China’s economy is now the second largest in the world, with a nominal GDP over $10 trillion. That’s larger than Japan and Germany – the world’s third and fourth biggest economies – combined. In terms of purchasing power parity (PPP), which accounts for the comparative value of money in different countries, China already possesses the world’s largest economy. How China leverages its considerable economic strength has profound consequences for the global economy.
What do the experts think?
How is China Shaping the Global Economic Order?
In 1990, the Chinese economy constituted under 2 percent of the global economy. That number jumped to 13 percent in 2014.
Kennedy:Companies in every sector from the Fortune 500 and all the way down to the bottom 500 are thinking about the China Market. WATCH
Kennedy: Given their economic gravity, when they talk – people listen. WATCH
Reade:It is shaping it by its very presence in the system . . . it is going to shape the global economic system going forward based on a combination of its foreign policy goals, its own internal need and desire for stability, and its need for economic development. WATCH
Much of China’s wealth comes from trade. China is the world’s largest trader, having surpassed the U.S. in 2013. Curious about China’s growing trade network?
Is China excluded or underrepresented in institutions that influence the global economic order?
Kennedy: The Chinese certainly think so. WATCH
Kennedy: They want to . . . have the respect that they think they are accorded because they see themselves rising.
Liang: China has not been excluded from the global economic order, but China has been underrepresented in some of the global economic institutions, especially the global financial institutions. WATCH
Reade: China is largely included in the institutions and initiatives that influence the global economic order. WATCH
In April 2010, China’s voting power in the World Bank increased from 2.27% to 4.42%. In the latest IMF reforms, China’s voting rights in the IMF increased from 3.8% to 6%. The U.S. share dropped from 16.7% to 16.5%. India’s voting rights increased from 2.3% to 2.6%.
What aspects of the global economic order is China dissatisfied with, and how does it want to modify these aspects?
In recent years, China has adjusted its currency policy as it shifts from an export-oriented economy to an economic model that places a greater focus on consumption. Curious what China’s currency policy means for both China and the rest of the world?
Liang:One of the main sources of dissatisfaction from China is the fact that China was not part of the rule makers when those institutions were created in the first place. WATCH
Kennedy:I think it’s surprising for most people to hear the truth, which is . . . for the most part they are relatively satisfied with the basic rules of the game in almost every sphere of economic activity. WATCH
Kennedy:When they don’t control something they get nervous about it, particularly when capital flows are so large.
Reade:China comes to the table with some suspicions about the current global economic infrastructure. To some extent this comes from the fact that China will say the rules were made for some of the core institutions after World War II when China was not participating. . . . There’s also a suspicion in China . . . that the United States is trying to keep China down.
Special Drawing Rights (SDR) is an international form of monetary reserve currency that supplements the existing reserves of IMF members. In November 2015, the IMF added China’s currency, the renminbi, to the basket of currencies that determine the SDR’s value.
Did China establish the AIIB as a means to shape the global economic order?
Kennedy:I don’t think it’s the first step in the creation of an entirely alternative global economic architecture centered in Beijing. WATCH
Reade:I think that China established the AIIB for a number of reasons. One, I think it was an opportunity for China to show its leadership in the region. . . . It also obviously was a very pointed commentary with regard to the other institutions that were offering financial aid to the world. WATCH
Liang:If you look at the current practice of the AIIB and the BRICS Bank, they have not made the rules to challenge or to replace the current existing global rules. WATCH
Liang:Instead of challenging the global economic order, I think China really wanted to increase its power and influence in the region of Asia-Pacific first. WATCH
The Asia Infrastructure Investment Bank (AIIB), a Chinese initiative that China describes as “a multilateral development bank conceived for the 21 century,” was declared open for business on January 16, 2016 with 57 prospective founding members.
What else might China do in the future to increase its economic influence?
Liang:Xi Jinping seems to be a lot more ambitious and is willing to act on his ambition to make China an emerging, more than an emerging economy, but a great nation. That kind of domestic thinking will affect China’s behavior in the international arena as well. WATCH
Kennedy:The first thing it needs to do is get its economic house in order, and move firmly on a transition from one economic model to another. WATCH
Kennedy:Their economic trajectory is the foundation for everything else that they do. WATCH
Reade:China is interested in finding the angles of advantage beyond that level playing field. China is constantly thinking about what it can do to ensure that the system is maximizing a number of things for China . . . economic advantages for Chinese stakeholders, reduced costs for Chinese stakeholders, national prestige for China, and probably, very importantly, control. WATCH
China, along with Brazil, Russia, India, and South Africa, are members of BRICS, an association of five major emerging economies which together represent over 3 billion people or 42% of the world population, and have a combined nominal GDP of US$16.039 trillion, equivalent to approximately 20% of the gross world product.