Are we heading into, or already in, an economic Cold War? According to a Legal Studies Research Paper from the University of California’s School of Law co-authored by Gregory Shaffer from the School of Law and Henry Gao from the Singapore Management University’s School of Law, we may be.
China is exporting a development model based on its domestic one. So? So, it comes with the same high degree of government involvement that’s characterized development at home. This is no different, the authors of the Paper argue, than the West’s behavior in colonial times. However, the West brought with it a different baggage of rules, laws and accompanying operational norms. The chief difference is that Western countries then were fundamentally less statist than China is today.
OK, so far, so clear; but where’s the mischief?
The researchers highlight the Belt and Road Initiative. The scheme is an unapologetic top-down project and unlike, say, the Marshall Plan we have no real idea of either it’s total cost or scope. What’s clear though is that any special economic zones, tax treaties, dispute settlement mechanisms and etcetera will all be based on ‘Beijing Rules’. It’s also an open secret who’s going to get the biggest contracts, by whom they’ll be funded and how their legal status will be established and subsequently protected.
Then there’s 5G. The standard setters (by default, China today) for this new technology may end up, de facto, controlling the whole ecosystem. This could include everything from autonomous delivery trucks to refrigerators. No wonder America is trying so hard to pour treacle in the gears; and telecom is just the tip of this technological development iceberg.
The AIIB, set up in 2013, is another unapologetic China-driven statist creation. Here though with the goal of providing an alternative to the Western controlled World Bank. With eighty seven members including all the world’s major economic actors (absent Japan and the U.S.) it’s been a diplomatic triumph. Unlike the World Bank that’s, sort of, controlled by the U.S. the AIIB, with it’s China based headquarters, staff and Chinese President is, no messing, a China gig.
The authors then detail the large and increasing number of Free Trade Agreements, bilateral and multilateral deals China’s signed in recent years. In many cases agreements begin as simple trade pacts but morph over
time into broader agreements on all manner of related issues such as investment and standard setting and it’s always with China in the driving seat.
Before getting to their conclusions there’s a very useful detour into where China stands on protection of intellectual capital and how it’s getting better at this; but, largely it seems, as a response to China Inc. having more to protect now.
The Paper’s conclusion is bleak. If China continues with it’s development strategy (as it seems it will) the world is setting up for a clash of trade ideologies that could split into competing trade blocs. On the the one hand there’ll be the old liberal multilateral legal order promoted by the U.S. and, on the other, a China promoted hub-and-spoke system of trade and investment agreements that could, in time, become ‘..a giant, regional, Sino-centric economic order.’
The shorthand for the above being an economic ‘Cold War’. We should all be very concerned as present trends seem likely to persist. Throw some zesty nativism in on both sides and the prognosis is downright depressing.
Happy Sunday?
[The paper in full is worth the longer read and can be accessed via the following link A New Chinese Economic Law Order?]