[ISAFIS Newsletter #3] China’s Vision for a World Beyond Western-Centrism Calls the Liberal Economic System Into Question

Written by: Natalie Grace Sierra Adi Staff of Research and Development

The West is no longer the only one writing the rules. As we begin to see the cracks in the liberal economic system, China enters with a different kind of order: one that challenges the system of limited state interference and free markets that has long been sold as universal truths. China has experienced an outstanding technological and economic development over the past 40 years, so much so that it has positioned itself as the first real rival to the US since the Soviet Union (CRSR, 2019). Though China practices a form of capitalism, it is hardly liberal in the Western sense. The Chinese system embraces strong state involvement and selective integration with global markets—a state-led capitalism (Pearson et al., 2023). China’s ambition to reconstruct the global economic order is pursued by building its own arenas of influence.

Image 1. China and U.S. Flags.
Source: Nikkei Asia

Take the Shanghai Cooperation Organization (SCO). What began as a security and political cooperation among China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan has slowly grown into something much more. The more expansions it pursued, including the entry of India and Pakistan in 2017, followed by Iran in 2023, the more the SCO has evolved into a higher-level regional entity in the Eurasia region (TSCO, 2017). The SCO now also focuses on economic collaboration among its member states. Unlike NATO or the EU, the SCO doesn’t demand ideological compliance. It is simply an area for China to promote its vision of regional economic integration as an alternative to Western-led economic bodies.

In terms of forming new economic alliances, China shines through BRICS. Notwithstanding being politically diverse, BRICS countries share one core sentiment: dissatisfaction with the Western-dominated economic system. In response, they’ve set up their own New Development Bank (NDB) to emphasize local currency trade to challenge the US dollar’s dominance, headquartered in Shanghai (Saidaa, 2024). As the alliance’s economic heavyweight, China has used BRICS as a strategic tactic to dilute the West’s monopoly on global economic decision-making, and it practically steers the bank toward practical outcomes. The only problem is that internal geopolitical volatilities, such as the Sino-Indian border dispute, prevent any real unity between the countries. This contradiction raises questions about their true capabilities in de-dollarization efforts.

China has also built the Asian Infrastructure Investment Bank (AIIB), an alternative to Western international financial institutions such as the IMF and the World Bank, whose purpose was to finance infrastructure across Asia. China invests heavily in roads, bridges, and energy projects. Over 100 countries have joined the AIIB, which isn’t a surprising number considering the selling point on infrastructure, connectivity, and sustainable development—all priorities that are appealing to emerging economies (AIIB, 2016). And while China insists the AIIB isn’t meant to rival the Bretton Woods system, its expanding membership and growing loan portfolio suggest otherwise. However, some member states question the rationale in AIIB’s decision-making processes given China’s dominant role within the institution.

Despite China’s successes, not everyone is on board with China’s economic proposals. Within the SCO, Russia has been wary of Beijing gaining too much financial dominance over the group, and it is similar to the concerns from other countries of China’s partners. It needs to be understood that China may not be seeking to completely overturn the current economic order because it will be very costly on its behalf. China is internally at a point where there is not much else to build in terms of infrastructure that can boost its economy due to vast overbuilding. Therefore, as an alternative, it wants to capitalize on poorer countries to produce where it is cheapest and sell where it sells the highest. Not only does this benefit China’s economy, but it also reinforces citizens’ loyalty to the Communist Party by showcasing China’s growing global economic power.

Having these setups, emerging economies now face an intersection. Nations like Indonesia stand at a crossroads where they can either rely on the old Western liberal economic system or support a new economic system to decide which could respond better to their specific needs. Beijing’s vision, though, contrasts with the entrenched Western order that is currently very unstable. The question is no longer which economic system is more powerful, but which one is willing to listen. At the end of the day, the cost of clinging to a broken system may be greater than the risk of building a new one.

References

Asian Infrastructure Investment Bank. (n.d.). About AIIB. https://www.aiib.org/en/about-aiib/index.html 

Shanghai Cooperation Organisation. (n.d.). General Information. https://eng.sectsco.org/20170109/192193.html 

Saaida, M. (2024). BRICS Plus: De-dollarization and global power shifts in new economic landscape. In M. Sheresheva & Y. D. Lissovolik (Eds.), Changing the Global Monetary and Financial Architecture: The Role of BRICS-Plus. BRICS Journal of Economics, 5(1), 13–33. https://doi.org/10.3897/brics-econ.5.e117828 

Pearson, M. M., et al. (2023). The State and Capitalism in China. Cambridge University Press. https://doi.org/10.1017/9781009356732 

Morrison, W. M. (2019). China’s Economic Rise: History, Trends, Challenges, and Implications for the United States (CRS Report No. RL33534). Congressional Research Service. https://www.everycrsreport.com/reports/RL33534.html