Integrated Challenge? China-Russia vs the Washington Consensus

Throughout the 1990s and early 2000s, bilateral relations between China and Russia were often characterized as falling into an “axis of convenience”.

Despite mutual advocacy for a multipolar world and consensus on other major issues in international affairs, Russia and China still have vastly different worldviews about an appropriate international order, each one’s role in such, and how to approach other major powers in the new world order.

But the historical deep-rooted distrust between the two neighboring giants has seemingly receded in the contemporary forging of closer economic and political ties.

Since the changes in top leadership in both countries in 2012, Sino-Russian relations have begun to be redefined, reset even. Even though both sides deny the formation of a full-scale alliance, bilateral relations at the official level are moving closer at a pace unanticipated even by most experts in the field.

In just the past two years, the two countries have signed a wide range of major economic deals including oil and gas exports, energy pipelines, banking and finance, high-speed rail, and wide-bodied aircraft.

They have also agreed to advocate de-dollarization, intensify military cooperation, and coordinate on grandiose regional integration projects.

Both Russian President Vladimir Putin and Chinese President Xi Jinping have commented about a “new just world order” which is expected to challenge the domination of a Washington-led paradigm, especially its founding principle, the “Washington Consensus”.

The Washington Consensus

The Washington Consensus refers to a set of reform policies that the US government and financial institutions based in the American capital advocate believe should be implemented by nations to ensure economic growth.

It was first coined in 1990 about Latin American economies.

It is prudent to note that such counterforce against Washington Consensus by China and Russia is not meant to be a revolutionary measure, at least not in the near future.

On the one hand, both China and Russia benefited from the post-Cold War expansion of neoliberalism, partially endorsing the policy packages advocated by the Washington Consensus. Their economic achievement to a large extent is the result of gradual integration in the liberal world order.

On the other hand, the domestic national political economic systems of these two countries do depart from the liberal capitalist systems.

Although Russia and China are now much less constrained by international systems and international capital – having insulated themselves from international financial “conditionality” by accumulating large currency reserves – they nevertheless pursue policies that are not completely removed from those prescribed by the Washington Consensus.

While “national development” has again been championed directly or indirectly in both countries after the end of communism, both governments are equipped with new tools and governance skills to mobilize the capitalist metrics to achieve modernization goals in the short run.

Internally, both governments are now in control of the commanding heights of the national economies and influence the investment decisions of private companies through increasingly ‘sophisticated’ new mechanisms, such as minority holdings.

Externally, both countries have taken an active role in overseas investment and trade, becoming major investors in many countries and industries around the world, with resources that can rival those of the traditional capitalist core countries.

The recent initiatives for establishment of the BRICS Development Bank, Asian Infrastructure Investment Bank and the proposed Shanghai Cooperation Organization Bank further coincide with such a trend.

Moscow and Beijing, however, are also leading the developing countries in their demand for a more ‘equitable’ international order and global governance reform.

Neither China nor Russia has openly challenged the current capitalistic world order yet. Nor does either country seek to establish a world on its own rules completely isolated from the liberal capitalist world.

Consequently, such “life-or-death” bipolar rivalry between NATO and the former Warsaw Pact during the Cold War is unlikely to reemerge any time soon. In fact, Russian President Putin in a phone conversation with his US counterpart Obama last week said “Russian-American relations remain the most important factor of international stability and security”.

Inside-out parallel worlds

Starting roughly from 2003, China and Russia have engaged in three approaches to modify the rules of the game in international order and global governance.

The first is to reform the current system from within.

For example, both countries have proposed expanding voting power and quota shares for emerging economies within the International Monetary Fund. This approach is designed to further democratize the decision-making process and enhance the representativeness and quality of international governance.

The second is to create or modify rules and institutions to fill in the gaps left unattended by the current international system.

A recent example in this regard is the Asian Infrastructure Investment Bank, which primarily targets countries and areas which have huge demand for infrastructure investment but have not been served adequately by existing development financing institutions, e.g. the Asian Development Bank (ADB).

The third approach is to create a “parallel world” around current international institutions dominated by liberal capitalism.

Mirroring the way Chinese political elites introduced economic reforms in the 1980s, such a strategy keeps the old system intact while allowing the new system to grow in tandem.

Even though the two may not engage in head-to-head competition directly, gradually, the new paradigm may grow to such an extent that the old system becomes irrelevant.

China and Russia, possibly along with several other emerging countries, will modify or challenge the nature of the “liberal leviathan” created and held together by the US in the post-Cold War era.

Whether they have the ‘intention’ or ‘ability’ to replace it with a fundamentally different alternative is a matter of conjecture.

For example, in the field of financing, China and Russia may prefer long-term investment mostly through the banking system.

They are less inclined to advocate for an Anglo-Saxon type of highly liquid, highly open stock market as the main means of financing.

They will most likely opt for capital control and the use of policy – and national banks.

Such difference, however, does not change the fact that the current Chinese and Russian systems are fundamentally profit driven and are just subtypes of capitalism.

China and Russia are not rocking the boat yet. For the foreseeable future, their “integrated challenge” to the Washington Consensus will be highly issue-specific, and its overall nature will depend on the details of specific institutions and rules they promote.

Such an “integrated challenge” may well be the defining theme of the capitalist world order in the near future.

Originally published on July 8th 2015 at The BRICS Post

ECNU professor, political economy, corporate foreign policy, development, Russia, Eurasia & Emerging Economies, tennis  Visit Xin's website

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