China and Its Role in

Internship Paper

Adhya Moona

Supervisor Dr. Priyadarshi Dash

July 2018

China and Its Role in G20

Abstract

This paper attempts to understand the role of the Peoples Republic of China in the international forum of G20. This can be seen as an extremely popular topic within the realm of international relations mainly because China has the military and economic might, and a nation that the world and scholars believe is capable of challenging the hegemony of the United States of America. This paper has raised several rhetorical questions and calls out for further research in trying to understand China’s current position in the economic global governance. Furthermore, it is important to address the question of the institutionalisation of the G20 and what all steps can be taken to increase its efficiency and legitimacy. International affairs are at its peak of being contingent in nature especially after the change of the regime in the United States; this has changed the global ball game in various aspects. Whilst discussing the strategies pursued by China during the in 2016, this paper has also shed some light on certain challenges that the nation came across while hosting this summit. This paper has also covered China as a part of BRICS and what relationship it shares with its allies along with the countries in the African continent. Furthermore, the paper attempts to understand the importance of the Chinese Yuan, but due to the ongoing trade war between US and China, this subject needs in-depth research and empirical observation.

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China and Its Role in G20

Introduction Twenty-first century is not about countries selfishly aiming for their individual and development but rather a time has come where in nation-states are coming together to attain a consentient goal of achieving “sustainable development”. The term “sustainable development” is quite self-explanatory where it aims to reach the highest levels of growth and development by using the non-renewable resources judiciously and efficiently using the renewable ones. However, in order to achieve such a goal, it requires the joint and sincere efforts of both the developed countries and developing countries essentially the Global North and the Global South. Globalisation has led to the multilateral institutions being more accommodative of the current issues. In the international arena, the G20 also known as the “Group of Twenty” is an indispensable international forum which provides a platform to both the developed and the developing countries to voice their opinions, discuss their concerns and reach unanimous resolutions on matters of global concern and various issues. Whilst the essence of G20 lies in its agenda of promoting economic and financial stability throughout the world, a pattern has been noticed where the past few G20 summits have expanded upon the nature and kind of international issues that are being addressed in the forum. The scope of these issues is vast and wide ranging, they include discussions on women empowerment, corruption, global terrorism, and alike. It is quite interesting to note that China is one of the fastest growing nations in all spheres be it military, economic or technology. This makes worthwhile to study the impact of this growing superpower on the unipolar world order and the challenges it poses to the unipolar world dominated by the United States and the Western European Countries. China is concurrently participating actively in the initiatives led by BRICS and the Asian Infrastructure Investment Bank.1

Moreover, what is more enthralling is that the Trump administration has been actively pursuing the economic policy of “” and imposition of trade tariffs, which is contrary to the “western liberal values” the States had always had faith in, especially during Obama administration. Simultaneously, the world witnessed the rise of China in the late 1970s onwards, when they adopted the policies of liberalisation and opened up their economy to the world market. Furthermore, Chinese president had claimed to be the “defender of free trade”. The roles have been reversed and tables have turned. All of these events have made international relations more contingent than ever. China along with the other emerging powers like India, Brazil and confine them to the Western-led liberal order, and are not looking to subvert the current international order. They are just seeking to reform the world order by demanding greater voice or seat in a forum like the G20. And as per the concept of balance of power within the realm of international relations theory, it is extremely important to research and find out if there are any other developing nation states that serve as a counterbalance to China’s unprecedented growth and attainment of power. Another aspect that is yet to be explored by the scholars of international relations and alike is the impact of nationalism on the performance and agenda-setting of individual countries. Ideally any member country of the G20 should not pursue or advance their national

1 Jorgensen and Strube (2014).

3 self-interests at an international forum like the G20. Furthermore, it is important to understand that what led to the legitimization of China’s role in economic governance. According to Ren (2017), China was praised worldwide for the active role it played in AIIB (Asian Infrastructure Investment Bank) by providing funds to the developing countries to foster their infrastructural development.2 Against this backdrop, this paper essentially focuses on the significance of China’s role in the G20 and highlights the issues and outcomes that were discussed in the Hangzhou Summit of 2016.

Literature Review In writing this paper, the various primary and secondary sources of literature include academic journals, books and newspapers. Most notably, the widely-cited articles of Chin and He on China’s strategies and their implications are captured. Gregory (2016) mentioned about China pursuing a very ecologically sustainable plan including schemes like green bonds.3 Huang (2018) mentioned that China wanted to be a fervent participant of the global economic and financial coordination based on a liberal trade order, where China wanted to build a positive external image of it.4 Whilst Alex He spoke more about the “institutionalisation” of G20 as a forum, where he strongly held the view that a permanent secretariat could be a way of legitimizing the body, whereas another scholar Zhu asserted that the informal and flexible character of the body gives it an advantage to actually reach a consensus between the developed economies and the emerging markets.5 So from a broader perspective, G20 as an international body is often questioned on lines of its legitimacy. But when we look at China, a budding leading power, they are trying to make the most of this international platform to assert its global leadership in the economic sphere and eventually in other related military and political spheres too. China, despite being a socialistic economy, is a strong champion of an open world economy, which had also been displayed in the Hangzhou Summit in 2016, where their main aim was to bolster free trade practices that would benefit all the countries. Furthermore, since China had already established a strong economic and financial standing post the Global Financial crisis in 2008 and through AIIB and the Belt and Road Initiative (BRI), they got a lot of support not just from the BRICS nations but from the countries worldwide, which makes it much easier for them to take on a leadership role. Whilst still trying to understand and assess China’s role in global economic leadership, scholars and economists need to further research on the factors that impact the country’s economic standing like the ongoing U.S-China trade war and the value and importance of its currency, Yuan (RMB).

G20 as an International Forum Before trying to understand and analyse China’s role in the G20, it imperative to get a fundamental understanding of the structure of G20 and the manner in which it functions. Furthermore, there is an ongoing debate on the institutionalisation of this international forum as it is not a formal organisation. The Group of Twenty comprises of those nations that account for 85 per cent of world GDP and two-thirds of its population.6 The G20 summits are held annually and are attended by the Heads of the member states. As a separate pillar, the Central Bank Heads and the Finance Ministers of the member countries also meet every year. It is important to know that what led to the establishment of this grouping. In aftermath of the Asian financial crisis of 1997, a meeting by the G7 was held in 1999 wherein they agreed

2 Ren (2017). 3 Chin and Dobson (2016). 4 Huang (2018). 5 He (2014). 6 Mustafa (2017). 4 that another forum had to be created which would be more representative than the G7 including the developing countries and emerging markets, and together this flamboyant body would be able to take a call on the international financial issues posing challenge to the twenty-first century.7

Conventionally, the United States assumed the role of a leader within the G20, as they had introduced open markets and free trade practices. However, due to Trump’s policy of protectionism and taking a stance of isolationism, the G20 has become a different ball game all together. This has led to Uncle Sam take a backseat and made G20 a symposium being driven by an emerging market like China. The forum like G20 is extremely important and highly relevant to this century considering the fact that it represents the perspectives of both global south and north and covers a wide range of issues ranging from social, economic and environmental. Another sphere that could be introduced to this forum could be a political one, where member states could work together to achieve larger political goals that are beneficial to all and can help the United Nations to achieve the greater common political objectives of the world. International affairs will always be contingent and will evolve with time, thus it is only fair that the existing international organisations and forums redefine and reshape themselves constantly so that they are up-to-date with the current global order and this in turn provides them with the legitimacy that they require to be acceptable globally. For G20 to be recognized as a legitimate international actor just like the other formal institutions, it is important that all the decisions and resolutions passed by the member-states are binding on all members and a committee should be appointed to oversee the effective implementation of these decisions taken. However, it is extremely difficult to aim or even achieve unanimous acceptance on certain issues because of the disparity and conflicting interests of the countries involved. Division of interests is one of the gravest challenges faced by any international organisation or forum to move together as one and proves to be hurdle in the path of larger success.

Agenda Setting: Static vs Dynamic The relevance, applicability and one of the central characteristics of G20 lies in the process of agenda setting within the different summits that take place. As per the tradition, the nation- state that hosts the summit is responsible for setting the agenda and drives the discussion in order to have an outcome beneficial to all. The agenda also includes those areas that were prioritised in the previous summit but which not given enough attention to or the objectives that had not be attained. Thus, one can infer that agenda setting is static where issues and different topics of interest like anti-corruption measures, increasing employment opportunities, working towards sustainable development and increasing the standard of living, these goals are constantly being tried to be fulfilled, examined or assessed. This could be characterised as the static nature of agenda setting. Agenda setting could become dynamic as well.

With the rise of nationalism in some countries, especially the countries dominated by right- wing leaders and parties have started closing up their borders for immigrants. Globalisation is not just movement of goods, ideas and technology, but also movement of people; this makes migration an indispensable issue that must be discussed at a forum like G20 where a trend can be observed- movement of labour and employable population from the global south to the global north. Furthermore, it is important to differentiate between the core and non-core

7 G20 Argentina website.

5 issues in order to have clarity in the structure and functioning of the G20. This section of the paper is rather rhetorical, trying to urge scholars and researchers around the globe to get an understanding of whether these global issues that the presidency countries often choose are covered adequately from a vast range of issues or are those something conveniently chosen wherein the country hosting the summit feels that the objectives set can be easily achieved, as though they are not willing to work out of their comfort zones. Another rhetorical question that we should look into is how much we have learnt from the crisis, whether it was the 1997 Asian financial crisis or the Financial Crisis of 2007-2008. Another thought to consider is that do these kinds of forums talk about what happens or what leads to a crisis so that the different economies have a crisis management system prepared to tackle this crisis, or should we consider that the crisis management is actually embedded in the crisis itself?

China’s Strategy in G20 and Hangzhou Summit This section discusses the role China plays in G20 including the strategies they pursued during the Hangzhou Summit in 2016 along with the contribution it has made to the forum at a global level. China is a firm believer in the realm of economic governance as stated earlier in this paper, and what gives it more legitimacy and legality is the fact that in terms of GDP it stands second in the world. China had a very thoughtful and holistic strategy in place that supported its credibility to play the role of a leader in the forum and provided it with an opportunity to hold the summit. As mentioned earlier, China got support of the G20 members by impressing them by the role it played in the Asian Infrastructure Investment Bank. Similarly, the G20 members applauded China for its Belt and Road Initiative which aims to bridge the gap between Asia and Europe.8 Furthermore, according to Bruegel post by Alicia G. Harrero, it could be safely assumed that China had a very strong reason to play an energetic and dynamic role in the convention.9

Primarily, it is through this global economic forum that the People’s Republic of China has been bolstering its standing in international society which has been effectively contributing to its soft power capabilities. And the twenty-first century has seen a substantial growth in the importance of soft power. Author Alex He, further ascertained that China’s strong position in the realm of economic global governance, by mentioning the fact that China helped with the process of coping up with the 2007-2008 crisis and took necessary steps for the recovery of the global economy. China provided US$50 billion to International Monetary Fund to improve its crisis management system and the ability to deal with such financial catastrophe.10 Moreover, one of China’s reform policies that were imperative to their agenda in the 2016 Summit was to increase the voting percentage of the developing countries in Bretton Woods institutions like the International Monetary Fund and the .

The 2016 G20 Hangzhou Summit took place in Hangzhou city in the province of . The core theme of the summit was “building an Innovative, Invigorated, Interconnected and Inclusive World Economy”.11 China’s approach towards the agenda is a flexible one where it has always stood by the side of the forum in terms of the topics that were raised and debated upon. The issues covered in the 2016 Hangzhou include “industrial policy, the digital economy, structural reform, financial architecture, corruption and asset recovery, energy, trade, investment, inclusive business, infrastructure connectivity, entrepreneurship,

8 Aquino (2017). 9 García-Herrero (2016). 10 He (2014). 11 Chin and Dobson (2016). 6 sustainability, apprenticeships, and climate change finance”.12 In terms of setting the agenda, China covered almost all the relevant and pressing issues of the time by efficiently managing and taking a lead role in economic global governance. Chinese President Xi Jinping, especially after the first wave of globalisation and opening its economy to foreign direct investments from all over the world, envisioned to put in place an extremely successful strategy to economic growth and development. He urged the international community to establish a system comprising of innovative strategies, technological expertise, and R&D (Research and Development) required for the developing and developed countries to attain a certain level of steady and uniform economic global governance. He pursued a policy of economic cooperation and collaboration. Since the first wave of globalisation, majority of the economies of the world have been interconnected and a domino effect can be observed in the case of any major economic development or a financial crisis vice-versa. Furthermore, hailing from an emerging or rising power, Xi Jinping provided the 2016 summit with a level playing platform where he wanted the emerging markets and economies to voice their opinion, put forth their suggestions leading to a reform if need be, and come up with solutions which would in turn help these newly evolving countries gain legitimacy and a higher seat in the existing economic institutions like the International Monetary Fund and the World Bank.

Another aim of the Hangzhou Summit was to continue building an open world economy and even for that matter bolster the existing one. They believed that through globalisation and different initiatives like “One Belt, One Road” ideas of urbanisation, industrialisation, technological equipment and infrastructure would flow from the developed nations to the developing ones that would help uplift the emerging nations and bring them at par or at least bridge the disparity between global north and the global south. Through this we can see that China has been exercising multilateral diplomacy. In this century, countries are heading towards growth and development but not at the cost of the environment or exploitation of non-renewable resources, thus aiming for a sustainable approach towards attaining the highest degree of development. Besides the Paris Climate Change, China during their presidency had called for the need for a global creation of green financial markets and green bonds thereby making a transition towards an environment-friendly growth and development.13

A challenge faced by the presidency countries who host the summits is to differentiate between their domestic interests or agenda and the international priorities as G20 is a forum established to advance international concerns, not a mechanism through which countries can easily achieve their domestic agendas. Because G20 does not have binding laws or any other commission in place that can oversee the conduct of the countries and the extent to which they are using the forum to manipulate it to their best interests. Especially in the case of China, member countries are required to be a little aware of the manner in which China pursues its strategies and act as watchdogs to ensure that China does not use the G20 as a platform to solve its domestic issues or achieve national economic goals. Foreign policy analysts, economists and finance ministers of member countries are justified in being a little precautious, as it has been seen in the past that former Prime Minister Zhu Rongji used the platform provided by World Trade Organisation (WTO) to advance and attain their domestic agendas which otherwise would have been hard to achieve.14 Another potential challenge to ensure effective economic global governance is the lack of any one country or a rising power

12 Low (2016). 13 Chin and Dobson (2016). 14 He (2014). 7 to actually support and advocate a united global agenda. Thus, due to the scattered attention paid to a various range of issues that to in different magnitudes, has an impact on the legitimacy of G20 as a body which further prevents it from carrying out functions of financial regulations and economic coordination. However, this can be overcome if China uses it economic power and form strong trade relations with other countries and unite with them on grounds of common interests or shared understanding of values and build strong allies. This would help provide legitimacy to both the China and the G20 forum. An issue of concern is also, to what is China ready to be flexible or sacrifice its independence and sovereignty for this multilateral body? This is a question which is always up for debate.

China, BRICS and Africa China considers its alliance with Brazil, Russia, India and South Africa of utmost importance. This is because these countries fall in the same category of emerging or rising powers, somewhere between developed nations and the underdeveloped ones. If the BRICS nations stand strong and united throughout all the crises and other unfavourable situations, then they can eventually gather leverage over the United States alone. What is more interesting to note is the dedication with which China has been working in Africa to improve their overall economic growth and development. China has been actively investing in the continent of Africa. In a larger perspective, China’s foreign direct investment in Africa has been beneficial to Africa to the extent that it has reduced the poverty levels and experienced economic growth and infrastructure development. The main reason for China investing in the continent is because the African nations are rich in minerals and natural resources like copper, iron, oil and zinc.15 According to the John Hopkins School of Advanced International Studies, the three sectors where China has heavily invested in are mining, construction and manufacturing.16

China has extended its Belt and Road Initiative to West Africa by providing funds and investing in Senegal and Rwanda, and this had been formalised after President Xi Jinping visited the two countries.17 These investments can be seen as a way of China trying to increase its connectivity and diplomatic and strategic cooperation with the nations in Africa, with the intention of gaining strong support from these nations that in turn bolsters its global position. African countries have benefitted by the skills, technology, ideas and human capital that China brought into their nations. According to the World Bank, China is pursuing a very long term strategy in Africa, where they know that their investments will earn those profits at the end of the day. By investing millions of dollars in the African countries, PRC is hoping to have greater impact on economic transformation and export diversification.18. It can be seen as a way of asserting greater geo-political influence in the continent. China has established strong diplomatic and soft power ties with Africa because they see opportunity and the potential for possible growth and development in that region. Whereas, the West view Africa as an unstable region with a massive migration problem and harbouring terrorism, China saw the region as profitable in terms of achieving a greater geo-political power and availability of minerals and resources.

15 Chen and Dollar (2015). 16 Pilling (2017). 17 Tiezzi (2018). 18 AFRICA - CHINA: Investment Forum (2016). 8

China-US Relations China’s role in the sphere of global economic governance became prominent and received a lot of attention when they called for a joint need for the G20 countries to provide fiscal stimulus in the event of the 2007-2008 financial crisis. According to He (2014), China shifted its international economic policy towards addressing the structural deficits and macroeconomic imbalances in the world.19 Currently, 2018 is a witness to the ongoing trade war between the United States and China. This trade war is of high interest and importance to this paper and the question arises that what circumstances fuelled this trade war that the international community is observing? According to Moosa (2012), the United States has been accusing China of playing an unfair game wherein they are trying to manipulate their currency Renminbi to their advantage and reap the benefits of mercantilism which had an adverse impact on America’s manufacturing sector.20 In 2018, when U.S. president Donald Trump imposed a 10 per cent and 25 per cent tariff on aluminium and steel imports, this led to a wave of economic destruction to all the trading allies of Uncle Sam.21 This trade war has been seen as a tit-for-tat tariff game which started with the US increasing tariffs on imports of steel and aluminium from China, and justifying the increase by claiming it to be a national security need. Similarly, China imposed taxes on the imports from the US.22 Moreover, China promotes Yuan as an international currency which is consistent with its agenda to restrict the global hegemony of US dollar.23

Conclusion This paper displays an overall understanding of China’s position in economic global governance, and more specifically in the G20. Late 20th century and the 21st century have been dominated by trade liberalisation and globalisation. No country in the world is economically isolated. All of them engage in cross-border trade with other countries, which not only enhances its economic power but also contributes to its soft power ability. It can be seen that China has been engaging in transnational trade practices not just to participate in global coordination or play a lead role in economic governance but also to enhance its international image and reputation as a rising power that is driven by the motto of achieving global economic welfare. Furthermore, this paper briefly discusses the need for institutionalisation of the G20 forum and the issues that need to be studied further. This paper also briefly mentioned the strategies, free trade practices and the agenda set by China for the Hangzhou Summit where the primary focus of the summit was that economic growth should benefit the people of all countries. Moreover, this paper shed some light the role played by China as a member of the BRICS nations. China is also one of the most active investors in different African countries, extending their Belt and Road initiative beyond Asia and Europe. By taking initiatives like the Belt and Road action plan, AIIB and providing FDIs and building alliances with other nation-states, it is safe to assume that China has been seizing these opportunities just to increase its overall representation at the global level. This gives them the leverage to induce any reforms or bring about change in any of the international institutions or forums.

19 He (2014). 20 Moosa (2012). 21 Khor (2017). 22 Ibid pp.11-17 23 Xin (2018)

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