Study sees US, China as global economic referees

As the world's top economies, the United States and China should pick up where international bodies have failed and assert leadership to better govern the global economy, two academics say in a new study.

"In our perspective, both China and the United States need to be more responsible stakeholders," said Scott Kennedy, director of Indiana University's Research Center for Chinese Politics and Business.

At a talk in Washington on Thursday with his report co-author, He Fan of the Chinese Academy of Social Sciences, Kennedy borrowed the now-familiar phrase from a 2005 speech in which then-US deputy secretary of state Robert Zoellick urged China "to become a responsible stakeholder" in bodies such as the World Trade Organization.

"His point was that he hoped China would not only live up to its commitments that it had made to the WTO and other international organizations, but that it would take on more of a leadership role — a productive leadership role — in these various organizations," Kennedy said. "We think that's true, but we think the same is exactly true for the United States.

"Just as (with) China, there are times when the United States doesn't live up to its commitments and doesn't play the leadership role that it ought to play in global governance" over trade, investment and finance, he said while presenting the report at the Woodrow Wilson International Center for Scholars.

Kennedy and He wrote that global governance has "stalled", citing examples such as the WTO's long-suspended Doha round of trade negotiations and a less-active role by the Group of 20 countries in addressing frictions in the world economy. The leadership vacuum has led to protectionism, a reliance on bilateral or regional trade agreements, and nations' increased willingness to use "monetary expansion" — sometimes called "printing money" — to deal with crises.

Tensions between the US and China have kept them from asserting a joint role in overseeing global economic rules, they said.

"Global governance isn't about just making everyone agree with each other. It's about coming up with rules to manage, in a systematic way, competition as well," Kennedy said.

The authors recommend four ways for the US and China to provide better global economic stewardship: "clean up their own houses", which for Washington means resolving political gridlock over fiscal policies, and for Beijing, avoiding the "middle-income trap", promoting innovation, improving the quality of healthcare and education, and strengthening the social safety net; elevate their Strategic and Economic Dialogue to a forum at which the countries' presidents regularly meet to solve problems, not just talk; "proceed with caution" in negotiating regional trade zones so they don't impede broader trade; and create a roadmap for China's entry into the 34-member Organization for Economic Cooperation and Development, based in Paris.

As for bilateral investment, He pointed out that despite Chinese investors putting a record $6.5 billion in US enterprises last year, the US share of foreign direct investment into China is steadily shrinking.