The last 20 years of rapid economic growth in Asia’s emerging economies serve to underpin this statement. In the 1980s and ’90s, the top five contributors to the growth of global growth domestic product were all members of the G7, except for China — with the latter contributing only 13.4 percent and 26.7 percent of the US rate over these two decades. However, between 2000 and 2010, China became the top contributor to global GDP growth, while only Japan and the United States retained their top-five status among the G7 countries, and China’s contribution exceeded that of the United States by 4 percentage points.
But still this reality is not reflected in the distribution of power in international financial institutions. Even with their share of the global economy clearly expanding, China and other emerging economies in Asia continue to hold a less prominent position in the governance of the International Monetary Fund than either Europe or the United States.
With the redistribution of power at a standstill, looming recession in developed economies, and increasing global economic and financial interdependence, the perceived governance deficit must now lead to a revamp of regional cooperation.
In Asia, China’s size and global standing mean it is bound to play a key role in the region’s economic and political issues. Its large foreign exchange assets, the financial power it is able to project via foreign direct investment and asset acquisition, and the potential internationalization of the yuan all signify that China is especially well placed to supply strong regional leadership. Greater economic and financial governance is needed to help ensure China’s steady economic growth, particularly at the present juncture, where it is transitioning toward a demand-led economy. Even more importantly, China needs to develop a mechanism that minimizes the likelihood of conflicts between countries in the region because of increased interdependence.
It is not surprising that Asian joint financial arrangements are growing fast. One particularly noteworthy initiative is the establishment of the Asean Infrastructure Fund, a timely and appropriate facility that will help direct the region’s resources toward its growing infrastructure needs. In March 2010, the Chiang Mai Initiative Multilateralization also came into effect in response to the liquidity shortage experienced in the aftermath of the global financial crisis. The CMIM includes a $120 billion pool of reserves, and is designed to provide its 13 members with support through currency-swap transactions. South Korea also proposed in February 2012 to double the foreign-currency reserve pool to over $240 billion in case of capital flight.
These new regional financial facilities hint at a critical turn in capital investment strategies. China and the new powers in the periphery are now keen to allocate their financial resources closer to home, rather than leaving them in multilateral institutions largely controlled by the United States and Europe.
The financial arrangements underway will help to establish an East Asian financial platform based on the institutionalization of Asia’s “spontaneous cooperation.” This is instead of a top-down, European-like model, which relies on the feedback mechanism embedded in supranational institutions to encourage deeper integration. The difference does not mean that East Asian regional policies are doomed to irrelevance. Nor does it mean that China and the new regional powers will not act as game changers because they continue to live within the framework of the current international system. And the difference need not give voice to the realist perspective either, found in Robert Kagan’s version of the power transition theory, because such an outlook overstates China’s intent to dispute the global pecking order as did Germany and Japan in the 1930s.
China is engaged in a co-evolutionary strategy as a regional leader and a power with true “global scope,” a strategy that Japan failed to accomplish. China’s recent commitment to Asian regional governance, and its siding with emerging and developing economies, is crucial to Beijing’s strategic spatial strategy, which is to constrain rather than supplant the current global powers.
East Asia Forum
Miriam L. Campanella is an associate professor of international political economy at the University of Turin, in Italy.
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