China’s emerging institutional statecraft

The Asian Infrastructure Investment Bank and the prospects for counter-hegemony

U.S. dollar and Chinese yuan

China is a rising power that is confronting an age-old geopolitical problem: what does it do with its new and growing capabilities? How does it project power and turn power into purpose? How does it gain more control over its geopolitical environment, within Asia and the wider world? Rising great powers inevitably find themselves with growing stakes in how the world is organized, and they seek to help shape that regional and global environment. As their capabilities increase, the instruments of statecraft available to rising powers expand in potency and scope. In this paper, we focus on the building of new international institutions, and specifically ask: how can China use new international institutions to advance its interests? This question is of greatest salience at the level of the international system, and the prospect of China building a network of “counter-hegemonic” institutions that successfully challenge—oppose and undermine—the U.S.-led global and regional institutions and the order they help sustain.

In this paper, we focus on the building of new international institutions, and specifically ask: how can China use new international institutions to advance its interests?

The United States established its international position through the building of a wide array of international institutions—global and regional, economic, political, and security. These institutions have been integral to the rise of the postwar liberal international order. As China’s rise is occurring within this established system of institutions, we begin our inquiry by asking how China is engaging, confronting, and making choices about these institutions and this order. And indeed, China is doing lots of things with international institutions. First, it is increasing its level of participation and engagement with existing multilateral institutions. Second, it is building new institutions, such as the New Development Bank (NDB, formerly referred to as the BRICS Development Bank), the proposed Regional Comprehensive Economic Partnership trade agreement (RCEP), and most prominently the Asian Infrastructure Investment Bank (AIIB). We focus on China’s creation of new multilateral institutions because it sharpens the questions we want to ask. China is operating within old institutions and in various ways trying to create new ones. So how can we make sense of China’s choices about how to use international institutions as tools and sites for the pursuit of its interests? Or, put differently, what is the logic of China’s emerging “institutional statecraft?”

There is a lively debate on China’s engagement with global and regional multilateral institutions. In many ways, Robert Zoellick framed this debate in 2005 with his “responsible stakeholder” speech. The question Zoellick asked was: would a rising China integrate into, and share responsibility for leading, the world’s governance institutions? American and Western policy has long been premised on this anticipation. But observers disagree on the manner and extent of China’s embrace of the postwar multilateral system. Some see China following the path urged by Zoellick in joining, for example, the World Trade Organization (WTO) and playing constructive roles in a wide array of multilateral institutions. After all, China is an active member of most of the major multilateral organizations. Others emphasize China’s search above all for pragmatic solutions, a strategic approach that requires active participation and engagement with much of the existing order, but also the use of leverage to extract concessions. And there are those who argue that China is embarked on a very different path, seeking to undermine and work around the existing system of multilateral institutions. The AIIB and NDB are seen as harbingers of a growing split between China and the U.S.-led liberal international order.

In seeking to illuminate China’s emerging institutional statecraft, we offer four contributions. First, we argue that it is important to place China’s recent actions to create new, potential rival institutions within the wider context of its engagement with regional and global institutions, and the broader system of existing multilateral rules and institutions. China is deeply involved in some multilateral organizations and regimes, and it resists others; how should we characterize this pattern? It is also important to distinguish between different possible meanings of “the existing international order.” American hegemony, liberal internationalism, and the deeper systemic foundations of sovereignty and state primacy are three layers of this existing system, and China has varied orientations toward each.

Second, we propose a typology of the various choices or strategic stances that China—or other rising states—might take toward old or new international institutions. These choices can range from joining and operating within an existing institution to outright non-involvement and acting outside of established institutional frameworks. Between these extremes, China can choose to operate from within existing institutions, either to enhance its position through seeking the redistribution of decisionmaking authority, or by using its influence to obstruct and contain the progressive evolution of the liberal rules, practices, and norms of an institution in ways that threaten China’s interests. Alternatively—and this is the major focus of our paper—China can seek to create a new international institution.

Third, we examine the case of the AIIB—a recently created China-led multilateral development lending institution—to help illuminate the logic of institutional creation as a strategic choice and tool of statecraft, including its opportunities, limitations, and likely impacts. Institutional statecraft may in some ways reinforce China’s integration into, and stakeholder role and position in, the international system, while in others it may present various sorts of challenges to the existing system of rules and institutions. We seek to sort out these pathways and identify their implications for the United States, both in the context of development lending and the broader liberal international order.
Fourth, we use the AIIB example to anchor a more specific inquiry into China’s creation of new institutions for “counter-hegemonic” purposes. Here we offer some ideas about the logic of counter-hegemonic institutionalism—identifying the ways China could use new institutions as part of a strategy (1) to achieve reform of certain rules, practices, and norms of the existing system of institutions and the issue areas they regulate; (2) to increase its influence and authority within the existing system of institutions and liberal international order, and accordingly reduce that of the United States; and/or (3) to propagate rules, principles, and norms that could form the basis of a rival international order. We offer overall conclusions about counter-hegemonic institutional strategies, and the limits on China’s ability to pursue them. We argue that multilateralism requires other states to participate, by definition, so China’s ability to wield new institutions as “instruments” of its political and economic goals has limits. Moreover, as the existing institutional order has rules and institutions that China can use to pursue and defend its interests (particularly those relating to sovereignty norms), China’s struggle to gain advantage and voice may draw it further into the existing system.

In the conclusion, we consider how our analysis may be shaped by Donald Trump’s victory in the U.S. presidential election. To what extent will hostility from the Trump administration to multilateral institutions, and liberal internationalism more broadly, affect the efficacy of China’s institutional statecraft? China’s approach will not involve a singular decision either to “engage and integrate into” existing regional and global institutions, or “oppose and undermine” these institutions. It will make a range of choices, precisely because institutions can serve a wide variety of purposes for leading and emerging states. However, if the purpose and/or efficacy of existing institutions evolve dramatically under a Trump presidency, China’s choices likewise will change. To the extent that the institutions that underpin the liberal international order are well-functioning, enjoy widespread legitimacy and, most importantly, deliver China significant benefits, Beijing may see the need to become a more activist defender of the status quo. However, in situations in which China and the Trump administration share antipathy to the liberal character of certain institutional practices, these will face mounting pressure to change, or simply be ignored. Nevertheless, attempts by China to enshrine new rules, practices, or norms will require the cooperation of other states and thus compromise from Beijing. Defenders of the liberal international order can therefore take heart that while compliance rates may fall, an illiberal alternative is unlikely to take its place.