with every other commentator, have recognized for some time that the Chinese economy needs to rebalance itself. This has been underway in recent years; but everybody would acknowledge that there is further to go to address some of the income inequality that has developed during its growth; to correct some of the geographic imbalances that plainly still exist in China; and to confront the environmental challenges that have been brought on by rapid urbanization and heavy industrialization.

Meanwhile, we need to recognize China's technological transformation. Speaking at Asia House earlier this year, the tech entrepreneur and investor Kai Fu Lee outlined China's rapid success in high-tech industries. "Some people still think of Chinese companies as copycats, but I want to tell you that those days are long behind us," he said. "There are lots of beliefs in Silicon Valley about how tech products should be built. China is shattering many of those beliefs."

Indeed, China is aiming to be a world leader in artificial intelligence by 2025. In January, it announced a $2 billion investment in a new artificial intelligence research park in Beijing to pursue this very aim. I expect that China will continue to focus more on innovation, so that over time the economy will move up the value chain and indeed tackle the commanding heights of the new technology era. Hence the country's ambitions in high-speed rail, in aerospace, in AI, in biosciences. These are all manifestations of China's shift to a more sophisticated economy. This will help China to address some of its deep-seated imbalances.

For example, China is becoming a leader in green technology and the policy objective to build 285 eco-cities across the country, announced in 2017, is a clear indication that this is more than rhetoric.

Meanwhile, internationally, China's policy is developing. At the center of its new strategy of international engagement is the showpiece item — the Belt and Road Initiative. It gets more ambitious every day, it seems; the Belt and Road Initiative now has an Arctic dimension. The fact that we can even talk of this — of opening up Arctic passages between the Pacific and the Atlantic in both directions — is, I am afraid, due to global warming. But it shows how far the Belt and Road Initiative has developed beyond the original concept of building east-west linkages through Central Asia to connect the markets of the Eurasian landmass. This ambitious program of infrastructure promises to be one of the greatest drivers of human connectivity and prosperity ever.

So China is changing. It is no longer a nation of factories churning out cheap electronics. It is no longer shaping its policies in accordance with Deng Xiaoping's early guidance to keep a low profile internationally. It has become bolder and more self-confident in its new role on the world stage.

This broad refocusing of China's strategic direction now has a name, of course. We are living in the age of Xi Jinping Thought — neatly summed up internationally as working towards a “community of shared future for all humankind”, and domestically as “socialism with Chinese characteristics for a new era”.

The key words here are “new era”. These words tell us not only that the global order is changing, but that China itself is well aware if this.

The big question for our time, then, is how the world will accommodate this new China, which is on course to be the largest economy by 2030. And in particular, we need to ask ourselves how the United States will relate to China on the world stage?

This question has encouraged many commentators to write dramatic predictions of confrontation and conflict between the US and China. There is a risk, to be sure, of tensions rising to dangerous levels. But the idea of China displacing US global hegemony simply because of its economic clout seems misguided to me.

First, it is important to understand that the US remains a dominant global power, economically and strategically. It is the only power involved at both ends of the Eurasian landmass; it is still the world's largest economy, and I would suggest that for all its current political travails, you should never short America for very long. Its dynamism and its ability to reinvent itself is nothing short of extraordinary.

Yes, US politics can appear to be dysfunctional and in some disarray at the moment. Much of the difficulty, though, lies deeper than President Trump — who is, at the end of the day, an evanescent phenomenon. It was not Trump who took a negative view of the Asian Infrastructure Investment Bank. It wasn't Trump who dragged America's feet for decades over the reform of the International Monetary Fund and the World Bank. But despite this, the US continues to be a global leader, in part, because its ideologies have chimed so well with the nations willing to follow it.

The question is therefore about the extent to which the principles behind the new Chinese engagement with the global order — the “community of shared future for all humankind” — can be dovetailed with a continued US commitment to the values summed up in its great constitutional watchwords of life, liberty and the pursuit of happiness.

This great question of how those two world views can come together in some kind of synthesis over the course of this century is one that matters to us all. It matters for the peace of nations, it matters for successful economic and social development, and it matters for the sustainability of life on our fragile planet.

Nostalgia versus Optimism: How the world is divided

We are fond of talking of a world divided into different groups. We sometimes use ethnic, cultural or political attributes to create the basis of these differentiations. Multi-party democracies versus one-party states; monarchies versus republics; state-led economies versus market ones. Alliances are created on the back of similarities in these domains. At least, that is the claim.

In the current world, however, with its complexity and diversity, there are more subtle, and often more ineffable grounds on which to try to characterize nations. In the past decade, some analysts talked of a world where countries were either hungry or full — whether they wanted more than they currently had, or were already almost satiated on what they had. These days, though, it seems everyone is hungry for something. The question is, what will ever satisfy them?

Catching the mood of a nation is not easy. After all, there are the many, many individual voices and hopes and hearts that constitute what any nation is. How on earth can we summarize all of these very easily? Everyone has their own voice. Why try to trap it all into one dominant narrative? The best one can say is that things are very complicated now — especially because social media has let us see voices that once did not have easy outlets. Everyone can speak. The question is whether they want to or not.

One way of mapping out differences between nations and the moods that characterize them in 2018 is to look at the question of their attitudes to where they are, and where they will be heading in the immediate future. Here, we can see a major schism between powers dominated by nostalgia, a longing to return to the certainties and good conditions of the past; and those who are looking forward to a future which will be better precisely because it will not be like the past.

The Trump presidency in the US and the vote to leave the EU by the United Kingdom in 2016 are both symptomatic of nostalgic world views and national moods swayed by these. Donald Trump has promised to Make America Great Again. He appeals to the collective memory in the US of a time after the World War II when the country was truly dominant and able to exercise influence over much of the rest of the world. Even the USSR seemed to live under its shadow, despite being seen as a countering superpower.

Domestically, American people still celebrate (even those not born at that time) the 1950s and 1960s, before the Vietnam War, when the country had a sense of limitless confidence, or at least so it seemed, and where the tomorrows were always better than the todays. Life seemed to be simple, goods were plentiful and the American dream was real. This period figures as a kind of golden era now, no matter what questions historians might raise about its veracity.

It is much the same for the UK. The same post-war era figures as a time when society was simpler. There was no European Union to complicate things, there were still the vestiges of empire, and of a society that seemed stable and secure. During the Brexit campaign, the memory of this Great Britain, which was truly great, played a shadowy but important role and was exemplified by invoking figures like Winston Churchill. Truly, it seemed, it was a time of heroes. And where, campaigners for the Leave group asked, were the heroes today?

Chinese people would not have such a fond view of their modern history. They would need to deal with the tragedy first of the period at the end of the Qing Dynasty (1644-1911), when a country that was weak and often divided remained open to foreign colonial exploitation. They would then need to survey the vast catastrophe of the War of Resistance Against Japanese Aggression (1931-45), and the loss of life this entailed. And then they would remember the years of sacrifice and hard work as they tried to reconstruct their country. Throughout this period, there were setbacks, immense challenges, and the great specters of poverty and crisis to face.

Young Chinese today would look upon this history as one they certainly don't regard with nostalgia. They can appreciate the stalwart spirit of their immediate forebears, but they would not want to have this era back. For them, the future is not about being like the past. It is about something new and different.

That gives the view of Chinese people toward their own country a dynamism that is different to that prevailing spirit in much of the West. Tomorrow has to be better than today, and completely different from the past. There is no appeal to fond looking back.

Trump's US states it wants to make the country great again. In China, the desire is simply to make the country great. And while there are appeals to the memory of imperial grand eras of the past, these figure more as statements of cultural confidence, not of trying to recreate the Tang or the Han dynasties in the present.

That sense of dynamism about the future, and about an era which is imminent where China for the first time in the modern era is able to say it is a middle-income country with a global status, creating a form of modernity on its own terms for itself, transcends the bounds of politics. It is an immense national resource, much more so than simple production of growth and wealth. It is in this area that the country probably has its most powerful asset.

Nostalgia after all is often a retreat to a refuge of what has been, not what is going to happen next. And in China, the focus is on precisely that — a tomorrow which, while it will be many things, cannot be like the past.

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