CHINA'S RISE AS A CHALLENGE

China's Rise as a Challenge

China's Rise as a Challenge

Introduction

China has become a global economic superpower. It has the second largest national economy1 and is the second largest exporter. It has by far the world's largest current account surplus and foreign exchange re- serves. Growth has averaged 10 percent for the past 30 years, the most stunning record in history. Real GDP in 2006 was about 13 times the level of 1978, when Deng Xiaoping initiated economic reforms. A country must meet three criteria to be a global economic superpower. It must be large enough to significantly affect the world economy. It must be dynamic enough to contribute importantly to global growth. It must be sufficiently open to trade and capital flows to have a major impact on other countries.

Three economies now meet these criteria. The United States remains the largest national economy, the issuer of the world's key currency, and in most years the leading host (and home) country for foreign investment. The European Union is now the largest economic entity and the largest trader, even excluding commerce within its membership, and its euro increasingly competes with the dollar as a global currency. China, however, is far more deeply integrated into the world economy than either of the other economic superpowers. Despite being a continental economy like both of them, and despite three decades of autarky prior to the 1978 reforms, trade accounts for more than twice as much of China's economy as it does for the United States or the European Union as a group. Hence China's dramatic expansion has a powerful effect on the rest of the world. It shared global growth leadership with the much larger United States during the record world expansion of 2004-07 and, with China is often paired with India in discussions of global economic superpowers, but there is no comparison between them at this time. India's GDP is less than half that of China's, and trade accounts for less than half as much of its overall economy. The annual growth in China's trade exceeds the total level of India's trade. China at- tracts more foreign direct investment each year than India has received in the 60 years since its independence.

The Systemic Challenge

The revealed preference of the incumbent powers, in this case primarily the United States and the European Union in terms of the international economic order, is to seek to co-opt the powerful newcomer into the global regime that they have built and defended for a prolonged period. There are increasing signs, however, that China is not comfortable with the cur- rent international economic system. As described in chapter 2, both Chinese officials and scholars are actively discussing alternative structures in which China can be present at the creation and thus serve as a coequal partner in constructing the regime.

Like the United States and many other countries, China is experiencing considerable negative domestic reaction to its cooperation with other countries and international institutions on ...