Study sees US, China as economic referees for globe

As the world's top economic powers, the United States and China should pick up where international bodies have failed and assert leadership to better govern the global economy, two academics argue 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 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 in presenting the report at the Woodrow Wilson International Center for Scholars.

Kennedy and He write that global governance has "stalled", citing examples such as the WTO's long-suspended Doha round talks and a less active role by the Group of 20.

Tensions between them keep the US and China from asserting a joint role in overseeing global economic rules. Among these: "contested identity", with China generally classified as a developing country but one with vast resources, growing middle-class prosperity and powerful State-run enterprises that compete with US companies; contrasting approaches to governance, with the US favoring participation of business groups but also other nongovernmental organizations in the rule-making process and China favoring industries as key influences; and the two countries' conflicting interests in some economic areas.

"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 both countries to provide better global economic stewardship: "clean up their own houses", which for Washington means resolving political gridlock over fiscal policies and for Beijing means avoiding the "middle-income trap", promoting innovation, improving the quality of health care 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 Organization for Economic Cooperation and Development.

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.

"This investment has become one of the most heatedly debated topics in the bilateral relationship," He said, pointing to a chart listing deals undone by politics, including China National Offshore Oil Corp's 2005 bid for Unocal Corp and the 2011 attempt by networking-gear maker Huawei Technologies Co to acquire 3Leaf Systems Inc. "This makes many Chinese people feel that whenever a Chinese company tries to invest in the United States, the instinct of some American politicians is to shoot it down."