"Changing" and "New Normal" on the World Economic Scene

Cooperation in the context of competition? Or competition in the context of cooperation?

In the age of economic globalization, various economic entities are using be-nefit as the starting point for handling their international economic relationships, in order to seek their own economic development. If we say that the foundation for international politics is authoritarianism, then the foundation for international economics is benefit. Driven by benefits, it is sometimes hard to distinguish coo-peration and alliance from ruthless competition—they are just one step apart. Competition promotes human improvement, and cooperation and alliance can reap huge benefits from scale and mutual complementation. Hence cooperation and competition are objective existences created out of market forces in the process of economic globalization.

Whether it is between developed economies, or between developed economies and developing economies, or between developing economies, cooperation and competition co-exist in trade activities. Moreover, the deeper and more developed the cooperation is, the fiercer and more diversified the competition is.

The reason why developed economies and developing economies can cooperate with each other is partly because the former put more emphasis on gaining the right of entry into the market, while the latter are more keen on acquiring advanced technology and management experience. The reason why competition exists among developing economies is that in terms of economic structure, endowment of essential factors, levels of demand, and technology, there is less discrepancy and mutual complementation, and the asymmetry of co-dependence is weaker. Hence, there is often conflicts of interest and competition in introducing foreign capital, acquiring international aid, and scrambling for export markets.

International trade is on the one hand the direct realization of economic competition—it has created the imbalance of the world economy, and on the other hand the preliminary form of economic cooperation—it ensures that among the various economies and between tangible commodities and intangible commodities, there is mutual communication, effective allocation of resources, and the re-allocation of wealth.

Wintelism, which is jointly built by US companies Microsoft and Intel, is the micro-foundation of the US New Economy and the restructuring of global production.

Under Wintelism, the global production network is the medium-view platform for the operation of "competition-cooperation". It ensures that competition takes place in a benevolent and orderly direction, and the promotion of coo-peration can be sustained. The "invisible hand" of the market, through the global production network, promotes from bottom to top the competition and cooperation among different economies, forming the mode of "competition-cooperation" in the context of international economic relations.

The present world has become a system of cooperation among three major regions. There are the European Union (EU), the North American Free Trade Area (NAFTA), and the Asia Pacific Economic Cooperation (APEC), the China-ASEAN Free Trade Area (CAFTA), and the ASEAN 10+3 conference system etc. Meanwhile, WTO, the system of cooperation among the above regions, as well as the various regional and cross-regional preferential trade agreements (PTA), forms the macro-platform for "competition-cooperation". To cope with the fierce competition under the conditions of economic globalization, the various economies use the promotion of regional economic integration as the strategic tool for gaining competitive advantage. In the first decade of the 21st century, we saw the formation of several, several dozen and even over a hundred bila-teral or multilateral PTAs—whether among developed economies, between deve-loped economies and developing economies, or among developing economies. These include PTAs formed inside the same region, and PTA formed across regions.

Since the start of the 21st century, China has become a key player in global import and export trade, and the largest trade partner for many economies. It has even become the hub and center for processing and manufacturing in the global production network. China is implementing an integrated trade cooperation stra-tegy that seeks harmony at the global and regional level, so as to participate in international economic cooperation on a larger scope, on a higher level, and to a greater depth.

On the one hand, China is actively participating in the multilateral trade system of the world, playing a constructive role in the WTO Doha round，submitting over a hundred proposals, and entering into the core of world trade talks, in order to promote a more open and fair environment for international trade. On the other hand, China is focusing on reopening bilateral and regional economic and trade cooperation. Cumulatively, it has set up 163 bilateral trade cooperation mechanisms and signed 129 bilateral investment agreements, gradually becoming the mastermind of the regional economic integration.

China has signed 10 free trade agreements (FTAs) with developed and deve-loping economies, such as New Zealand, Singapore, Chile and Peru, and another 6 FTAs are under negotiation. 2010 saw the official establishment of the China-ASEAN Free Trade Zone, which has become the largest free trade zone among developing countries, and China is actively promoting the process of integration of economies in East Asia. By the end of 2010, China was negotiating a total of 14 FTAs, involving 31 countries and regions, with the total bilateral trade volume reaching US$521.3 billion, accounting for one quarter of the foreign trade total.

While strengthening dialogue and deepening cooperation has become the main tune in the handling of international economic affairs by various countries, the various economies have never ceased to engage in real and potential competition. For instance, in the realm of clean energy, China-US cooperation has entered into a real stage, and in the fight for the more say in the global new energy field, the two countries are the strong and direct competitor of one another. In October 2010, the Office of the United States Trade Representative applied the Clause 301 of the 1974 US Trade Laws in launching an investigation into the case of "unfair assistance", where the US iron and steel labor union accused the Chinese Government of implementing a protectionist strategy against the US in the field of new energy, including wind energy and solar energy. Now, the China and US competition for new energy has emerged into the foreground.

In the various forms of coopetition， the various economies can establish be-neficial interaction on the macro and micro levels. As a result, the competition-cooperation manifested an active stance of upward spiraling, causing positive effect. The passive effect of competition-coopetition mainly originates from coo-peration, including economic growth, trade and investment expansion, and the rise in the people's welfare standard. Meanwhile, the dynamic effect mainly stems from competition, including the upgrade of the production structure, rise in competitive advantage, and the strengthening of the overall external competitiveness. Under the counter-balance of market regulations and benefits, the various forms of coopetition has formed a win-win scenario of mutual benefit.

Among the various economies, the most militant form of trade competition is trade friction. In the first decade of the 21st century, we see imbalance among various economies, competition between industry and trade structure, exclusivity of regional trade groups, contradiction of trade benefit allocation, and politicization of trade issues. All of these exacerbate the onset of protectionism in international trade.

The various economies used a range of new and old tools for trade relief, including anti-dumping, anti-subsidy, special safeguard measure, TBT, SPS, technological and labor standards, corporate social responsibility, and green barrier, all with an aim to strengthening the protection for domestic industries and the domestic market.

We should say that the status of economic globalization as at today is that with the strengthening of the mutual dependence among various economies, it is virtually impossible for them to return to the days when they were self-sustaining, and segregated from their neighbors. Today, trade protectionism mainly manifests itself in the full application of the traditional anti-dumping, countervailing, and special safeguard measures—under the banner of fair trade. Meanwhile, the new measures for trade protectionism include various technological barriers such as product quality standards, TBT,SPS and health checks.

Moreover, trade friction is growingly impacting more and more economic and social realms. Conservation and emission reduction standards, social security and exchange rate mechanisms have started to become a cause of friction.

With Chinese exports sweeping across the international markets, there appeared an unending range of tangible and intangible trade barriers against traditional Chinese export commodities and some high-tech products. According to WTO statistics, China has, for 17 consecutive years, been the WTO member that has been investigated for anti-dumping and countervailing allegations. Indeed, about 35% of the anti-dumping cases and 71% of the anti-subsidy investigation cases in the world involve China.

Since 2010, the European debt crisis and the US debt crisis have led to the instability and imbalance of the global economy. Under these circumstances, China has become a heavy disaster zone in respect of international trade protectionism.

On the one hand, China actively exercises its rights as a member of the WTO, resolutely safeguarding its national interests and the interests of the industry, and appropriately addressing trade frictions. On the other hand, China has taken solid actions against trade protectionism. In 2008, as the international financial crisis was growing, China organized over 30 merchandizing tours to other countries, to promote Chinese imports and to expedite direct external investments.

From the time China entered into the WTO to the first quarter of 2013, China became the victim of trade relief 842 times, involving a total of US$73.6 billion. In the entire 2010, China's export products fell victim to trade relief investigations 66 times, involving about US$7.14 billion. In 2011, the Spanish Go-vernment introduced a policy against the import of shoes, benchmarking Chinese shoes imported into Spain against shoes in the customs catalog that are of similar style and material. If the declared prices of the imported shoes are lower than what is in the customs catalog, the shoes will be impounded. It is only after the shoe merchant has paid the surplus customs taxes, value-added taxes and the re-levant fines that he can retrieve his commodities. Meanwhile, over 40 US major merchants started on 1 December 2011 to implement a new industry standard, laying restriction on the lead content of briefcases and shoes. This new standard may apply also to waist belts and other fashionable accessories.

According to the statistics of the Ministry of Commerce of the People's Republic of China, there were 19 countries or regions initiating a trade relief investigation against China in 2013, with a total of 93 cases, an increase of 17.9% over 2012. Judging from the number of cases, the increase was rather fast.

Among these, 72 were anti-dumping investigations, 14 were anti-subsidy investigations, and 7 were related to protective measures.Moreover, the US initiated 19 cases of "337" investigation against China, an increase of one case as opposed to 18 in 2012. Apart from the drastic increase in the number of cases initiated by developed economies, the cases initiated by newly emerged industrial nations and developing countries are also on the increase. Judging from the data we have at present, China has been the country with the largest number of anti-dumping investigations for 18 years running, and of anti-subsidy investigations for 8 years running. China is still the largest victim of trade protectionism. For instance, the European Union initiated anti-dumping and anti-subsidy investigations against photovoltaic products from China, involving as much as US $20.4 billion, jacking up the total sum of money involved in cases involving China. Although this trade friction case was successfully resolved as a result of direct meetings at high levels between China and European countries, a shadow of distrust still remained in the trade relations between China and Europe. If the anti-dumping and anti-subsidy investigations by the European Union against Huawei and ZTE in respect of their telecom and wireless products in 2014 finally ends up in putting on record， it will possibly become the "double reverse", anti-dumping and countervailing investigation against China involving the largest amount of money.

As the ultimate consumer of global products, the US has continued to criticize China's RMB exchange rate mechanism and China's trade policies. However, the fact is that the US is the largest beneficial owner from its trade relations with China. On the one hand, the US asks China to protect its intellectual property, but on the other hand, it imposed lots of restrictions on the import of its high-tech products. On the one hand, it enjoys various preferential treatments in its investments in China, but on the other hand, it imposed various hurdles and barriers on Chinese enterprises investing in the US. All of these act against the principles of international trade, which are mutual benefit, fairness, and mutual complementation.

"Happy alone" or "happy together"?

In Confucianism, there is an anecdote that Mencius suggested to Emperor Liang that "being happy alone is not as good as being happy together",or"enjoy-ing happiness alone is not as happy as sharing it".

When this logic is applied to the current global economic scene, we have a new term "inclusive growth", or "shared growth". This has even become a mega trend in world economy (see Figure 1.1).The term "inclusive" means "widely inclusive, inclusive, and the ability to include". The term "inclusive growth" was first raised by the Asian Development Bank in 2007, and is a concept being perfected in recent years by various international economic organizations. Being inclusive means bringing things together to the benefit of others. Sharing means refusing to enjoy benefits alone, or being great alone.

Inclusive growth means that inside the same economy, more people can enjoy the benefits of globalization, and the disparity between the rich and the poor is reduced. It also means that in the world economy, the disadvantaged groups, industries and economies can be better protected, and the global disparity between the rich and the poor is lowered. Furthermore, it means that in the process of pursuing world economic growth, the resources and environment for human survival are protected, and the harmony and balance between man and nature are realized.

Inclusive growth advocates that only with more comprehensive and balanced development can we overcome the defects of pure development economy, so that economic growth can take place in parallel with improvements in society, people's livelihood and the sustainability of resources and the environment.

Figure 1.1"Inclusive growth" is the coordinated development between different interest groups,and between economy, society and the environment.

First, there is change in the allocation of global resources, and as a result, the contrasting forces in the world economy become more balanced. More and more newly industrialized countries are included in the global allocation of production and capital.Brazil,Russia,India,China and South Africa (BRICS) are becoming an important driver in the growth of the world economy.

Let's talk about the newly industrialized countries themselves. In the current world, most of the newly emerging economies are growing faster and stronger than developed economies, and this offsets the economic recession of other markets. In the global economic development process, these countries have a growing voice and have more say in pricing. Hence they play an indispensable role in the global allocation of resources. From 2001 to 2010, the rate of economic growth in newly emerging economies exceeded 6%, far higher than the 2.6% among the developed countries and the global average of 4.1%.

In 2010, the GDP growth rate of China, India and Brazil reached 10.3%, 9.7% and 7.5% respectively. Although in 2012-2013, the economic growth of BRICS countries slackened due to unfavorable external and internal factors, they still remain the newly emerging markets with the highest potentials, and also the engine of growth in their respective regions.

The influence of the BRICS countries on the international market is growing by the day. In the market for bulk commodities transactions, China's need for petroleum, metallic ores and soybeans, the supply of petroleum and natural gas from Russia, as well as Brazil's supply of ferrous ores and coffee, are all major supply-and-demand forces in the international market, with significant impact on the market prices of bulk commodities.

Since the Ukrainian crisis in 2013, Western countries are blaming Russia, and implementing several economic sanctions against it. In August 2014, Russia took resolute anti-sanction measures, imposing for one year an embargo on goods from countries sanctioning it. As Russia is embargoing agricultural products from Europe, the European Union has allocated hundreds of millions of Euros to compensate for the economic losses suffered by agricultural organizations in Europe. In the international financial market, BRICS countries have considerable foreign capital. The changes in the allocation of offshore capital of BRICS countries, as well as changes in international capital flow, are already having a huge impact on the exchange rates and interest rates of major currencies.

At the same time, the commercial models of newly emerging economies are evolving. Economies of scale, coupled with high-tech innovation, have become the general choice for newly emerging economies. They are all working hard to achieve intensification of production, developing high-tech industries characterized by the use of new energy, energy conservation, electronic information, and biological matters. They are also forging ahead in structure optimization and upgrading, in order to form a modern production system that fits the special features of the domestic resources.

Moreover, the establishment of the multilateral mechanism of the"Chiang Mai Initiative" worth US$120 billion and the regional internal markets in the Asian bonds market enable the economy of the newly emerging economies to acquire a deep and active development momentum.

From the perspective of the characteristics of the global production network, we can see that with module formation and concept of breaking in becoming the basic logic in modern industrial production, the development trend on the international production scene is polarization and sharing of the value chain. Meanwhile, the integration and disintegration of the various production stages of the production value chain has become the norm in international trade.

As the hub of processing and manufacturing in the East Asian production network, China can, on the one hand, integrate various economies at different stages of development into a new international production system, so that all the players have the chance to take advantage of their own specific strengths and be-nefit from the huge contributions of economic globalization. And on the other hand, as an active player in the flow of global commodities and basic factors, China is also evolving from its export-driven development strategy to a strategy that promotes trade balance.

In China's import needs, the portion that satisfies "indirect needs", comprising spares and parts as well as intermediate products for goods for export to US and European markets is gradually shrinking. On the other hand, the parts used to satisfy China's own "direct needs" in consumption is gradually on the increase.

The flow and origin of the global FDI provides another perspective from which to look at the inclusive growth of the world economy. Developing countries like China, as well as transit economies, are year by year providing essential support for the growth in global external direct investments. The total foreign capital they attracted in 2010 was already on a par with developed economies.

After the US subprime crisis in 2008, the world financial centers of Wall Street and London City were hard hit, and their capabilities in the allocation of global resources were undermined. This provided a good opportunity for Chinese enterprises, due to their own interests in the global allocation of resources. Indeed Chinese capital has really "gone global".

In the process of merging and integrating global capital and technology, China is evolving from "world factory" to "world investor", from "receiver" to "creator", and from a "recipient" in international political and economic incidents to a "participant". In the final stage in China's 13th Five Year Plan, as the "Chinese people's economy" (manifested as GNI) chases after "China's economy" (manifested as GDP), there is hope that China will achieve balance in the inflow and outflow of capital. This will be an important step as China evolves from a "big country" into a "great nation".

Furthermore, there are changes in the global pattern of production. The growth in the world economy has returned from a dependence on virtual growth in demand to a mode that depends on real growth in demand. The high prices of oil have brought the global mode of production to a state where there is adjustment to inclusive growth.

On the one hand, since the subprime crisis emerged in the US, market forces have started to adjust from a mode of resource allocation driven by a virtual econo-my with an excessive rate of return. And developed countries have started to adjust in the direction of reviving the manufacturing industry.

Gordon Brown, then British Prime Minister, was the first to propose that Britain needs to revive its manufacturing industry. Then US President Barrack Obama also stressed the US needs to double its exports and create 2 million jobs by the end of 2015.

At the end of 2009, Warren Buffett acquired the BNSF, and this made people feel that the tycoon is betting on businesses that strive to revive the manufacturing industry. Then the European Union stressed in 27 countries that the manufacturing industry needs to be developed. Then Japan also stressed that the revival of the manufacturing industry is imperative. When newly emerging economies are more and more inclined to use the domestic market demand to drive the growth of the domestic economy, export growth that faces the emerging markets will become essentials in reviving the manufacturing industry in developed countries.

On the other hand, the sustained rise in international oil prices has continued to escalate the global transportation costs. This created uncertainty in the pattern of allocation of essential factors in the international market and in the determination of the prices of essential factors. At the same time, it poses a challenge to the mode of global production and sale.

Many multinational companies have been abandoning the global mode of production and sale in order to save the cost of long-distance transportation. As a result, they moved their production lines and assembly lines back to their own country or neighboring countries. In the US, a lot of electronics manufacturers have moved their production facilities from China to Mexico, which is closer. US consumers have found that more and more commodities are bearing the label "Made in USA". Following Nike's closure of its only factory in China—the Tai Cong Factory—in 2009, Adidas' China headquarters closed in 2012 their only directly managed factory in China's city of Suzhou. Meanwhile, shoe-making giants like Clarks, K-Swiss and Bakers are all setting up production lines in Vietnam and Indonesia. With foreign enterprises moving their production lines from China to Southeast Asian countries with even cheaper essential factors, the goods on US supermarkets are not just Chinese goods, but goods made in various countries. Diversification has begun.

Furthermore, there is now diversified competition in the international currency system. Global gaming is moving towards multi-polarization. The expedited process of regionalization and internationalization of RMB has raised widespread concern in the international community.

First, the US dollar is still at the core of global foreign exchange reserves as well as international payments and clearing. However, its hegemonic position is on the wane. Various countries have set up diversified reserve pools, and are demanding the use of their own currencies for clearing in international trades. This is an attempt to make adjustments to the single-currency system.

Second, the Euro, as a product of the era of integration of European countries, is facing serious challenges. However, there is still the political aspiration for Europe to move towards unification. As long as the three major economies in the Eurozone—Germany, France and Italy—are not keen on overthrowing the Euro, the Eurozone will continue to exist.

Third, China's surplus in current account and capital account maintained for over a decade, has progressively raised the international competitiveness and influence of RMB. In 2006, the international market liquidity of the RMB overtook the Japanese yen. In ASEAN countries as well as in Hong Kong, Macau and Taiwan, there is remarkable growth in the flow and deposits of the RMB.

According to data released by SWIFT in October 2014, the RMB has risen to 7th rank in the league table of global major payment currencies. And about two years prior to that, the RMB was still in 14th position. With the progress of the Chinese financial market and its financial regulatory system, China's capital account is progressively opening up. The establishment of the Shanghai Free Trade Zone in 2013, and the pilot scheme of the Shanghai-Hong Kong Stock Connect, are both conducive to the opening up of China's capital account and the internationalization of RMB.

Following Nigeria and Thailand announcing their inclusion of RMB into their foreign exchange reserves basket in September and November 2011 respectively, Saudi Arabia also announced that they are including RMB in their foreign currency reserves basket, in a bid to realize the diversification of their foreign currency reserves.

In July 2012, the central bank of Indonesia started to buy securities based on RMB issued by China, and it also included RMB assets in their foreign currency reserves basket. It is estimated that in the global foreign currency reserves, RMB assets account for about US$15 billion to US$20 billion. Apart from some countries like the Republic of Belarus that have used RMB in their foreign currency reserves basket, some developed countries have secretly included RMB in their domestic foreign currency reserves basket. The issue of RMB bonds by the United Kingdom in October 2014 further testifies to the stable progress of internationalization of RMB.

Finally, the international cooperative effort to combat climate change has made considerable progress, and China has made significant contributions in this. In recent years, China has been the most active country in implementing measures to conserve energy,to reduce emissions, and to compensate their environmental deficits.

In December 1997, the United Nations Framework Convention on Climate Change held its third meeting in Kyoto, Japan. It passed the Kyoto Protocol, aimed to impose limitations on developed countries in their emission of greenhouse gases. According to the Kyoto Protocol, the emission of six types of greenhouse gases, such as carbon dioxide, by developed countries must be reduced by 5.2% in 2010 as compared with 1990. The US refused to accept this agreement, stating that it would hinder the country's economic growth, and complained that the Kyoto Protocol did not include countries like China and India in reducing their emissions. In April 2001 and December 2011 respectively, the US and Canada withdrew from the Kyoto Protocol. Meanwhile, Japan and Russia have grown passive, while the leadership of the European Union in managing global climate change has weakened.

Objectively speaking, developed countries are willing to bear responsibility for their "luxury emissions". However, they fear that without the cooperation of the newly emerging industrial countries and the developing countries, their effort would be futile. Meanwhile, newly emerging industrial countries that are undergoing "survival emissions" fear that the reduction of emissions would hamper their industrial development. On the other hand, numerous developing countries are concerned about the source of capital and technology needed for emissions reduction, and whether newly emerging and developing economies can really benefit from emissions reduction in fulfillment of their pledges to reduce emissions. Hence without the cooperation of the north and the south, and without considering the development issue of "inclusion", it would be difficult to have fundamental progress in the reduction of emissions.

From the Copenhagen Convention in Denmark in 2009,the Cancun Convention in Mexico in 2010,the Durban Convention in South Africa in 2011,the Doha Convention in Qatar in 2012,and the Warsaw Convention in Poland in 2013, we can see that the pace of solid progress in international cooperation in combating climate change is still labored, and quarrels among representatives from different countries are fierce. But what we can also see is the aspirations of newly emerging economies are adequately expressed.

It is well known that on the basis of the current pattern of global production network and production activities, the role of developing countries like China in the global production chain—processing and assembly—is characterized by low value added and high carbon emissions. However, the large quantities of products are eventually consumed in the developed countries. The principle of "whoever consumes will pay" seems to be more reasonable and fair in the context of emissions reduction. Regarding the carbon emissions in the production process, it is feasible that the tax is levied in the phase of consumption. The "greening" of the production process and the "greening" of the consumption process are both indispensable. China has raised and held onto the principles of "common but differentiated responsibilities" and "affordability of different parties", and this has produced a constructive effect. Indeed, with sincerity, determination and faith, China has projected the image of a responsible great nation.

"Multi-polarization" or "non-polarization"?

Economic globalization suggests that a "unified market" is progressively formed at the global level, and the two "parallel markets" during the cold war between the US and the USSR is gone forever. Today, the economic activities of the various economies are intertwined—there you have me, and I have you, and we are dependent upon each other. This also suggests that the "market game rules" are progressively formed on a global basis. In other words, the general rules and mechanisms that regulate economic activities are established on the global scale.

Under these conditions and in this environment, the benefits derived from a unified market and a unified set of game rules are being allocated on a global scale. Although economic globalization can benefit the participants, yet the scale of benefit is definitely not balanced. The power structure in the global economy led by developed countries is hard to change in the short term.

The weighting of developing countries in the world economy is still much lower than the developed countries. If the developing countries wish to play a key role in the development of the world economy, they still need to go a long way in gathering strength. The contrasts in economic strength on a global scale have not seen any dramatic reversal, and the transfer of the role of global economic hub from Europe and the US to the Asia Pacific will be a long process.

From the perspective of the distribution of world needs, there are about 7.3 billion people in the world today. China and India make up 2.6 billion, and they spend about US$6,000 billion a year. China has 1.3 billion people, and their total spending amounts to about US$4,700 billion. On the other hand, the US population is only slightly over 300 million, yet their annual spending amounts to US$11,000 billion. So it is clear which country is a bigger pillar of the world economy.

Under the circumstances where the supply is greater than the demand in the overall world economy, trade deficit is a manifestation of strength. The US takes advantage of its international credit reputation and provides spending credit through issuing excessive currency, to directly pay for imports, maintaining its status of being the final realizer and absorber in the global commodities market.

From the perspective of the new round of global growth points and innovation drivers, there is still a lot of uncertainty in the slow recovery of the global economy since the financial crisis in 2008.

Although the demands and innovations that are needed to drive the next round of rapid growth are still unclear, yet when we look at the Nobel laureates over the years, or where most of the applied technologies originate, we may come to the conclusion that the innovations that will lead the next round of rapid growth will probably come from the US. Meanwhile, new energy sources may be the area where the first breakthroughs will occur.

If we look back on the many results in the realm of high technology in the 20th century—from the semiconductors in the 1950s, the microcomputers in the 1970s and the biotechnologies in the 1980s to the IT industry in the 1990s, we can see that all of them were actively driven by the US, with the technologies transferred into the industries, creating huge economic benefits.

The multi-level financial markets provide a diversified range of financing and exit paths for various kinds of investors. Coupled with the socialization and internationalization of risk, the US is commanding a firm grip on the ability to be proactive in the international division of labor, and the peak point of command in international competition.

Since the beginning of the 21st century, the US has been skilled at using innovation to enhance the added value of its products and services. The source of value is the intellect, and the vessel for value is the intangible products.

There is much room for development when it comes to the value that can be carried by this kind of innovation, and the speed of innovation is far faster than the pace of improvement in the process of producing tangible products. Meanwhile, the risk of invisible waste and inventory depreciation is transferred to the newly emerging economies in East Asia, including China. The economy of apps and mobile wireless terminal businesses, boosted by Facebook, Google and Apple, has become popular in the US and other countries. The apps industry in the US alone has employed over 300,000 staff members, and the related games and virtual products have taken overseas markets by storm.

When it comes to the pattern of distributing benefits, whether in respect of the core businesses of key technologies as well as high-end spares and parts, or in product standards, business regulations and the global realization of the ultimate values, it remains in the hands of the major developed countries. They use stan-dards to integrate the global resources, forming a pattern of global production, distribution and interchange.

Developing countries like China mainly engage in the processing and assembly of products, and have yet to acquire an advantageous position in the key sections of the production chain, or to have control of the direction of flow of the global key resources, essential factors and the manufacture of products.

Generally speaking, if the time required for raw materials to be made into products and then delivered to the hands of the consumers is 100%, then the production time accounts for not more than 10%, while the remaining 90% is spent in the realm of logistics.

We know that developed countries command control of the research and development as well as the logistics, thereby reaping huge benefits. The US business giant Walmart has for many years topped the list of "Global 500" companies, and this is worth contemplating on. At the end of the first decade of the 21st century, Walmart has opened 358 shopping arcades in 133 cities in 21 pro-vinces in China, and 80% of the shopping arcades are situated in cities outside the top tier cities. In 2014, Walmart planned to open 30 new shopping arcades in China, and invest RMB 580 million in upgrading about 55 outlets, in order to enhance the customers' shopping experience and the operational performance of the shopping arcades.

Although China has grown up, yet basically it is still a developing country. And there is still a wide gap between China's total GDP and GDP per capita in the global ranking list. China's per capita economic strength is far behind the deve-loped countries, and its per capita GDP is less than one quarter of that of the US, and is ranked around 90th in the world. Even in terms of total economy, China is just slightly over one half of that of the US or the European Union, and the World Bank and IMF still categorize China as a middle-income country.

In terms of the productivity, self-dependent innovation and financial standard, China is still significantly lagging behind the advanced countries.

Jr. Charles Wolf, Senior Researcher at the Hoover Research Institute at Stanford University, stated that the decline of the US in certain indicators only signifies a relative decline. In certain realms that are hard to evaluate by data, such as systemic factors related to boosting the innovative spirit, as well as areas like culture, proprietary rights and law, the US is still commanding an advantage that is hard to match by other countries.

It took about 100 years for the US to overtake Britain as the world's number one economy, and it took Japan 30 years after the Second World War to rise from the ruins and rise to the status of the world number two economy.

China's total economy may overtake the US in the coming 15 years, and in recent years it has been "made" first in various areas. According to data published by the International Monetary Fund in October 2014, in terms of purchasing power parity(PPP), China's GDP in 2014 will reach US$17,600 billion, exceeding that of the US. However, in terms of market exchange rate, China's GDP in 2014 will be only US$10,400, far behind the US's US$17,400. However, although the significance of the GDP is extraordinary, yet it does not signify that China has overtaken the US in overall national strength, nor does it suggest the end of the international economic order and global scene led by US. As for fast dialing the super clock of China's total economy forward, it means the support of the RMB exchange rate and other political and economic issues, and we must have a clear mind around this（see Figure 1.2）.

Figure 1.2 A New Gambling Product：When Will China's Economy Overtake the US?

The "Intrigue" and "Love" in the World Economic Governance

"Crime" and "punishment" of global governance

People often say that the real world is complicated and complex, and not as simple and sublime as what poetry often suggests. What we are not aware of is that reality has its own fun and realism, and offers views of unpredictability. As the universe evolves, we may really be able to see what "utopia" looks like.

In the real world driven by benefits, there is fierce competition between countries, among which there is continuous distribution of benefits, interchange of positions, and adjustments of patterns. Allies and enemies may just be one step apart.

The changes in international relations, which look complicated, are pulled by just one thread—"national benefit". As the famous German chancellor Otto von Bismarck said frankly, "A country does not have permanent friends, only permanent interests. This statement may look a bit too indifferent, but still it reflects reality. The "reality" often look unfeeling, yet it is very real.

In 2008, the subprime crisis that originated from the US spread rapidly, evolving into the most serious global financial crisis after the World War Ⅱ. While it impacts various economies like gigantic waves, it also challenges the global political pattern after the disintegration of the USSR—a scenario where there is one super power and many strong nations. The US's domestic economy is worrying, as its dominant status is to some extent undermined. The major countries in Europe are under the shadow of crisis too, with many countries in the Eurozone trapped in the debt crisis. In stark contrast to the above is the fact that the newly emerging economies and the developing economies represented by China, India and Brazil, thriving on the speed and vitality of their steady economic deve-lopment, are becoming the new "engine" for the revival and development of the global economy.

Meanwhile, the economic strength of newly emerging economies like Brazil, Russia,India,China and South Africa(BRICS) is also constantly on the rise. In 2009, Russia and South Africa overtook UK and Canada and were among the top 10 strongest economies in the world. In 2012, India became the world's 10th largest economy. In the 2013 world economies league table, Brazil, Russia and India maintained their status among the top 10 (ranked 7th, 8th and 10th respectively)(see Table 1.1), although the ranking of South Africa slipped by a wide margin.

Table 1.1 World Top Economies 2013

Source：Statistical Data, the United Nations.

The growth in economic strength and the rise in international status have enabled newly emerging economies to play a more concrete role in the international arena. In the post-crisis era, developed countries and developing countries will, in the foreseeable future, reinterpret the history of benefit struggles, power struggles, economic strife, and the disintegration and restructure of alliances on an even broader stage. In any case, the adjustment and transformation of the gover-nance structure for the global economy will become one of the focuses of the ga-ming between the two parties.

Governance mechanism: can we perform "face changing"?

Nothing can be accomplished without norms or standards. Without regulations, the world will not be an easy paradise, but will be a chaotic "medieval age". To ensure the steady and healthy running of the global economy, members of the international community have established a comprehensive set of mechanisms, regulations and codes of practice, to ensure better coordination among macro-economic policies set up by various countries, and to jointly avert and address economic issues of a global scale. This set of mechanisms, regulations and codes of practice has become the "governance mechanism for the global economy".

The party that sets the regulations is naturally the benefactor from these re-gulations. The governance mechanism for the global economy after the Second World War was set up and directed by the Western developed countries, and are inclined to maintain the interests of the dominant party. This governance mechanism has been in effect till now. It includes the global trade governance mechanism represented by the World Trade Organization, the global finance governing mechanism represented by the International Monetary Fund and the World Bank, and the regular summit meeting mechanism involving the Western deve-loped countries for the purpose of addressing global economic issues. The three international economic organizations are responsible for coordinating the trade policies, exchange rate policies, currency issues and financial policies, and the regular summit meetings of the major powers form a platform for coordinating the national policies and identifying the balance point for the interests of the various stakeholders. One typical example is the G7 Summit, which was set up in the 1970s by the heads of state of the US, UK, France, Germany, Japan, Italy and Canada. They meet regularly to solve economic crises and to revitalize the Western economy. Under this global economy governance mechanism, all the developing countries have to live by these regulations and sacrifice their own interests.

Since the end of the Second World War, the countries that command the direction of flow of the global resources and the global economic outputs have the power to control the global economy. Only these countries can be truly called strong nations. And for a long period after the Second World War, this list of strong nations comprises only the developed countries like the US and European countries.

In the 1970s, the US commanded the direction of flow of oil reserves through the pegging of the US dollar and oil prices. Meanwhile, the Western developed countries headed by the US controlled the market prices and market flow of key bulk products that impact the people's livelihood—such as food and mining resources.

Take the pricing mechanism for oil as an example.Before the first oil crisis in the 1970s, the pricing of oil was controlled by the "Oil seven sisters" in the West. Later, the pricing right for oil fell into the hands of the Organization of Petroleum Exporting Countries (OPEC). Since the two major futures markets of New York and London gradually assumed a major role in oil pricing, the pricing right for oil shifted again to Wall Street and the London Financial City—the financial institutions as well as oil companies of the US and UK are commanding the international oil pricing rights.

After the Second World War, the US has always used the overseas students as their reserve talent pool. They constantly revised their immigration laws to attract large amounts of overseas talent. Moreover, the US attracts students and scholars to go there for exchange, through providing various types of scholarships. US investments in general education has been increasing by multiples of US$10 billion a year. World renowned universities like Harvard and Princeton are attracting lots of overseas students, accounting for nearly one-third of the world's overseas students, through the provision of generous subsidies,scholarships and preferential loans. About 25% of these overseas students would stay in the US after completing their education, and be integrated into this country's national pool of talents. In the US Academy of Sciences, overseas scholars account for 22%. Among the Nobel laureates from the US, 35% were born outside the US. For instance, the winners of the Nobel Prize in Economic Sciences in 1971 and 1973—Simon Kuznets and Wassily Leontief respectively—were ethnic Russians. Meanwhile, the winners of the Nobel Prize in Physics in 1976, 1997 and 1998—Samuel Ting, Steven Chu and Daniel Tsui—were ethnic Chinese.

Into the 21st century, the US is making use of their abundance of national resources to command the flow of high-intelligence talents and capital in the world. The US is commanding the direction for future development of the high-tech product market, thereby also deciding on the development trend of future productivity. Hence the US's human resource policies have reaped handsome results. By the end of 2009, among the 796 Nobel Prize winners in the world total, 315—or 39.57%—were US citizens.

Through controlling the pricing of strategic commodities and commanding the flow of talents and capital, developed countries are firmly grasping the right to set the rules in world economies. They are commanding the "highland" in international economic competition, and the indisputable right to take initiatives in the ever-changing economic scene. The governance mechanism for the global economy set up after the Second World War is indeed where Western developed countries set the "game rules".

With the passage of time, changes are taking place on the global scene. Developing countries are becoming stronger and stronger, especially after the global financial crisis triggered by the US subprime crisis, and the strength of Western developed countries have been undermined. On the other hand, the newly emerging economies represented by the BRICS countries are emerging as an unexpected force that is starting to command a degree of power to counter-balance the developed countries. This is empowering developing countries to fight for benefits in the international arena.

While the shadow of the global financial crisis is still looming large, the voice of developing countries calling for changes to the unreasonable order in the world economy has emerged. Against the background of new changes to the world scene, as well as the problems that keep emerging in the governance mechanism for the global economy, reforms are becoming inevitable. A "new mechanism" for the governance of the global economy is rising to the fore.

As an important platform for promoting international economic cooperation and negotiating matters related to global economic governance, the G20 has been formed, comprising the G8, the European Union, and 11 important newly emerging industrial countries. G8 comprises the US, Japan, Germany, France, UK, Italy, Canada and Russia, while the 11 important newly emerging industrial countries are China, Argentina, Australia, Brazil, India, Indonesia, Mexico, Saudi Arabia, South Africa, Korea and Turkey. The total GDP of the G20 countries account for 85% of the world total, and the G8 countries account for as much as 60% of the world total. Hence these eight countries play a leading role in G20.

Since its establishment on 25 September 1999, G20 has become a new mecha-nism for informal dialogue on the governance of the world economy for the World Trade Organization, International Monetary Fund, and the World Bank—a formal venue for discussions on reforming the governance mechanism for the world economy between the developing countries and the developed countries. Especially after the international financial crisis in 2008, the importance of newly emerging economies in vitalizing the world economy has been highlighted. The developing countries, in their coordination of macro-economic policies and the governance of the global economy, are no longer dispensable variables. Rather, they strongly demand the setting up of a new platform for the discussion of economic issues between developed countries and major developing countries. It was against this background that the G20 Summit was created and held two Summits each year in 2009 and 2010. Similar to the summit for leaders of BRICS countries or the ASEAN Summit, G20 is instrumental to the setting up of a new order in the international political and economic arena that is more reasonable and fair.

Pittsburgh in Pennsylvania used to be a major industrial town in the US. On 24 to 25 September 2009, the G20 Summit was held there. At this summit, huge progress was made in the governance of the global economy. The participating countries agreed to enhance the cooperation with one another, and to undergo necessary reform in the international financial system, especially in increasing funding for the International Monetary Fund and in enhancing financial regulation. More specifically, the share of the newly emerging markets and deve-loping countries in the IMF was raised by at least 5%, and the voting right of developing countries and transforming economies in the World Bank was raised at least 3%. In so doing, the representation and speaking rights of developing countries were raised.

By September 2013, G20 had held eight summits (see Table 1.2). These summits provided the opportunity for extensive discussions on handling financial crises, reforming the world financial system and the IMF, boycotting protectionism, and enhancing the regulation of international finance. These agreements reflect more of the aspirations of newly emerging industrial countries and developing countries, and have profound impact and significance on the establishment of a governance mechanism for the global economy that better reflects the needs of the times.

Table 1.2 The G20 Summit Meetings

Note:(A)The summit discussed global financial and economic issues. A manifesto was issued at the summit, stressing that at a time when the world economy and the international financial markets were facing serious challenges, the participating countries were determined to strengthen cooperation and work hard to revive global growth, and realize the necessary reforms in the global financial system. The summit actively achieved its goals in enhancing synergy in the international community, with the participating countries joining hands in resolving the financial crisis and supporting economic growth, and achieving the action plans for financial and economic reform. The summit also called for the reform of the global financial system, to prevent the recurrence of similar crises.

(B)The participating leaders reached consensus on many issues that required global cooperation, including stepping up funding for the IMF, and strengthening financial regulation. In the declaration after the summit, the participating countries reiterated that they would boycott protectionism, and the leaders unanimously agreed to include hedge funds in the scope of financial regulation.

(C)The main agenda items in the summit included driving the revival of the world economy and reforming the international financial system. One of the most important achievements was the reform of the IMF governance structure. According to the resolution, developed countries had to transfer part of the quota to the developing countries, so that the quota for the developing countries would increase from 43% to 48%. Under the"Leaders' Declaration", the leaders of the G20 countries agreed to increase the quota for newly emerging markets and developing countries in the IMF by at least 5%, and to increase the voting rights of developing countries and transitioning economies in the World Bank by at least 3%. The G20 will become the "major forum for international economic cooperation", and starting in 2011, the G20 Summits would be institutionalized and held on an annual basis.

(D)The Toronto Summit set the keynote for growth. It fulfilled the pledge to establish"a framework for strong, sustainable and balanced growth" and to reform the financial regulatory system. It also managed to cut financial deficits in developed countries, to reform the governance structure of international financial institutions, to set a specific timetable for combatting trade protectionism, and to stress that the primary task for G20 countries was to ensure and strengthen economic revival. The summit issued the "G20 Toronto Declaration", emphasizing that the next action would be to drive the strong, sustainable and balanced growth of the world economy.

(E)The main agenda items included exchange rates, a safety net for the global financial system, the reform of international financial institutions, as well as development issues. Among these four agenda items, people were most concerned about the follow-up developments after the agreements in October by the meeting of G20 financial ministers and central bank presidents in Korea regarding the resolution of exchange rate disputes and the reform on the quotas in the IMF.

(F)The summit discussed the global economic situation, the"framework for strong, sustainable and balanced growth", important and pressing economic and financial issues, the reform of the international currency system, prices of large bulk commodities, global governance, as well as trade, development, and financial regulation. The participating members reiterated their pledge to achieve synergy, revive economic growth, create jobs, ensure financial stability, promote social inclusiveness, and ensure that globalization serves the needs of the people. In the "Action Plan for Growth and Employment", passed at the summit, members of G20 pledged in the short term to address economic fragility and revive financial stability, and in the medium term to strengthen the basis for economic growth. All the G20 members will further drive structural reform, explore growth potentials, facilitate employment, strengthen stability of the international financial system and among different countries, and advocate the liberalization of trade and investment. The Cannes Summit achieved consensus on three fronts. The first was to ensure that the IMF has adequate resources to achieve its objectives, and be prepared to inject additional funds on the basis of the achieved agreement. The second was to take all necessary measures to promote economic growth, and the third was to stress that the social security system was a favorable factor for the promotion of economic growth. The G20 members, in particular the countries with newly emerging markets, pledged to establish and perfect their social security system.

(G)This summit focused on discussing the world economic situation, strengthening the international financial system, as well as issues such as development, trade, and employment. The participating leaders unanimously agreed that the international community should strive for synergy in promoting a strong, sustainable, and balanced world economy. G20 passed the "Los Cabos Action Plan for Growth and Employment", in order to achieve the objectives of supporting economic growth, maintaining financial stability, and creating employment opportunities.

(H)The summit issued the"G20 St.Petersburg Summit Leaders' Declaration" and the "St.Petersburg Action Plan", conveying a positive message to the world economy. In the complex circumstances of the post-crisis world economic situation, the participating countries reached relative consensus regarding the world macro-economic situation. They understood that globalization had a momentous impact on the world economy—if one country wins, all countries win; if one country loses, all countries lose. The greatest achievement of this summit was the achievement of a contingency reserve for BRICS countries, which would promote cooperation among G20 countries, and encourage the IMF to focus more on newly emerging markets. Another focus for the summit was the direction of the US policy of Quantitative Easing(QE). US President Barrack Obama pledged that the US would progressively withdraw from this policy. Another issue that raised serious concern was the political and security matters surrounding the Syrian crisis. This shows that the authority of G20 in international affairs has strengthened.

Trade mechanism: are"barriers" necessary?

With the occurrence of international trade, people's lives have been completely changed.

The"Silk Road" that linked Europe with Asia not only brought Chinese silk products to Central Asia and European countries, but also served as a bridge linking the ancient civilizations of China, India and Greece. Various spices transshipped to Europe stimulated the taste buds of the locals, and strengthened the Europeans' determination to bypass the Ottoman Empire and open up a new route for spice traffic.

In modern times, the development of international trade has enabled various countries to strengthen mutual ties, enhance efficiency, and purchase commodities or services at cheaper prices, bringing greater welfare to more people. Then there was the rapid emergence of new modes of transport such as trains, aircraft and high speed trains, and new telecommunications channels such as telephone, telegraph, computer, satellite, optical cable and the Internet. These serve to shorten the physical distance between people, and enabled factors like labor, capital and technology to achieve the true meaning of global logistics and the allocation of global resources. No wonder Thomas Friedman declared"the world is flat".

Britain, as the place of origin of the worldwide Industrial Revolution and a traditional manufacturing country, saw its domestic manufacturing industry continuing to decline in the past three decades in terms of its share in the economy as a whole. Some of the manufacturing industries have even vanished in Britain. Stoke has once been the capital of porcelain in Britain, famed for its production of the expensive "Bone China". Today, only some dilapidated factories remain, and the bone china is nowhere to be seen. Similar to the porcelain industry, Britain's manufacturing industry cut 4 million jobs over the past three decades. This, however, does not mean that Britain's manufacturing industry has "declined". In fact, what has happened is that Britain has moved the jobs at the lower end of the global value chain to newly emerging economies and developing economies like China, India and Brazil, to take maximum advantage of the cheap labor in these economies, and at the same time secure its own competitive advantage in know-ledge and skills on the high end of the production chain. Britain's mechanical equipment and precision food manufacturing industries are growing rapidly in recent years, and the country's alternative energy source and low-carbon production technologies are also commanding global leadership.

Under these circumstances, the relationships between developed and developing countries are quietly undergoing change. These changes to a certain extent are benefiting from the constant lowering of the barriers that had hindered the development of world trade after the Second World War.

Two world wars took place in the first half of the 20th century, bringing disturbance to the financial currency relationships and trade relationships that had facilitated the development of the world economy. Having experienced the cruelty of war, all countries have learnt that the economic policies characterized by traditional isolationism and protectionism cannot rekindle the hope for a bright future for the world economy. Indeed, peace and development are the theme of this era. It is only through strengthening the economic cooperation between countries that the world economy can become prosperous.

GATT was a multi-level trade mechanism set up by the US to counter the high tariffs, trade protectionism and discriminatory trade policies that were increasingly popular after the Second World War. Its ultimate aim was to facilitate the liberalization of international trade. On 1 January 1995, the World Trade Organization commenced operations on the basis of GATT.

The World Trade Organization (and GATT), as a global trade governance mechanism, provided a platform for negotiation and the resolution of trade disputes. On this platform, the member countries can resolve international trade disputes, negotiate the lowering of trade barriers, and achieve win-win and even multiple-win scenarios.

China is a beneficiary and loyal supporter of free trade. It grasped the good opportunity when Western developed countries were carrying out production transfer following the Asian financial crisis in 1998, to become an important base for the global manufacturing industry, acquiring the name of "World Factory".

China's Pearl River Delta and the Yangtze River Delta have tens of thousands of manufacturing enterprises, working on orders from the US and European countries, providing employment for nearly 200 million workers, and creating the miracle of China's economic growth.

For the US, China's largest trade partner, "Made in China" not only brought huge profits for US enterprises, it also enabled US consumers to enjoy cheap products. From clothing to shoes, from domestic electric appliances to daily goods, "Made in China" is everywhere in the US. Refusing Chinese products means lowering the quality of life and the degree of convenience. It is estimated that without these products from China, US consumers will have to spend an extra US$70 billion.

Today, the volume of trade related to the global trade governance mechanism accounts for 90% of the world's total trade. The developed countries under the agreement have seen their average tariffs drop from 36% in 1948 to 4.5% in the 1980s. During the same period, the developing countries under the agreement saw their average tariffs drop to 13%. From 1950 to 2009, the trade volume of global agricultural products grew at an annual rate of 3.5%, with fuels and mining products growing at 4.0%, and fi-nished products growing at 7.1% (see Table 1.3).

Table 1.3 Annual Growth of the World's Major Commodities from 1950 to 2009(%)

Source: Official website of the World Trade Organization.

Clyde Prestowitz, Director of the US Economic Strategy Research Institute, had said that in the globalized world today, there are two sets of game rules—one is the formal regulations of the World Trade Organization, and the other is the mercantilism secretly subscribed to by certain countries. These countries take advantage of the loopholes of ambiguity in the WTO formal regulations, or they just ignore these regulations. These practices are called "trade protectionism" by most people, while others call them "defensive measures".

Every time the world economy faced a crisis or experience a period of decline, international protectionism will raise its head. The international financial crisis in 2008 was no exception.

On 18 December 2013, the World Trade Organization published its"G20 Trade Measures Report" representing the period from mid-May to mid-November 2013. It states that the trade restriction measures that had been in force since October 2008 covered 3% of the global commodities trading and 4% of the trade volume for G20 countries.

Since the start of the financial crisis, only 18% of the 802 trade restriction measures implemented in G20 countries have been cancelled. At the same time, there was an increase in the number of newly adopted trade restriction measures during the six months during which the statistics were taken among the G20 economies. The report showed that in these six months, G20 countries adopted 116 new trade restriction measures. The major ones related to trade relief, especially the launch of anti-dumping investigations, the increase in tariffs, and the implementation of even more stringent customs procedures. Meanwhile, the previous report that monitored the period of seven months from mid-October 2012 to mid-May 2013 showed that among the G20 countries, a total of 109 trade restriction measures were introduced. The report also showed a decrease in the number of trade convenience measures adopted by G20 countries in this half-year—these measures are mainly for the purpose of terminating trade relief measures and lowering tariffs. During this period, among all the trade measures adopted by the G20 countries, about 33% could be considered to be convenience measures. Meanwhile, in the seven months monitored by the previous report, the corresponding figure was 40%.

Under these circumstances, the global trade governance mechanism based on the WTO needed further adjustments. The direction for adjustment is to change the existing procedures for resolving disputes that are too rigid and monotonous, to break the current coexistence of the two sets of"game rules", and to set up a set of well-defined standards, so that all the WTO member countries and international trade participants will resolve disputes within a framework of just and reasonable regulations, thereby realizing the true meaning of "free trade".

Financial mechanism: trusting the"big brother"?

The international financial crisis triggered by the subprime crisis in the US dealt a heavy blow to the international economic and financial system and the global economic governance structure. While it shocked the global real economy, it also exposed numerous flaws in the global financial governance mechanism.

The key factor that led to this problem was that the monopolistic status of the US in the international financial system was increasingly incompatible with the growingly diversified international economic operations and the development trend of globalization of the economic and financial scene.

Under these circumstances, it was obvious that the US lacked the resources and skills to address the risks and challenges that exist in massive financial activities.

The existing global financial governance mechanism was set up after the Se-cond World War, with the IMF and the World Bank Group (WBG) as the main execution authority. Like the International Trade Organization, it is led by the US and a handful of developed European countries. These leading developed countries treated this mechanism as a tool to realize the theories and values of free trade, and at the same time a platform for the realization of their own interests. In the nearly seven decades since its establishment, the governors of the World Bank had always been from the US, and the chief executives of the IMF were mostly from Europe. This"tradition" has never changed since the days that these two institutions were "born"(see Table 1.4).

Table 1.4 List of IMF Chief Executives

In the current IMF and World Bank, the over-concentration of the voting rights is a focused demonstration of how"unjust" the global financial governance mechanism is. IMF member countries take part in the discussion and resolution of global financial issues, through exercising their voting right.

Hence from this perspective, the IMF voting right is the bedrock of global financial governance.

According to the regulations, the IMF voting rights comprise the"basic vote" and the "additional vote". The basic vote is a fixed voting right that each member possesses, and reflect the principle of equality in sovereignty. In other words, whether it is a poor country or rich country, or whether it is a strong nation or a weak nation, it still enjoys a basic vote. The additional vote relies on quota system, which is similar to the mechanism of shares. Based on the member country's increased contribution to the fund, the share will rise correspondingly. The greater the contribution the country makes to the IMF, the greater its share in the fund. The greater a country's additional vote, the greater its say in global economic affairs.

From 1958 to 2007, IMF's membership increased from 68 to 184, but the weighting of the basic votes decreased from 15.6% to only 2.1%. Meanwhile, the votes of many developing countries account for only 44% of the total, while the weighted percentage of the developed countries account for 56%. (The countries that command the greater share are: US 16.77%, Japan 7.85%, Germany 4.48%, France 4.3% and Britain 4.30%.)

According to IMF regulations, unless there is a very special regulation to a different effect, all IMF resolutions must be supported by at least half of thecouncilors, and more important major resolutions must be supported by over 85% of the votes. This regulation led to serious imbalance in the ratio between basic votes and additional votes. The US holds 17% of the voting rights in IMF, and commands a monopoly with vetoing power in major resolutions. The sovereignty principle characterized by "one country one vote" has given way to the principle where the US dollar has the final vote.

The over-concentration of the votes has resulted in a scenario where a small number of developed countries possess the actual vetoing right on global financial governance. This is a departure from the global public function of rectifying and supplementing market defects, and resulted in serious imbalance and disorder of the world economy. On the one hand, this is manifested in the imbalance in global economic development, with the gap increasing between the rich and the poor in various countries. On the other hand, this is manifested in the disorder in the international monetary system, where the exchange rate system lacks systematic arrangements on a global level, where there is high volatility in the exchange rates between reserve currencies, where international capital flows in a chaotic manner, where financial capital is decoupled with the real economy and creates a self-cycle, and where there are increased systemic risks in the international financial system. The reform of the international financial system and the global financial governance mechanism is inevitable.

With the constant increase in the strength of the developing countries, the international macro-economic policy coordination mechanism, previously led by the US and developed European countries, is being challenged. Although this has not yet created a strong force, it has achieved the result of a quiet but constant flow. The preliminary efforts of developing countries in reforming the global financial governance mechanism eventually bore fruit in 2010. On 5 November, the IMF passed the most important governance reform proposal in the 65 years of its history. This is also the largest quota transfer proposal targeted at newly emerging markets and developing countries. Under this reform proposal, China, as the representative for the developing countries, will see its share in the IMF increase from 3.72% to 6.39%, and its votes will rise from 3.65% to 6.07%, overtaking Germany, France and Britain, and ranked right after the US and Japan. After this round of reform, the US, Japan, the BRIC countries (Brazil,Russian,India and China), together with Germany, France, Britain and Italy, will form the top 10 economies with votes in the IMF. This reform proposal will undoubtedly enable the newly emerging economies and the developing countries to have a greater say and to have greater initiative in the future international financial system and in the global economy governance mechanism. However, as by the end of 2014, the US Congress had not approved this proposal, which still remains stranded.

Despite the progress made in reforming the global financial governance mechanism, there has not been any fundamental change in the IMF's original pattern. The US still enjoys an absolute vote right, and still commands the leadership position. This suggests that the reform of the IMF will be a slow and challenging process, and the reform of the global financial governance mechanism will be long but crucial.

When there are new changes in the global economic pattern, the coordinating mechanism of the original global macro-economic policies will need to undergo corresponding adjustments. On the one hand, the developing countries, especially the newly emerging economies, will continue to act as a multi-lateral mechanism for G20 and the United Nations. On the other hand, these countries will stress the importance of strengthening the coordination and governance among developing countries, and between developing countries and developed countries. This will enhance the right of speech and representativeness of the developing countries, and at the same time establish a fairer international financial framework and also a global economic governance framework, thereby ensuring that the global economy will enjoy long-term, sustained, stable and healthy development.

Gaming in governance: China and America's "give" and "take"

A decade passes like a flash. While the bells of the new century still linger in the ear, we have already seen the ruins after the global financial tsunami. In these ruins, the various countries are still dealing with the after-shocks of the financial crisis, while they face the new adjustments in the global economic pattern. In this adjustment, the spotlight was on the US and China, and some scholars even raised the idea of having two countries form the G2 to replace the original G8. One is a steadily rising star in economic development, and the other is a strong economic nation. The gaming and balance between the two is the subject of much concern and anticipation.

US: still the "locomotive"

Since the international financial crisis in 2008, and given the repeated defeat of the government budget arrangements and the new proposal aimed to stimulate the economy, US President Obama in September 2011 submitted a proposal to the US Congress to increase taxes on the rich, to ensure that millionaires with an annual income exceeding US$1 million will pay taxes at a rate not lower than that for the middle class. As US tycoon Warren Buffett has repeatedly complained against the US Congress for indulging the super-tycoons, he took the initiative to demand that the US Government increase taxes on rich people, including himself. Hence this "tax for the rich" has been dubbed "Buffet tax".

In 2012, there was a slowdown in the recovery of the US economy. There are four reasons. First, as the US Government has used up most of its levers aimed to stimulate the economy, it has lost its strength in implementing its economy stimulation policies. Moreover, the effectiveness of the economic measures launched (such as the export doubling strategy, creation of jobs, and supporting the US enterprises) has been doubtful. Second, the unemployment rate in the US continued to rise, and so was the rate of savings. This to some extent discouraged the people from spending. As a result, consumption has obviously failed to drive economic growth. Third, the property market in the US was sluggish, and this dampened the revival of the country's manufacturing industry as well as the pace of overall growth of the US economy. Fourth, the European debt crisis remained unresolved, and this not only exacerbated the instability of the international financial markets, but also seriously undermined the confidence of the investors, resulting in shockwaves in the US stock market.

The US economy is facing its own structural problem, and its debt issues are facing huge difficulties. Despite the fact that there had been numerous forecasts that the US economy will continue to decline, there is no denying that the US is still the locomotive that drives the world economy. If we look at GDP in terms of PPP in 2013, China's share in the world economy was 15.68%, India 6.02%, Japan 5.43%, Germany 3.73%, and Russia 3.04%. Meanwhile, the share of the US was a hefty 18.59%.Although this was a decrease compared with the 24.6% of 2009, it is still far higher than the other countries.

"When the US sneezes, the whole world will catch a cold." This is a vivid description of the economic status of the US in the world. At the start of their subprime crisis, when less than a million families failed to repay their mortgage loans, the world economy was dragged down the valley of recession, in one wave after another. This shows the impact of the US on the world economy.

As mentioned earlier, we have 7.3 billion people in the world. China and India account for 2.6 billion, with a spending of over US$6,000 billion (China has a population of 1.3 billion with a spending of nearly US$4,700 billion). On the other hand, the US has a population of only 0.3 billion, but its spending is US$11,000 billion. Hence the role of the US as the engine of the world economy is obvious. If spending is the short-term driver of world economic growth, then innovation and productivity are the long-term driver of world economic growth, and the fundamental driver.

The most prominent feature of the US innovation system is that enterprises are the major pillar of technological innovation and industrialization. Nike, headquartered in Oregon, USA, is a world renowned manufacturer of sports equipment.In the 1990s Nike's annual sales already exceeded US$10 billion, making it a world-class enterprise. To a large extent, people love Nike for its unique characteristics and constantly renewed designs. In the spirit of innovation, Nike designers designed air-cushioned sports shoes under the "air" and "shox" series. Moreover, inspired by African distance runners who run barefooted, they designed the "Free" series of sports shoes with two wide straps replacing the conventional shoelaces. Not only does Nike attach great importance to product innovation, it also focuses on business strategy innovation, adopting a virtual strategy that takes advantage of external forces. This is the reality of its "virtual production". Nike does not invest in setting up production plants or assembly lines, but it integrates with external resources, outsourcing all its orders to other manufacturers for processing. In so doing, it enjoys cost advantage as it competes with other brands.

After the international financial crisis, the innovation strategies set by different countries have different focuses. The six strategic industries set by the US to facilitate its economic development focus on new energy. The innovation strategies set by European countries focus on life sciences, while those set by the newly emerging economies in the Asia Pacific focus on information technology. Although the new round of consumption needs and innovation (new forces) in the world economy is still unclear, yet future innovation is still dependent upon the US, and new energies are likely to be the area where breakthroughs will emerge first, and also the most promising direction. The discoveries and innovations capable of driving the world economy will probably emerge from the US, and China is likely to remain as the venue for large scale production.

US President Obama took over the rein of power at the difficult times of the financial crisis, and his government gave solid support to the development of new energies. He changed the energy policy of the Bush government, and pledged to spend US$150 billion over the next decade on subsidizing research into alternative energy sources as well as the production of clean and renewable energy, in order to reduce carbon dioxide emissions by 5 billion tons.Obama also pledged to reduce greenhouse gas emissions by 80% in 2050 as compared with 1990, through new legislation. He further proposed that in the coming decade, the US will reduce its consumption of oil by an amount exceeding the total of current imports from the Middle East and Venezuela. On top of these, the US Government would reduce taxes to encourage the general consumers to purchase energy saving cars. It is ana-lyzed that the use of the latest technologies will enable the US to reduce its consumption of oil and natural gas by half, and electricity by three quarters.

We can say that the new energy strategy has a special significance to the US. In 2011, the dependence on oil imports to the US was 66% (56.5% for China). If there is breakthrough in its new energy strategy, it means first that the US will reduce its dependence on oil imports. Second, the massive breakthroughs that the US has achieved in the use of new energies and green technologies can greatly enhance the international competitiveness of US industries, and drive its domestic economy into a new period of growth. More importantly, the US is kick-starting a new technological revolution and a new industry revolution in new energies that span different frontiers and industries. This aims to enable the US to be the first country to master the key technologies in energy and environmental protection, in order to command an early and dominant presence in the global value chain in new energies. This will also make other countries dependent on the US on the techno-logy front, so that the US will assume a leadership role in the new round of global economic development.

While the residual shock waves after the international financial crisis remain, and the greatly strengthened newly emerging economies are eager to reform the global governance, the US is still setting game rules to its favor on the global economic front, despite its own predicament.

First, the US is keen on maintaining its leadership in the international financial system.

As the US emerges from the abyss of the economic cycle, it enters the "economic era of banknote printing". With the depreciation of the US dollar through issuing banknotes on a large scale, the US is able to dilute its massive debt liabi-lities and compensate its international trade deficits, and export inflation to the world. Moreover, there is also the secret agenda of maintaining the US-centered international currency system.

The oil crisis in the 1970s resulted in a spell of mobility panic on a global scale. As a result, the various countries were forced to abandon their currency system based on gold, and instead establish an international currency system that is based on the US dollar. This gave the US a special "authority" above other countries, which is in effect the power to indiscriminately issue currency. When the subprime crisis first broke out in the US in 2007, the total amount of debt issued by the US was only US$8,900 billion, with the debt ratio standing at 65%. By the end of 2013, total US debt had exceeded US$16,000 billion, with the debt ratio exceeding 100%.

It must be pointed out that there is a direct relationship between the quantity of US currency issued, and the issuance of government bond by the US Department of the Treasury. The US Federal Reserve Board is responsible for issuing currency, while the US Department of the Treasury is responsible for issuing government bond. The US Federal Reserve Board uses its own issued currency (US dollars) to purchase US federal government bond, while the US Department of the Treasury uses government bond as mortgage to secure financing for use for financial expenditure. In other words, the benchmark for the Federal Reserve Board in issuing basic currency is US government bond. Hence, the US's over-issuance of government bond means the over-placing of the US dollar. And if the US dollar as an international reserve currency is over-placed without any constraint, the inevitable result will be liquidity flooding on a global scale, causing a general rise in the prices of bulk commodities and general commodities, and finally a global increase in production costs, more serious inflation and a decline in the standard of living. To avoid liquidity impact, most countries tend to avert risks by floating their currency exchange rate, and high volatility will inevitably have a negative impact on international trade.

In this process, the US acquires a "seigniorage" through over-issuance of the US dollar, and at the same time, its expansionary monetary policy stimulates the growth in the demand for domestic imports. Indeed, the US is consolidating the welfare of its citizens at the expense of the welfare of the people of other countries(see Figure 1.3).

Figure 1.3 Secret behind US Currency Issuance

Also based on national interest considerations, the US is working hard to maintain its status in the international financial system. As mentioned earlier, in December 2010, the executive directors of the International Monetary Fund passed a governance and quota reform proposal. The content of the proposal is to transfer 6% of the quota to newly emerging markets and developing countries ("quota reform proposal"), and to restructure the executive council with the European countries giving up two of their seats to the newly emerging markets and developing countries, in order to form a more representative, elected executive council ("executive council reform proposal").

While this is not the totality of the reform in IMF's governance structure, it is an important measure in its reform efforts. The reform proposal will involve amendments to the IMF agreement, which requires the agreement of three-fifths of the 85% of the total voting rights. However, the US—as IMF's largest stakeholder with 17% of the votes—has so far never given agreement, resulting in the stranding of this reform exercise. In January 2014, the US Senate and Congress vetoed the newly increased quota in the IMF 2010 reform proposal, and as a result this repeatedly delayed reform proposal has to await the next round of vetting and approval by the US Congress in 2015. The veto of this proposal suggests that the hopes of China, as the third largest member country in IMF after the US and Japan, cannot be fulfilled in the near future.

As the US holds the vetoing right in IMF's major reform decisions, many people think that IMF reforms have been "kidnapped" by Western politics. The basic standpoint of the US in improving the global financial governance mechanism is that it agrees to reforms, but it also wants to maintain and consolidate its core leadership position in this mechanism. In the eyes of the US, the US dollar of the future will be issued by the US, and at the same time, all the countries in the world will be responsible to the US dollar, support the US dollar and make it the world's public goods. This in their view is the most ideal mechanism.

Second, to implement trade protection and revive the domestic economy.

After this round of international financial crisis, the common concern for the political, academic and enterprise sectors in the US has been"a return to the manufacturing industry". This is the conclusion by various sectors in the US after reflecting on the country's industrial structure and modes of economic development. The US Government hopes that "returning to the manufacturing industry" will be the key to a breakthrough in reviving the US economy. Through "returning to the manufacturing industry", the US hopes to command the highest point in the new round of competition in science and technology, and in industry. At the same time, the US hopes to drive its manufacturers to expand their re-production and jack up its dismal employment rate, and also to break the impasse of "economic growth not accompanied by employment growth" which is caused by the upgrading of its industry structure.It hopes that this will relieve the social contradictions exacerbated by their dismal domestic economy and low employment rate.

In line with the idea of"returning to the manufacturing industry" and adjusting its industry structure, the US Government has, since 2009, been working towards implementing a new round of trade protection. In early 2009, the US, which was suffering from economic recession, launched a US$819 billion economic stimulation plan, with an attached regulation that part of the relief fund can only be used to "purchase US commodities". This measure is the "prelude" to the US's implementation of trade protectionism.

In 2010, the US further strengthened its management mechanism on the import of products. The"Food Safety Modernization Proposal" signed by the US President raised the demands for imported products—imported food products are subject to total control on food safety, thus raising the threshold for food imports.

At the same time, the US Government raised the demands on energy consumption standard and labels, including requiring TV sets and electric lights to have labels on energy consumption. Meanwhile, the US has adopted a more stringent attitude to its trade laws (including anti-dumping and subsidy investigation).

The US is targeting this round of trade protectionism at the source of its trade deficit—China. As a result, the trade friction between China and the US has escalated.

Behind the escalation of US trade protectionism against China, apart from the obvious economic factor, there was the background of political interest in the election year of 2012. Apart from the president, the US congressmen and one-third of the senators would be replaced in 2012. Hence, the White House and the US Congress, and everybody in between, were working hard to project their image as the protector of public interest. In the eyes of some US politicians, upholding the banner of trade protectionism in order to create employment is an effective means to gather voter support. In November 2012, Obama succeeded in capturing the hearts of the grassroots, and achieved re-election after beating his Republican opponent Romney by a considerable margin.

Third, an attempt to spearhead a new mode of global trade.

Apart from implementing the policy of trade protectionism, the US is also attempting to expand its trade arena in the Asia Pacific region and isolate China, thereby spearheading a new mode of global trade.

The Trans-Pacific Strategic Economic Partnership Agreement, TPP, is one point of breakthrough. In 1994, APEC leaders met at Bogor Indonesia, to explore the possibility of realizing free trade and investment in the Asia Pacific region, achieving the objective of establishing the Free Trade Area of the Asia Pacific (FTAAP).In 2002, three members of APEC—Chile, New Zealand and Singapore—started the TPP talks. This is a solid step towards the FTAAP objective.

In 2008, the US joined the TPP talks, signifying a new meaning and starting point in the small framework of free trade in this region. To date, 12 countries—USA, New Zealand, Singapore, Chile, Brunei, Australia, Peru, Malaysia, Vietnam, Mexico, Canada and Japan—have at different times taken part in the TPP talks. The total economy of these 12 countries was even larger than the 27 countries in the European Union. Since 2008, the US has initially formed the "Eastern Line" represented by the TPP, the "Western Line" represented by the Trans-Atlantic Trade and Investment Partnership (TTIP), and the "Central Hub" represented by the Trade in Services Agreement (TISA). Hence we can see that the influence of the new trade regulations, led by the US, has taken shape initially. In terms of their share of GDP in the world, TPP, TTIP and TISA account for as much as 40%, 50% and 65% respectively. Hence their influence on global trade is huge.

The core issues in the TPP framework include: raising the standards of human rights and labor; raising the standard of environmental protection; and raising the standard of intellectual rights protection. These three standards are in line with the standards of the Organization for Economic Cooperation and Deve-lopment (OECD). In other words, these are standards of developed countries. The US enjoys advantages in these standards in every sense of the term.

The US wants to use the TPP to create a high standard trade agreement that is applicable not only in the Asia Pacific region in the future, but also in the whole world. If TPP succeeds, this will be tantamount to the US setting up the second WTO, providing a new game venue and new regulations for the global economy.

In September 2005, the then chief editor of US magazine Newsweek Fareed Zakaria published the article "Does the future belong to China?" The article analyzed the psychological state of "Americans" to "the rise of China": China has dealt a heavy blow on the self-confidence of the Americans. Americans love good things, but what they are attracted to are gigantic things, such as the Grand Canyon, the Californian Sequoia, the magnificent central processing units, Disneyland, General Electric cars, the US Army, GE, double burgers (plus cheese), and the Starbucks super cup. Americans love size, especially super-size. Unfortunately China is a country that puts the US to shame: a population of 1.3 billion (four times that of the US). China is huge, and there are large numbers of very poor people, but all of these are changing. The immensity that was charming in the past now becomes a source of anxiety. And Americans have no idea whether the so-called "China threat" will turn out to be real.

It is well known that the APEC mechanism encompasses ASEAN 10+3, ASEAN 10+6, and APEC. Apart from APEC, the US is not part of the other two free trade organizations.TPP can be seen to be one of the US-led exercises set up to counter the influence of China on a global scale. The core idea in the US in developing the TPP is to keep China away. This unconventional free trade agreement creates a comprehensive, high-quality free trade agreement that integrates all the commodities trading, service trading, and investment. In 2011, US Secretary of State Hilary Clinton in Diplomatic Policy published the article "The US Pacific Era", testifying to the fact that the US has moved its diplomatic policies and strategic focus to the Asia Pacific, and TPP has become an integral part of the US's "return to the Asia Pacific".

Although Obama has repeatedly reiterated that constraining the rise of China is not the policy of the US, yet the US's active participation and leadership in the TPP talks clearly shows that the US's global strategy has turned from "cooperating with China" to "countering China".

In the long run, establishing a just, reasonable and mutually beneficial new order for the international economy is a certainty in history. In the short run, the US supremacy and leadership advantage is unsurpassable, and its leading position in the global economy governance mechanism remains unshakeable. This is backed by the world's top economic, technological, innovative, and military set-up, as well as the country's soft power. Hence in the foreseeable future, the existing global economy governance mechanism is still irreplaceable. The restructure and adjustment of the US economic structure will have a profound influence on the reform of the global economy governance mechanism.

China: willing to be a"stabilizer"

As a"new star in economic growth", China's status is on the rise in the global economic arena.

On the one hand, China's status as the "world factory" is becoming increa-singly solid. At the end of the first decade of the 21st century, China's production of raw steel, cement, electrolyte aluminum`, refined copper and coal accounted for 44.3%, 60%, 65%, 24% and 45% respectively of the world total.

Meanwhile, the production of chemical fertilizers, plastics, chemical fibers and glass accounted for 35%, 20%, 42.6% and 50% of the world total.The production of cars, ships and engineering machines accounted for 25%, 41.9% and 43% of the global figure, while computers, color TVs, refrigerators, air conditioners, mobile phones and digital cameras accounted for 68%, 50%, 65%, 80%, 70% and 65% of the global total.

On the other hand, with the increase in its economic strength, China is starting to play a deeper role in participating in and perfecting the global economy governance mechanism, in a bid to set up a new order in the international economy that is more just and reasonable.

On the issue of global economy governance, China and the US have different standpoints and practices. The US is attempting to establish a new set of game rules for the world economy on the platform of economic globalization, in order to guide the recovery of the world economy governance structure towards a world economic growth pattern that upholds US financial innovation as the engine of growth.

On the other hand, China's position is to represent the interests of the deve-loping countries and newly emerging economies. China is against using rules of regional trade liberalization to counter and replace the multi-lateral talks of the World Trade Organization. It aims to set up a global economy governance mechanism that can benefit more countries and more people.

The"gaming" between China and the US has begun. As it stands today, the best outcome of this gaming is to realize inclusive growth on the global scale.

China's entry into the WTO on 11 December 2001 is an important milestone in the country's in-depth participation in globalization. In 2011, a decade later, China's global ranking in terms of commodities trading has risen from the 6th position to the 2nd, and its export volume has risen to the 1st position.

The import volume in the decade or so after entering into the WTO is equi-valent to creating over 14 million jobs for its trade partners. China has cumulatively absorbed US$759.5 billion's worth of foreign direct investment (FDI), ranking first among developing countries. Over the decade, foreign investment enterprises have remitted out a cumulative profit of US$262 billion, with an average annual growth of 30%. China's foreign direct investment saw an average annual increase of over 40%, reaching US$68.8 billion in 2010, commanding the 5th position globally. China's foreign investment enterprises had employed nearly 800,000 locals, and paid over US$10 billion in local taxes locally.

In 2013, China leapt to top rank as a commodities trading nation, with imports and exports amounting to a total of US$4,160 billion, with US$2,210 billion in exports and US$1,950 billion in imports. China has become the largest trade partner for over 120 countries and regions, creating for its global trade partners large numbers of employment and investment opportunities.

According to the"World Investment Report 2014" published by the United Nations Conference of Trade and Development(UNCTAD)in September 2014, China's FDI inflow in 2013 reached US$124 billion, setting a historical high and ranking second in the world, only behind the US. Meanwhile, China has for the 22nd consecutive year been the developing country absorbing the largest amount of foreign capital. As by July 2014, China had cumulatively set up nearly 800,000 foreign investment enterprises, and had actually used over US$1,500 billion of foreign capital.

The pace of Chinese enterprises"going out" is difficult yet determined. According to the "Statistics on China's Foreign Direct Investment 2013", published jointly by China's Ministry of Commerce, State Statistics Bureau and the State Foreign Exchange Bureau on 9 September 2014, China's flow of foreign direct investment in 2013 reached a new high of US$107.84 billion, a 22.8% increase over the previous year.

China's foreign direct investment accounted for 7.6% and 2.5% of the global flow and deposit respectively, putting China among the world's top three foreign investment countries for the second year running. At the end of 2013, China's 15,300 domestic investors set up 25,400 foreign direct investment enterprises overseas, spread over 184 countries and regions, an increase of 5 over the previous year. China's foreign direct investment has accumulated a net amount (deposit volume) of US$660.48 billion, ranking in the 11th position globally, two positions higher than 2013. It is estimated that China's foreign direct investment is likely to exceed the country's absorbed foreign capital in 2014 or 2015. In contrast to the past practice of investing in international division of labor industries such as overseas infrastructure and manufacturing industries, Chinese enterprises are growingly investing in high value-added industries such as equipment manufacturing, electronic information, finance and new energies, thereby actively participating in international division of labor under the new pattern of international economy.

Keeping at pace with its participation in globalization, China is nurturing a batch of multinational corporations with global influence. Li Shufu's Geely Cars has acquired the car business of the Volvo Group, and Zhang Ruimin's Haier Group named the antique architecture on 34th Street in Broadway Avenue in Manhattan, New York. The ICBC acquired 20% equity of South Africa's largest bank—South Africa Standard Bank, and Liu Chuanzhi's Legend Group integrated IBM's personal computer business, and the YOGA series of new products released in October 2014 showcased to the world the Group's extraordinary spirit of innovation. Ren Jianfei's Huawei Technology is setting up subsidiaries in different parts of the world, and Huawei mobile phones are commanding a constantly growing market share in the iPhone market. Zhong Lian Heavy Industry has acquired 100% of the equity of CIFA of Italy to become the world's largest manufacturer of cement machinery. Ma Yun's Alibaba was successfully listed on the New York Stock Exchange in September 2014, and the business empire set up 15 years ago wrote a chapter of glamor, depicting the passion and dreams of the Internet Era. In the Global 500 table of the world's top enterprises in 2013, there are 95 enteprises from China (including Hong Kong and Taiwan), second only to the US. 85 of them are Mainland enterprises, compared to only 3 back in 1995.

In the development process of foreign trade and foreign investment, China has made a great effort in reforming and perfecting its international currency system, international trade system, and large commodities pricing mechanism. China has worked hard to promote economic globalization and regional economic integration, and taken the initiative to bear the international economic responsibilities commensurate with its own standard. It has supported the WTO Doha Talks, and taken part in the coordination of international macro-economic policies as well as in global economy governance mechanism establishments such as G20.

First, since accession to the WTO, the Chinese Government has been actively fulfilling the commitment it made before entry. China has constantly expanded its agriculture, manufacturing and service industries market accession. It has also constantly lowered its import tariff, eliminated all the non-tariff measures such as import quotas and license that did not comply with the regulations of the WTO. It had also completely opened up its foreign trade franchises, and drastically lowered the entry threshold for foreign capital.

To ensure the smooth implementation of the WTO entry commitment, the Chinese Government has cleaned up or amended the related laws and regulations within the country. In the past decade or so, the Chinese Government had cleaned up over 2,300 legal and administrtion regulations, and the local governments had also cleaned up over 190,000 local policies and regulations.

A Goldman Sachs research report points out that from 2000 to 2009, China's cumulative rate of contribution to the world economy exceeded 20%, higher than the US. In 2009, after the international financial crisis, China's import volume grew 2.8% and became the only country among the major economies to record an import growth.

While the global trade volume dropped 12.9% that year, China's import va-lue still exceeded US$1,000 billion, making it the world's number 2 importing country, making significant contribution to the revival of the global economy.

In the past, WTO only had a"four-side" decision making mechanism comprising the US, Japan, European Union and Canada. After China's entry, WTO formed an internal "seven-party" decision making mechanism comprising China, India, US, Brazil, European Union, Japan and Australia.

Newly emerging developing countries have entered the core of the WTO that led the various negotiations, and their collective bargaining power drastically increased. China played an active role in the WTO Doha Round, submitting over 100 proposals, and even took the initiative to moderate the standpoints of various parties, actively contributing to the establishment of an international trade environment that is more open and fair.

Second, China is facilitating the reform of the international financial system. After the international financial crisis, the world economy is still in the process of recovery.However, with the interwoven issues of surplus of global liquidity and the imperfections of the international monetary system, the road to recovery was difficult and challenging. Hence for the orderly flow of capital and the continued development of global trade, the reform on the international financial system has become very imperative.

After the global financial crisis, the Chinese Government expedited the reform of the international financial system. The G20 Summit in London in 2009 symbolized the end of the old order of the global economy, and the inception of a new order.

The first crisis of the 21st century proved once again that the seven western industrial countries were no longer capable of dictating global economic affairs. The G20 Summit in London was a platform where different countries sought solutions to the crisis on a global basis. On the eve of this Summit, Zhou Xiaochuan, Governor of the People's Bank of China stated frankly that an international reserve currency must be created—a currency that is not pegged to the sovereignty nation but can maintain long-term stability in its value—to solve the series of issues in the current international currency system exposed by the financial crisis. Zhou's attitude to a considerable extent represented the view of the Chinese Government.

Regarding the reform of the international financial system, the Chinese Government on the one hand stressed that we must use the reform of the IMF quota and vote as the breakthrough point to reform the existing international financial system and increase the representativeness and right of speech of the developing countries, and on the other hand it advocated further using the IMF, World Bank and G20 as the platform for global economic governance.

It added that China should use this as the prerequisite for actively exploring effective mechanisms and ways to strengthen the monitoring and control of the issuance of US dollars, and set up an international reserve currency system with a stable currency value, an orderly supply, and flexibility in adjusting the total volume.

Apart from this, China also passed a resolution to sign an agreement with other countries on the mutual exchange of the RMB, in order to facilitate the reform of the international reserve currency system.

In 2000, ASEAN's 10 member countries and China, Japan and Korea passed the Qing Mai Initiative, with a decision to set up a regional currency swapping network. In March 2012, China had already set up currency swap relationships with 19 countries or regions, including New Zealand, Singapore, Iceland, Argentina, Indonesia, Belarus, Malaysia, Hong Kong and Korea. The accumulated total reached RMB 1,600 billion.

Given the chaotic circumstances surrounding the current international currency system, the currency swap agreement signed between China and other countries or regions manages to establish a regional currency swap network, and demonstrates China's determination and contributions as a major country to maintain the currency stability of the region.

At the same time, the China-Japan direct currency trading arrangements since June 2012 reduced the dependence on the US dollar. While the risk of deflation of the US dollar is averted,we know that this is conducive to maintaining international financial market.

Third, China is facilitating the establishment of a new order for the international economy that is more just and reasonable.

In 2000, over 150 heads of state and government gathered in New York to attend the Millennium Summit Conference at the United Nations headquarters.

The theme of the convention was the function of the United Nations in the 21st century. The then United Nations Secretary General Mr Annam urged the world to take active action to help 1 billion people escape from poverty by 2015. However, the pledges made at Millennium Summit did not materialize in the first decade of the 21st century. The imbalance in the economic development of different countries further worsened, and the gap between the south and the north further widened, and on the ranking table for the average per capita income, released by the World Bank in 2014, the top countries were Qatar, Lichtenstein and the United Arab Emirates, with US$ 107,721, US$83,717 and US$59,993 respectively. These three richest countries are 385,299 and 214 times richer than the Republic of Congo on the bottom of the table. This gap reflects the huge difference between the richest developed countries and the poorest developing countries. In January 2014, the World Economic Forum released its "2014 Global Risk Report", assessing the seriousness of 31 global risks, probability and potential influence. It was of the view that the widening of the gap between the rich and the poor is actually the risk that most likely will pose a very serious threat to the world. The ever-widening division between the rich and the poor will have even more extensive impact on the world economy.

There was a charitable organization that used the figures in the Forbes list of tycoons to point out that the richest 85 persons in the world possessed a total of US$1,700 billion, which is equivalent to the total wealth owned by the poorer half of the world's population. This report also points out that in 2013, there were 210 people entering the US$1 billion club for the first time, bringing to 1,426 the total number of tycoons with a fortune in excess of US$1 billion. Their net assets add up to US$5,400 billion. The richest 1% of the people own a total of US$1,100 billion, or 65 times that of the total of the poorest 3.5 billion poor people.

After the Millennium Summit, China has always been honoring its commitment, working hard to set up a new type of global development partnership that is more fair and balanced.

China has also been strengthening the dialogue between the north and the south, and also cooperation among southern countries. In the past decade, China has provided various kinds of relief funding, totaling over RMB 170 billion, and waiving repayment of debt due from 50 debt-ridden and least developed countries, totaling over RMB 30 billion. China has also committed to grant tariff-free treatment to 97% of the products from the least developed countries that China has diplomatic ties with. At the same time, China has provided training to 60,000 people from international organizations from 173 developing countries and 13 regions, in order to strengthen the capacity of these supported countries and regions to develop autonomously.

Meanwhile, China attaches great importance to restructuring the south-south cooperation mechanism. The China-Africa Cooperation Forum is one such mechanism for collective dialogue. Since the first ministerial meeting of the China-Africa Cooperation Forum held in Beijing in 2000, we have experienced 13 years of challenges, with five ministerial meetings held. Today, the number of members has reached 48. A wide range of cooperative projects had been held among the member countries in the realms of trade, investment, finance, agriculture, resources, tourism, education, science and culture. As the largest developing country in the world, China is responding to the United Nations millennium development objective, actively fulfilling its international obligations, and working hard to eliminate the imbalance between the north and the south, with its sight set upon the future.

Future: Realizing the objective of"inclusiveness"

In this era of economic globalization, economic ties between various countries are intertwined with each other. As the saying goes,"You have me, I have you".

Before the global financial crisis, freedom and market values are prevalent at the global level. But after the crisis, governments are reviving their policies of economic intervention on a large scale. In the post-crisis era, and in the process of world economic revival, competition among enterprises will continue to give way to gaming and competition among governments.

Governments of developed countries in Europe and the US are addressing the issue of the constant downgrading of manufacturing among various industries, resulting in reduced competitiveness of their industrial products in the international market. They are raising the strategy of"re-industrialization", to encourage manufacturers to "return" to their country in order to facilitate the rapid growth of their domestic manufacturing industries.

In 2009, US President Obama's government proposed a way to revitalize the country's domestic manufacturing industry, to enable the US to transit to a mode of economic development driven by exports. In the same year, the German government proposed the initiation of a new round of industrialization in a bid to revive the traditional manufacturing industry.

Faced with the adjustments to the development strategies of Western countries, the developing countries at the lower end of the chain in terms of the international division of labor,who are dependent on the market of developed countries, are worried about their economic prospects. Frederik Erixon, director of the European Center for International Political Economy, pointed out that since the onset of the 2008 international financial crisis, profound changes had taken place in Chinese-European trade. China's light industry exports to the European Union dropped dramatically. Europe was stepping up its trade defense, helping European enterprises to compete against China.

Under these circumstances, the Chinese Government made timely adjustments to its national strategies for economic development. It proposed changes to the mode of external trade growth and took advantage of a new round of international industry transfer to facilitate the upgrading of the trading of processed goods, repositioning its division of labor status in the global value chain.

To the world economy, the catch word for a rather long time in the future will be"adjustment", and the main theme will be "coexistence of competition and cooperation". Friction will become inevitable.

The world economy will slowly revive, and a new growth strategy is being adjusted. The world economic pattern is undergoing profound changes, and the gaming between developed economies and newly emerging economies will continue. In the final analysis, the gaming between developed economies and newly emerging economies/developing countries will focus on the gaming between China and the US.

In 2009, during the G20 London Summit, China and the US became the focus of global attention, and a lot of people harbored hope on the cooperation between China and the US for the rescue of the global economy.

Suddenly a lot of media, experts, academics and even governments were talking about the idea of G2. From my point of view, as a developing country, China is not in a position to bear the international responsibilities that this"title" entails. Global economic problems need to be solved jointly by all the countries in the world.

China is the US's biggest creditor, and the US is one of China's biggest trade partners. The two countries have profound relationships on the economic and social fronts. Although China's international influence is constantly on the rise, it still is, by nature, a developing country. The international financial crisis has made a huge impact on China. China's role as the "world factory" is faced with challenges, and the transition and upgrading of China's economy cannot be achieved overnight. Since 2011, Dongguan, dubbed the "shoe capital of the world", has been in difficulty.

European and US markets have been placing fewer and fewer orders for shoes and apparel. Even during the peak season of Christmas in 2011, ships to Europe were only about 50% full, and ships to markets on the American continent were less than 80% full. Although there has been a slight increase in orders from the Middle East, Latin America and Africa, this could in no way make up for the decline in orders from Europe and America.

Hence the best outcome of this gaming is to realize"inclusive growth" on the global scale. In other words, adjustment and reform take place on the foundation of the existing global economy governance mechanism, so that developing countries will have more say, and the fruits of economic globalization and economic development will benefit all countries and regions, and benefit all the people in the sense that coordinated development in the economy and in the community is realized in the context of sustainable development.

At the core of"inclusive growth" is the notion of "sharing". The objective of sharing is to create an environment of fair development and competition for more people in the world within a society that is imbalanced in its development, with a multitude of interest patterns. This is also the solemn commitment made by 189 members in the United Nations. China has never forgotten this!