China and the Future of Global Governance

AGI held its second workshop on China and global governance with German and American experts on Asia on February 2, 2016. The discussion was held in a time of increasing uncertainty about China’s trajectory and was informed by a workshop in 2015 that took place soon after the introduction of the Asian Infrastructure and Investment Bank (AIIB). Using scenario techniques, the workshop participants focused on the respective approaches of Germany and the United States toward China in order to foster mutual understanding and discuss possible joint transatlantic initiatives. The discussion was facilitated by former DAAD/AGI Fellow Dr. May-Britt Stumbaum, Director, NFG Research Group, and Thilo Hanemann, Director, Rhodium Group.

Restoring international institutions and solidifying liberal norms in global governance as well as keeping stability in the Asia Pacific region has long been the interest of both Germany and the United States.  China is now the third biggest trading partner for Germany and the second biggest for the United States, and both countries are experiencing a steep growth of foreign direct investment (FDI) and other investment from China. At the same time, China has been actively promoting new multilateral institutions and initiatives, ranging from the Asian Infrastructure Investment Bank (AIIB) to the One Belt One Road (OBOR) initiative that aims to improve the connectivity of Asia, Europe, and Africa—leaving out the United States. It also has been increasing its military profile and expanding its territorial claims in East and Southeast Asia.

The United States and Germany have long taken a constructive stance toward China’s integration into the global economy. The general consensus has been that the integration of China into global trade and production networks could yield tremendous benefits for both sides, and that economic development would promote political liberalization and China’s integration into existing economic governance frameworks.

Recently, China has reached a turning point in its economic development. Many traditional sources of growth (demographics, productivity) are losing steam, and China has to overhaul its economic growth model to escape the middle income trap. This transition process will change China’s footprint in the global economy, from its current focus on trade and foreign direct investment to a much more complex role extending to other areas of economic exchange including the flow of capital, people, and information. The move to a new growth model also entails a significant risk of disruption and volatility, which would have a tremendous impact on the countries in the region and the global economy.

There has been a sizable increase in defense spending along with increasing tensions in the Asia Pacific, most recently over territorial claims and Freedom of Navigation (FON). Beijing’s recent demonstrations of power in East and Southeast Asia are a challenge to global principles and have left countries in the region uncertain about China’s intentions. The U.S. and Europe both have a major stake in keeping sea lanes free of conflict and Germany alone accounts for half of the EU’s trade with China.

The AGI discussion tried to address these issues from multiple perspectives: How do Germany and the United States assess the consequences for global governance and their interests in the region? What actions could be taken at the political, economic, or military level? What other partners or multilateral forums should be involved? What expectations do both have regarding the role and resources that should be invested to resolve issues?