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“Integrate, But Hedge”: China In the Age of Global Governance, Part I

“Integrate, But Hedge”: China In the Age of Global Governance, Part I
Tue, 1/26/2016 - by Andrew Gavin Marshall

This is the first article in a three-part series focusing on China's transformed financial role on the world stage.

“Hide your brightness; bide your time,” cautioned Deng Xiaoping, the chief architect of modern China who was the country’s supreme ruler from 1978 until the 1990s. Deng oversaw the "opening" of China into a modern state-capitalist society. He articulated a strategy for China’s integration into the global economic system – a strategy that progressed over the past four decades such that the world’s most populous nation is now its second largest economy, increasingly able to flex its new geopolitical and economic power and ambitions.

But China’s integration into the existing structures of global economic governance is not without risks and challenges. The country has grown economically as a result of slow, state-managed reforms to its economic system and the degree to which it has worked with the Western-created and -dominated economic system – in particular, those members of the Group of Seven (G-7) nations, the United States, Germany, Japan, the United Kingdom, France, Italy and Canada.

The G-7 was established a few years prior to China’s economic opening, and in the subsequent four decades has been the prime driving force in shaping the architecture of the global economic system. As emerging market economies implemented economic reforms encouraged by the G-7 nations and the institutions they dominate, they demanded more representation and power within the institutions and structures of global economic governance. China is chief among the emerging market economies, and has been at the forefront of pushing for representation and influence in the global economy and its governing institutions.

The G-7 nations, and in particular the United States, have accepted that emerging markets and China need to be integrated into the existing structure, but the challenge has been to manage the process in a slow, incremental way that allows the G-7 to continue pressuring emerging markets into implementing further reforms while maintaining G-7 nations' own position at the center of the system. For this reason, the Group of 20 (G-20) was created in the late 1990s as a meeting of finance ministers and central bank governors from the G-7 countries and several important emerging markets, including China.

Over the years and decades that China has implemented market reforms (albeit, managed by a totalitarian one-party state), the country has joined such institutions as the World Trade Organization (WTO) and gained elevated status within the International Monetary Fund (IMF) and World Bank. However, its political, diplomatic and military power has also grown alongside its economic weight. East Asia, once the unquestioned domain of American and Japanese power, now has a new regional hegemon. This makes the imperative for China to integrate into the global economic architecture all the more imperative, as it would give the country a greater stake in the system as it exists, instead of potentially creating an alternative or rival system and institutions.

However, while integration is essential in the eyes of the West (and, indeed, in the eyes of many of China’s rulers, as well), it also carries immense risks. Unlike Japan, China is not dependent upon the U.S. for military protection and support, nor does it operate through a similar state democratic structure with which the industrialized world is familiar. Indeed, China and Japan are often antagonistic toward one another, a long product of Japan’s historical imperial war mongering and colonialism in the region. China has no desire to bow down to any outside power such as the U.S., nor submit to regional competitors such as Japan, and least of all does it intend to play second fiddle to any other power in its own backyard.

So, while there is a mutually beneficial economic relationship between China and the West, prompting the need for further integration into the structures of global economic governance, there is also a great deal of mistrust and uncertainty between China and the West, particularly on military and foreign policy matters. Historically, the rise of any new great power has always taken place in an environment of geopolitical tension and war. America, as the existing global hegemon, has designed its political and economic strategy toward China with these concerns in mind.

The American approach toward China was articulated, and in part designed, by the political scientist and former top U.S. government official and adviser Joseph Nye, as a strategy of “integrate, but hedge.” Nye, who formerly served in senior positions in both the State Department and Defense Department, is considered one of the most influential foreign policy intellectuals in the U.S. His influence extendsthrough multiple think tanks and advisory boards of which he is a member, including the Trilateral Commission, the Council on Foreign Relations (CFR), the Center for Strategic and International Studies (CSIS), the Aspen Strategy Group, and on advisory boards to the Defense Department and State Department.

Nye explained in The New York Times that in his role at the Defense Department in the 1990s, he helped develop the Pentagon’s East Asian Strategy Report, which identified three major powers in the region: the United States, Japan and China. It was at this time that the U.S. strategy of “integrate, but hedge” was designed, and it continued through the Clinton, Bush and Obama administrations. Maintaining the U.S. alliance with Japan was central to the strategy, as it “would shape the environment into which China was emerging.” The objective was “to integrate China into the international system,” which included joining the World Trade Organization (WTO), but Nye added: “We needed to hedge against the danger that a future and stronger China might turn aggressive.”

In the Fall of 2011, high ranking members of the Obama administration began making clear that U.S. grand strategy envisioned an increased focus and presence in the Pacific Asian region. Writing in Foreign Policy in October of 2011, then-Secretary of State Hillary Clinton explained that the U.S. was implementing “a strategic turn to the region” to maintain “peace and security” and “open markets.” Such a strategy would “secure and sustain America’s global leadership.” Clinton wrote that the U.S. relationship with China was “one of the most challenging and consequential bilateral relationships the United States has ever had to manage” which “calls for careful, steady, dynamic stewardship.”

In November of 2011, President Obama declared the “pivot” to Asia was a “top priority” for the United States. “The United States is a Pacific power and we are here to stay,” said the President, though he claimed that it was not a strategy designed to "contain" China. “We’ll seek more opportunities for co-operation with Beijing,” he said. “All our nations [of the Pacific region] have a profound interest in the rise of a peaceful and prosperous China.”

Thomas Donilon, President Obama’s National Security Advisor from 2010 to 2013, described the same strategy toward China while speaking to an audience at the Center for Strategic and International Studies (CSIS) in November of 2012. One of the central elements of the pivot to Asia, explained Donilon, was “pursuing a stable and constructive relationship with China.” America’s relationship with China “has elements of both cooperation and competition,” and U.S. policy was designed “to seek to balance these two elements in a way that increases both the quantity and quality of our cooperation with China as well as our ability to compete.” The U.S. had made clear, he said, “that as China takes a seat at a growing number of international tables, it needs to assume responsibilities commensurate with its growing global impact and its national capabilities.”

Another component of the pivot to Asia was to advance the region’s “economic architecture,” which meant a stronger engagement with regional forums and multilateral institutions, and notably advancing the Trans Pacific Partnership (TPP), a regional ‘trade’ deal driven by the United States to “deepen regional economic integration.” The Trans Pacific Partnership (TPP) agreement was finalized in 2015 as a “21st century trade agreement” between the United States, Canada, Mexico, Chile, Peru, Australia, New Zealand, Japan, Singapore, Malaysia, Vietnam and Brunei. The agreement was largely viewed by America’s allies as “a counterweight” to China’s regional and global economic and political ambitions.

The Financial Times described the TPP as the “economic backbone” of the U.S. pivot to Asia, writing that, “the goal for the U.S. and Japan is to get ahead of China... and to create an economic zone in the Pacific Rim that might balance Beijing’s economic heft in the region.” As President Obama said: “When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules.”

So while the United States continues to “write the rules” of global economic governance as it pursues its decades-long strategy of “integrate, but hedge,” China appears to still be following the original advice of Deng Xiaoping: “Hide your brightness, bide your time.” Time will tell.

Stay tuned for the second installment in this series next Tuesday

 

 

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