Telo on Wu, “China, Inc.”

On March 2, 2018, Harvard Law professor Mark Wu joined the Sawyer Seminar on Corporations and International Law to discuss China’s increasingly ambiguous role in the world economy. The Chinese economy features a unique organization of formal and informal synergetic links connecting public and private entities. This uniqueness has created tension in the international geopolitical sphere, especially within the World Trade Organization, for how to best structure international trade law to address the rise of China. Though this discourse usually centers around how to make China “play by the rules,” Dr. Wu believes that it may be “the rulebook itself that needs to change.”

Dr. Wu began the talk by discussing the importance of rethinking how capitalism is organized. He describes the current state of international law as a product of the Cold War. In the wake of World War 2 and the beginnings of the Cold War, Bretton Woods institutions like the International Monetary Fund and World Bank promoted a global model of neoliberal development policy that was largely exclusive of divergent models for development.

Yet China has been able to emerge as an economic powerhouse by employing an atypical model of development built on state-owned enterprises (SOEs). Under Cold War notions of development, China’s system of SOEs is an anomaly that shouldn’t be successful, but Dr. Wu affirmed that this shouldn’t be the case. Instead of China being the anomaly, perhaps state and corporations have always been intertwined to some extent, and that the anomaly is actually the Bretton Woods era from 1945 until 1990.

In the context of Chinese history, interconnected state-private relationships aren’t new to China. Dr. Wu explained that the Tang dynasty possessed quasi-private entities that allowed the state to introduce competition into the markets—similar to current-day SOEs—and it wasn’t until foreign invaders took over China that this classic growth structure was disrupted.

After the creation of the People’s Republic of China, the state knew it needed to find a way to economically develop while also keeping some means of control. It tried export-led industrialization and heavy investing in infrastructure, but low capital prevented these methods from fully succeeding.

In this way, the Chinese system was built on pragmatism. Because of lack of capital, China instead decided to borrow a top-down control approach from the imperial days: having firms compete against each other and employing a system of vertical checks and balances to keep power centers from forming. To encourage horizontal competition, the Chinese state sponsors different players while allowing private ones to develop organically.

Dr. Wu believes that this combination of pragmatism and checks and balances is what has allowed for China’s emergence as a global economic powerhouse, and it is also the reason why this development model can’t happen anywhere else.

Dr. Wu emphasized that China has been able to succeed largely because it avoided being trapped in a one-fits-all development model, unlike the rest of the developing world. Instead, China pursued its own model tailored to its particular needs and history. As the multilateral trade regime struggles to address the rise of China, perhaps China is only the first sign that a change in the global geopolitical rulebook is in due course.

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