SEPTEMBER 2017 Parallel Perspectives on the Global Economic Order A U.S.-China Essay Collection PROJECT DIRECTOR CONTRIBUTORS Matthew P. Goodman Amy Celico David Loevinger Wang Yuzhu Douglas J. Elliott Scott Miller Xue Lei EDITORS Fang Jin Scott Morris Ye Qianlin Daniel Remler Matthew P. Goodman Kevin Nealer Ye Yu Ye Yu Ziad Haider William Reinsch Zhang Haibing He Fan Spencer Rodriguez Zhang Zhongxiang Nancy Lee Shen Minghui Zhao Xijun Joanna Lewis Song Guoyou SHANGHAI INSTITUTES FOR INTERNATIONAL STUDIES A Report of the CSIS SIMON CHAIR IN POLITICAL ECONOMY AND SHANGHAI INSTITUTES FOR INTERNATIONAL STUDIES Blank About CSIS For over 50 years, the Center for Strategic and International Studies (CSIS) has worked to develop solutions to the world’s greatest policy challenges. Today, CSIS scholars are providing strategic insights and bipartisan policy solutions to help decisionmakers chart a course toward a better world. CSIS is a nonprofit organization headquartered in Washington, D.C. The Center’s 220 full- time staff and large network of affiliated scholars conduct research and analysis and develop policy initiatives that look into the future and anticipate change. Founded at the height of the Cold War by David M. Abshire and Admiral Arleigh Burke, CSIS was dedicated to finding ways to sustain American prominence and prosperity as a force for good in the world. Since 1962, CSIS has become one of the world’s preeminent international institutions focused on defense and security; regional stability; and transnational challenges ranging from energy and climate to global health and economic integration. Thomas J. Pritzker was named chairman of the CSIS Board of Trustees in November 2015. Former U.S. deputy secretary of defense John J. Hamre has served as the Center’s president and chief executive officer since 2000. CSIS does not take specific policy positions; accordingly, all views expressed herein should be understood to be solely those of the author(s). © 2017 by the Center for Strategic and International Studies. All rights reserved. Center for Strategic & International Studies 1616 Rhode Island Avenue, NW Washington, DC 20036 202-887-0200 | www.csis.org About SIIS Founded in 1960, the Shanghai Institutes for International Studies(SIIS) is a gov- ernment-affiliated high-caliber think tank dedicated to informing government decision-making by conducting policy-oriented studies in world politics, eco- nomics, foreign policy, and international security. SIIS maintains intensive and ex- tensive exchanges and cooperation with research institutions at home and abroad, bolstering China’s international influence and soft power. SIIS boasts an authorized size of 106 full-time research fellows and staff, including 60% senior fellows. SIIS was ranked one of the top ten Chinese think tanks In 2006, and one of the top ten global think tanks (non-American) in 2008. SIIS comprises seven institutes and six research centers, namely, the institute for global governance studies, the institute for foreign policy studies, the institute for world economic studies, the institute for international strategic studies, the insti- tute for comparative politics and public policy, the institute for Taiwan, Hong Kong& Macao Studies, the institute for data processing and studies, the center for American studies, the center for Asia-Pacific Studies, the center for Russian and Central Asian Studies, the center for West Asia and Africa studies, the center for European studies, and the center for maritime and polar studies. In addition, SIIS is an institutional member of the Shanghai International Strategic Studies Association and the Shanghai International Relations Association. Global Review (bimonthly, Chinese) and the China Quarterly of International Strategic Studies are the two flagship journals of SIIS and have become a presti- gious academic platform for domestic and international scholarship. © 2017 by Shanghai Institutes for International Studies. All rights reserved. Shanghai Institutes for International Studies 195-15 Tianlin Road, Shanghai 200233, China 86-21-54614900 | www.siis.org.cn Contents V Preface VI Acknowledgments 1 INTRODUCTION | The United States, China, and the Global Economic Order in 2017, by Kevin Nealer 5 CHAPTER 1 | Current State and Evolution of the Global Economic Order 5 A Grand Bargain to Strengthen the Global Economic Order, by Matthew P. Goodman 9 World Economic Order: Present and Future, by He Fan & Ye Qianlin 12 CHAPTER 2 | Macroeconomic Policy Coordination 12 U.S.-China Macroeconomic Policy Coordination: A MAP Without Daggers, by David Loevinger & Spencer Rodriguez 18 Economic Rebalancing Should Be the Core of China’s Supply-Side Reform, by Wang Yuzhu 21 CHAPTER 3 | Financial Regulation 21 Living in Two Worlds: Chinese and U.S. Financial Regulation, by Douglas J. Elliott 26 Financial Regulation Reform and Financial Stability, by Zhao Xijun 29 CHAPTER 4 | International Financial Institutions 29 Toward Better Multilateral Development Banks: Can the United States and China Lead Together?, by Nancy Lee 35 China-U.S. Cooperation for a More Effective Multilateral Development Bank System, by Ye Yu 40 CHAPTER 5 | Global Trade Policy 40 Opportunities for U.S.-China Trade Cooperation, by William Reinsch 46 Managing Bilateral Trade Policy: A Quest for Rebalancing the Global Economy?, by Shen Minghui | III 53 CHAPTER 6 | U.S.-China Bilateral Economic Relations 53 A New Era of Uncertainty in U.S.-China Economic Relations, by Amy P. Celico 58 The Trump Administration’s Trade Policy and Sino-American Economic Relations, by Song Guoyou 63 CHAPTER 7 | International Investment Policy 63 Prospects for U.S.-China Cooperation on Global Investment Policy, by Scott Miller 70 Changes in Global Trade and Investment and Implications for China-U.S. Economic Relations, by Xue Lei 74 CHAPTER 8 | Sustainable Development 74 A U.S.-China Partnership on the Sustainable Development Goals, by Scott Morris 79 The Development and Transformation of China’s Foreign Aid, by Zhang Haibing 84 CHAPTER 9 | Infrastructure 84 Addressing the Global Infrastructure Deficit: Channels for U.S.-China Cooperation, by Ziad Haider 90 The Belt and Road Initiative: Progress, Problems, and Prospects, by Fang Jin 93 CHAPTER 10 | Climate Change and Energy 93 The U.S.-China Climate and Energy Relationship, by Joanna Lewis 98 Finance, Trade Policy, and the Implementation of the Paris Agreement, by Zhang Zhongxiang 104 About the Authors IV | CSIS and SIIS Preface The United States and China are the world’s two largest economies. Over the coming decades, no two countries will have a greater impact on the global economic order—the system of institutions, rules, and norms that govern international economic affairs. A global economy that delivers strong, sustainable, balanced, and inclusive growth will depend on such a well-managed order. More than ever before, Washington and Beijing must work together to identify potential areas of cooperation, as well as manage our differences. It is this collaborative mission that has inspired the deep and productive relationship between our two institutions, the Center for Strategic and International Studies (CSIS) and the Shanghai Institutes for International Studies (SIIS), for many years. Since 2015, we have cohosted the U.S.-China Dialogue on the Global Economic Order, a track 1.5 dialogue that has sought to build mutual trust, enhance communication, identify issues, and propose solutions. The series of semiannual workshops, alternating between Beijing and Washington, has covered a wide range of topics across the global economic order including trade, investment, finance, and climate change. The dialogue has drawn scholars, former policymakers, and current officials from the United States and China across a wide range of institutions and disciplines. This essay collection harvests some of the rich bounty of our two-year dialogue. Scholars from the United States and China have contributed parallel essays presenting their respective positions on a wide variety of topics in the global economic order. We hope that this collection will generate new ideas that scholars, policymakers, and citizens in both countries can use to solve the most urgent problems in the global economy. John J. Hamre Chen Dongxiao President and CEO President CSIS SIIS Parallel Perspectives on the Global Economic Order | V Acknowledgments In November 2015, CSIS formally launched the U.S.-China Dialogue on the Global Economic Order in partnership with the Shanghai Institutes for International Studies (SIIS). The dialogue has since held four workshops—two in Beijing in the fall of 2015 and 2016, and two in Washington in the spring of 2016 and 2017. We would like to thank the U.S. and Chinese workshop participants who generously gave us their time and insights, and who, directly and indirectly, have helped shape these essays. The contents of the essays reflect the views of the authors themselves, and not of other workshop participants, their institutions, or CSIS and SIIS. Several members of the CSIS staff contributed to the production of this essay collection. Daniel Remler provided a steady hand as chief editor. Elizabeth Keller provided tireless coordination and administrative support throughout the process. David Parker provided invaluable drafting and research support. Casey Rothberg and Eva Zhang contributed considerable time and energy to the final manuscript. Finally, we would like to thank Ye Yu of SIIS for her constant support in coordinating both the dialogue and the essay collection. The dialogue and this essay collection were made possible by the generous support of the Carnegie Corporation of New York (CCNY). We are especially grateful to Stephen Del Rosso and Aaron Stanley, for their confidence in us and for their commitment to scholarly dialogue between the United States and China. Matthew P. Goodman William E. Simon Chair in Political Economy CSIS VI | CSIS and SIIS Introduction: The United States, China, and the Global Economic Order in 2017 Kevin Nealer International polling and the politics of the past year both suggest a high level of anxiety among global populations about personal and economic security, as well as the impact of globalization.