The Laws of Geoeconomic Gravity Fulfilled? China's Move Towards Center Stage

Abstract

For China, the last quarter century has marked the start of a new chapter in its history as it moved back from the margins of history toward centre stage, with global impacts from its soaring trade flows, foreign direct investment inflows, and the centrality of the yuan to developments in international currency markets. WTO membership, achieved in 2001, allowed China to play in setting global trade rules: China surprised many with its constructive technical suggestions for tariff cutting formulae. And its participation (albeit as silent partner) in the Group of 20 that coalesced at the Cancun WTO Ministerial hinted at new negotiating dynamics. For the inattentive, the launch of a manned space flight was a shot across the bow. And, somewhat less conspicuously but of perhaps more immediate significance, China made what London’s Financial Times called a “spectacular return” to the international bond market. China has come so far, so fast, that instinctively one expects - as with any bull market - a consolidation/correction phase; as well, one searches for signposts/benchmarks that chart out the way ahead. We have long been familiar with extrapolations of the size of China’s economy that suggest that China might surpass the US as the world’s largest economy by the middle of the 21st Century. But what does that mean for the way China fits into the global economy (and its political economy) and for the way the global economy works? Is China an economic “power,” and if so, what metrics would give us a sense of how much leverage it might have? And the flip side of this coin matters as well: what do developments in the global economy portend for China? Will China have the period of grace to get its internal affairs in order before it takes on the global roles that almost unavoidably go with the size of its economic footprint? This note takes up these questions in terms of the real economy, international finance, and global economic institutions.