“Global Economic Governance in Transition: A View from China”, Dr. Lan Xue
speaking at the IIEA on 20th February 2012.
On Monday 20 February 2012, Dr Lan Xue, Professor and Dean of the School of Public
Policy and Management, Tsinghua University, spoke at the IIEA, on the topic “Global
Economic Governance in Transition: A View from China”.
In his speech, Professor Xue provided a general overview of the key transitions taking place
within China, detailed key determinants of China’s role in the global governance system and
proposed a number of ways of making the G20 a more effective mechanism for global
economic governance.
Professor Xue mentioned that China is currently undergoing four major transformations, since
1979, related to its economic system, industrial structure, society and governance structure.
Professor Xue stated that China’s economic system is in transition from a ‘central planning’
model to a market based system. In terms of industrial structure, China remains a global
manufacturing hub, according to Professor Xue, with the manufacturing sector consistently
contributing to approximately 50% of China’s annual GDP since 1980. However, he
commented that China is undergoing a transition in other sectors, such as agriculture and
services. Professor Xue reported that the agricultural sector in China fuelled approximately
30% of GDP in 1980, but only 11.3% of GDP in 2007. In contrast, the importance of the
services sector to China has increased in the same period, generating 40.1% of annual GDP in
2007. The third transformation, which Professor Xue discussed, is China’s transition from a
rural and closed society to one that is increasingly open and urbanised. He reported that in
2011, 51.3% of the Chinese population (690 million people) lived in urban areas and
quantified that approximately 1% of the Chinese population is relocating from rural to urban
areas every year. In terms of international linkages, Professor Xue noted that much larger
numbers of Chinese nationals are travelling abroad, with 57.94 million Chinese tourists
travelling outside China in 2011, in contrast to only 10.47 million Chinese tourists in 2000.
Speaking about the reform of China’s governance structure, Professor Xue emphasised that
matters of broader public participation in the policy process, the growing number of NGO’s
and the changing nature of wider civil society will continue to be critical issues. He also
commented that all these transformation are taking place at the same time, in a country of one
billion people, which is historically unprecedented in terms of the scale and speed of
transformation in an economy.
Next, Professor Xue focused on China’s underlying principles and domestic agenda, which he
deemed to be highly influential determinants of China’s role in global governance. He stated
that China follows a relatively stable set of principles in matters of global governance, based
on its own diplomatic experiences since 1949. According to Professor Xue, these principles
include: the equal treatment of nations; respect for sovereignty; non-interference; mutual
benefit; and co development, which appear to be principles that China tries to follow in
practice. He also added that China has a great respect for official regional and global
mechanisms, such as the UN and ASEAN. Moreover, Professor Xue stressed that China does
not want to take the lead in major international initiatives, a principle proposed by Deng
Xiaoping in 1980, in contrast to Chairman Mao’s practice in the 1960s and 1970s. He
explained that China is trying to focus on internal domestic reform and build friendly
relationships with other countries at the same time.
Professor Xue elaborated that a number of domestic challenges also contribute to the mindset
of Chinese leaders and the Chinese public in matters of global governance and divided these
domestic challenges into three areas (i) ‘fundamentals’ (ii) ‘megatrends’ and (iii) ‘key
reforms’. He noted that fundamental issues relating to China’s national integrity, social
stability, the maintenance of economic growth and demographic issues contributed to China’s
internal and external policy decisions. The ‘megatrends’ which Professor Xue identified,
included the rapid urbanisation process underway in China; the need for a comprehensive
social security system; and the international process of globalisation.
On urbanisation, Professor Xue discussed how the Chinese government needed to look at
appropriate mechanisms to manage the orderly flow of people and production factors between
regions, as well as how to develop a system of sustainable urban governance. As an example,
Professor Xue mentioned that local governments often do not have a sustainable public
finance system that can provide for the rapidly relocating Chinese population in areas such as
education. In terms of welfare provision, Professor Xue spoke about the need for a robust
pension system, health insurance system, low-income social security and low-income
housing. Regarding key internal reforms that are taking place in China, Professor Xue listed
the aspects of China’s structural economic reform agenda that remain unfinished, namely:
fostering an open and fair market environment, striking a balance between state and private
capital and enterprises; and developing an effective economic regulation system for natural
monopolies. On the topic of continued sectoral reform and development, Professor Xue
mentioned China’s gravitation towards knowledge and service enhanced manufacturing, as
well as reforms of financial systems and the services economy. In terms of the reform of
China’s governance system, Professor Xue highlighted that the relationship between central
and local government and public participation in the policy process as two of the most salient
issues on China’s internal reform agenda.
Shifting his focus to China’s position on global governance issues, Professor Xue maintained
that China will continue to respect the existing global governance mechanisms, make efforts
to actively participate in them and to cooperate with other countries to support their reform.
Speaking about the G20, he underlined that current global economic difficulties are
multifaceted and require a solution at all levels. He proposed that new global mechanisms
should try to complement existing ones rather than replace them and that four key issues
should be addressed in order to complete the G20’s transition from a “crisis management
committee” to a “global steering committee”.
First, he pointed to the issue of the geometry and legitimacy of the G20 and questioned
whether or not the G20 should consist of a fixed number of countries, or whether the
membership or country grouping should change depending on the primary issues on the
global agenda. Second, he debated how to institutionalise the G20 in the long run and whether
the G20 was competing or coordinating with existing regional and global governance forums,
such as the Asia Pacific Economic Cooperation or semi-official / non-governmental meetings
like Davos or the World Economic Forum. He proposed that the G20 should be equipped with
formal processes, authority and the relevant institutions to implement its objectives.
Nevertheless, he identified a number of problems that could arise, such as contention over the
location of the secretariat or leadership of the organisation. Third, he identified the need for
effective agenda setting. He suggested that there seems to be an evident need for the G20 to
be orientated towards delivering tangible outcomes, in order to illustrate its effectiveness in
the short term, but argued that the real usefulness of the G20 would be a global steering
committee to identify long term risks. Finally, Professor Xue addressed the matter of how to
engage stakeholders, of various kinds, who are not members of the G20, but should be heard.
In conclusion, Professor Xue stated that these global economic challenges need to be analysed
outside purely economic circles, by people in public administration and wider disciplines.