Jeffrey Frankel writes: China and the United States seem to regard Asia-Pacific relations similarly: as a zero-sum game. Are countries signing up for China’s Asian Infrastructure Bank or America’s Trans-Pacific Partnership? Will China be welcomed, or humiliatingly rebuffed, in its effort to persuade the International Monetary Fund to include the renminbi in its unit of account, Special Drawing Rights (SDR)? Is the US still the world’s largest economy, or did China surpass it in 2014?
However tempting it may be to focus on such questions, they are the wrong way to think about the global economy. There is no reason why some countries should not join both China’s AIIB and America’s TPP, or why overlapping memberships should not expand over time – or, indeed, why the hostesses should not eventually attend each other’s parties.
There is nothing wrong with joining the AIIB. Asia needs more help with infrastructure investment than the World Bank and the Asian Development Bank can provide; China can play a useful leadership role; and the participation of countries with high governance standards can help prevent the cronyism, corruption, and environmental damage to which large-scale infrastructure projects are prone.
Likewise, the TPP negotiations are sometimes characterized as a US attempt to isolate China. But, given the Asia-Pacific region’s high trade volumes, and its dense set of trading arrangements running in every direction, no one, including China, is about to be isolated.
Exchange rates are another area where zero-sum thinking prevails.
Every five years, the IMF reconsiders its composition, which currently is defined in terms of the dollar, euro, yen, and pound. A misplaced focus on country rankings can do real damage.
Such is the case with the stalled IMF quota reform, an issue where the rankings in fact are of some importance, but not in a zero-sum way. quota shares, implying greater financial contributions and greater voting weights.
Thirty years ago, the West wanted nothing more than for China to become a capitalist economy. It has done so, with spectacular success. The rules of the game now require that China be given a bigger share in the governance of international institutions.
