China’s role in the multilateral trade system

The last few years have seen a dramatic change in the rationale behind China’s foreign policy and a significant realignment of its security and economic interests. Our most recent analysis shines a spotlight on these changes, focusing explicitly on the increasing importance of the People’s Republic of China (PRC) in the multilateral trade system.

China’s accession to the World Trade Organization (WTO) in 2001 had unprecedented consequences. The development saw the PRC become the largest export country in the world and the second biggest economy after the US. Before the pandemic hit, it was also among the top three destinations for foreign direct investment (FDI). However, the implications of China’s WTO membership extend far beyond business and economic aspects. Within the WTO and the United Nations (UN), as well as in the context of other rounds of negotiations, e.g., regional or bilateral trade and investment talks, the country has dramatically increased its political clout.

In order to place China's growing influence in context, the Asia-Pacific Department and the Geneva Office of the Friedrich-Ebert Stiftung (FES) published a joint analysis entitled »China’s Role in the Multilateral Trade System«. The report seeks to provide a more in-depth understanding of what is driving China’s new foreign trade policy and how the country’s growing power, both within and outside the multilateral trade system, is set to influence relations with other regions and economic powers in the future. At the same time, our analysis also reflects on how the European Union (EU) might respond to China’s new multi-level strategy, bilaterally, within the WTO, and in other international forums. The report is based on background research and numerous interviews with actors from politics, business and academia.

The analysis comes to the conclusion that China’s foreign trade strategy is increasingly shifting from convergence to divergence. Beijing has, for example, become more sceptical about the existing WTO rules and, since 2012, has increasingly sought to selectively decouple from the WTO in order to establish new rules and trade areas. At the heart of the country’s new strategy is the creation of a China-centred system of regional leadership, characterised by government-led infrastructure development. Notable examples here are the new Belt and Road Initiative (BRI) and the successful establishment of the Asian Infrastructure Investment Bank (AIIB). This approach largely reflects China’s internal development experience over the past four decades.

China is likely to sustain this more assertive approach and multifaceted foreign trade strategy for at least another five to ten years. This change is not only rooted in the domestic economy but also reflects the Chinese elite’s new-found appreciation of the country’s own history and its most recent experience of global economic governance. Beijing’s strategy has both multilateral and regional dimensions. At the global level, China’s aim is to continue to increase its power and influence in the existing economic institutions with a view to changing or challenging the dominant position of the US. By founding new regional institutions and networking through free trade agreements, China seeks to become more independent and further promote its economic and political interests.

That being said, our study notes that, during the WTO’s ongoing trade talks, China has demonstrated willingness to be more flexible, as it continues to benefit from the system, both directly and indirectly. This is where the EU comes in. On the issue of a multilateral trade system in need of reform, the EU must continue to play a mediating role between China and the US. Unilateralism could cause the system to implode. At the same time, our analysis also concludes that the EU must prepare for increasing geopolitical and economic tension with China by equipping itself with an even more extensive »toolbox«. Additionally, at the global level, Europe must take on a stronger leadership role when it comes to issues of social and sustainable development. In this context, a more strategic response to China’s new Belt and Road Initiative (BRI) also remains necessary.