King on Wu, “China, Inc.”

On Friday, March 2, Professor Mark Wu from Harvard Law School came to speak as a guest speaker for the Sawyer Seminar on Corporations and International Law to discuss the unique economic structure of China, which he terms China, Inc.

Professor Wu explained that international law and our global ideology about trade is a result of the Cold War, such that definitions are binary and state-owned enterprises are conceptualized as Soviet-style entities where the state controls both ownership and control.  Likewise, we juxtapose the Soviet-style command-control economic states with our own, which we conceptualize as a pure free market state. But Professor Wu explains that part of the reason the modern Chinese economy has worked is that they broke away from the Soviet-style economy, but they also rejected the Washington Consensus in order to avoid the trap that has ensnared most other developing countries. Thus, Chinese enterprises cannot simply be analogized to Soviet-style or capitalist entities, China is unique. Like in the US, where AT&T and Apple have some interplay with the government, China is just another state on that continuum.  Additionally, China has been uniquely able to achieve this economic system because of their history.

As a result, China, Inc.’s unique setup has led to tension in the international arena.  Particularly because international legal rules were formulated at the end of World War II and at the beginning of the Cold War, the rules reflect the Western state as the military industrial complex but with a free market economic system that stood in contrast to the Soviet system. However, that era, which itself was an anomaly, is ending and there is a need for the rules to be adapted to accommodate the pressures on the system.

Professor Wu explained that there is a tension between China’s distrust of the present system and the desire to keep the system alive because of the economic benefit that it provides China. Given the historic development of the rules, China, Inc.’s economic system does not fit within the current WTO system and has placed strains on the system’s ability to regulate trade.  For example, in the wake of the financial crisis, China recognized a hypocrisy in the Western interest in holding the Chinese structures liable for state subsidies but not holding its own system liable for the same conduct. In spite of this, China continues to be a large beneficiary of the current system and therefore, has incentives to maintain the system as well and continue to exploit the structure.  Wu emphasized that without principles that properly address the unique Chinese system, it will continue to appear as though the West is unfairly targeting China with disputes as a means of preventing China from gaining influence.

A couple of the questions during the session focused on how the international system might be able to adapt to better accommodate China.  Professor Wu suggested two possible options for how the system might change. First, empowering jurists internationally to adapt the rules, in a similar way as the US Constitution has been seen as a living constitution, and to pair that power with certain political checks on those jurists. Second, the system could build in checks for renegotiation. This, of course, comes with the downside of creating greater uncertainty within the system. However, Professor Wu noted that he does not see change happening within the system because there is an unwillingness to compromise, which would be necessary in order for that change to occur. The West has been unwilling to give anything in the negotiation and until they are there is no reason for China to negotiate.

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