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The Economic Rise of China: Rule-Taker, Rule-Maker,

or Rule-Breaker?

Article  in  Asian Survey · August 2017

DOI: 10.1525/as.2017.57.4.595

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ZHAOHUI WANG

The Economic Rise of China

Rule-Taker, Rule-Maker, or Rule-Breaker?

ABSTRACT

This paper examines the symbiotic but asymmetric relationship between the United
States as the core and China as the semi-periphery. It argues that China’s policy
response in both domestic and international domains after the global financial crisis
reveals that China as a rising power is no longer a rule-taker, but between a rule-maker
and a rule-breaker that adds incremental reforms to current international institutions.
K E Y W O R D S : China’s economic rise, US–China economic relations, global
economic crisis, China’s policy response

INTRODUCTION

Since China joined the World Trade Organization in 2001, the world has
been surprised by China’s rapid economic expansion. Its GDP grew at an
average rate of 10.5% in the first decade of the new millennium, and China’s
share of world GDP doubled from 7.5% to 15% between 2001 and 2012.1 It is
not an exaggeration to say that China has grown from a relatively underde-
veloped economy to an increasingly pivotal emerging market economy with
a crucial role in the global economy.
Given China’s economic and demographic size, the rise of its economy has
had significant impacts on the global economy. At the very least, the world

ZHAOHUI WANG is an Assistant Professor at the Center for Southeast Asian Studies and the School
of International Relations, Xiamen University, Fujian, China. His research focuses on international
political economy, US–China economic relations, China’s exchange rate policymaking, and RMB
internationalization. His academic papers have appeared in Asian Studies Review, Journal of Con-
temporary China, and The China Review. The author would like to thank Shaun Breslin and the
anonymous reviewers of Asian Survey for their valuable comments on earlier versions of this article.
Any mistakes are the responsibility of the author. Email: <zhaohuiwang@xmu.edu.cn>.

1. World Bank data, <http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG>, accessed

December 10, 2016; IMF World Economic Outlook Database, <http://www.imf.org/external/ns/cs.
aspx?id¼28>, accessed December 10, 2016.

Asian Survey, Vol. 57, Number 4, pp. 595–617. ISSN 0004-4687, electronic ISSN 1533-838X. © 2017 by
The Regents of the University of California. All rights reserved. Please direct all requests for permission
to photocopy or reproduce article content through the University of California Press’s Reprints and
Permissions web page, http://www.ucpress.edu/journals.php?p¼reprints. DOI: https://doi.org/10.1525/
AS.2017.57.4.595.

595
596  ASIAN SURVEY 57:4

economy has been riven by increasingly large imbalances: current account

deficits on the one side, with the US economy as the most prominent, and
current account surpluses on the other side, with China being the polar
opposite.2 Against this backdrop, understanding China’s foreign economic
relations and its global economic impacts has become one of the crucial
intellectual exercises in the twenty-first century. For those who are interested
in the implications of China’s rise for the global political economy, there are
three divergent views.
First, China has been dependent on export-oriented growth—it cannot
work without the global economy, which implies that a rising China has an
interest in maintaining global trade and prosperity. Rather than being an
alternative to neoliberalism, China’s foreign direct investment (FDI) inflows
and export-oriented growth are an indispensable part of the global liberal
order.3 Furthermore, should the US reinforce the rules and institutions that
Western countries have established over the last century, it could ensure that
China will accept the current rules of the game, thereby exercising China’s
economic power in the existing international order.4 This argument could be
called the convergence hypothesis.
From the second perspective, China’s developmental pathway, character-
ized by state capitalism and political authoritarianism, has been interpreted as
abnormal, deviating from the mainstream norm of neoliberal development.5
More importantly, China is in many ways dissatisfied with the current global
institutional presence, which was established by the US after the Second
World War and more in line with Western powers. This is especially evident

2. Keith Cowling, Stephen P. Dunn, and Philip R. Tomlinson, ‘‘Global Imbalances and Modern
Capitalism: A Structural Approach to Understanding the Present Economic Crisis,’’ Journal of Post
Keynesian Economics 33:4 (December 2011): 575–596.
3. Hung Ho-fung, ‘‘Rise of China and the Global Overaccumulation Crisis,’’ Review of Interna-
tional Political Economy 15:2 (April 2008): 149–179; Hung Ho-fung, ‘‘Is China Saving Global Cap-
italism from the Global Crisis?’’ Protosociology 29 (2012): 159–179.
4. John Ikenberry, ‘‘The Rise of China and the Future of the West: Can the Liberal System
Survive?’’ Foreign Affairs 87:1 (January/February 2008): 23–37.
5. Shaun Breslin, ‘‘Capitalism with Chinese Characteristics: The Public, the Private and the
International,’’ Working Paper No. 104, Asia Research Centre, Murdoch University, June 2004,
<https://www.murdoch.edu.au/Research-capabilities/Asia-Research-Centre/_document/working-
papers/wp104.pdf>, accessed December 10, 2016; Shaun Breslin, ‘‘The ‘China Model’ and the Global
Crisis: From Friedrich List to a Chinese Mode of Governance?’’ International Affairs 87:6 (November
2011): 1323–43; Mattias Vermeiren and Sacha Dierckx, ‘‘Challenging Global Neoliberalism? The
Global Political Economy of China’s Capital Controls,’’ Third World Quarterly 33:9 (October
2012): 1647–68.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  597

in China’s call for reform of the international monetary system after the
2008 global financial crisis. In this sense, China’s economic rise has been
interpreted as a growing threat, or at least a potential challenge, to the
existing international order. This viewpoint could be called the challenge
hypothesis.
The third perspective is the status quo hypothesis. In the 2000s, Dooley,
Folkerts-Landau, and Garber put forward the notion of the ‘‘revived Bretton
Woods system’’ (hereafter, BW2) to characterize the contemporary interna-
tional economic system.6 Specifically, in the Bretton Woods era the core was
the US and the periphery was Europe and Japan. With the spread of glob-
alization, there is a new periphery, the emerging markets of Asia and partic-
ularly China, but the core remains the same: the US. Proponents of BW2
argue that since structural factors underlie the current pattern of exchange
rates (undervalued Asian currencies and overvalued dollar) and global imbal-
ances (Asian surpluses and US deficits), this situation is likely to endure for
a considerable time.
Although existing studies of the relationship between China and the cur-
rent international order are not without merit, especially insofar as they draw
attention to the multiple and competing roles of China in the global political
economy, to a great extent they overlook the economic foundations of Chi-
na’s strategy. Based on a critical review of the BW2 argument, this paper will
examine the structural positions of the US and China in the contemporary
global economy and more specifically, explore the nature of US–China eco-
nomic relations and the recent global economic crisis. It is argued that the
symbiotic but asymmetric relationship between the US as the core and China
as the semi-periphery, which underlay the structural crisis of the world
economy and contributed to the recent global economic crisis, is not sus-
tainable in the long term. Thus, neither the status quo hypothesis nor the
convergence hypothesis can be accepted.
The paper also considers China’s policy responses in both domestic and
international domains after the global crisis, which reveal that China as
a rising power is no longer a rule-taker that accepts the status quo of current
international arrangements. Rather, China is better regarded as some

6. Michael P. Dooley, David Folkerts-Landau, and Peter Garber, ‘‘The Revived Bretton Woods
System,’’ International Journal of Finance and Economics 9:4 (October 2004): 307–313; Michael P.
Dooley, David Folkerts-Landau, and Peter Garber, ‘‘Bretton Woods II Still Defines the International
Monetary System,’’ Pacific Economic Review 14:3 (July 2009): 297–311.
598  ASIAN SURVEY 57:4

combination of a rule-maker (promoting global reforms of existing arrange-

ments) and a rule-breaker (in that it is creating its own arrangements).7
This paper is structured as follows. It begins with a critical review of the
BW2 argument. It conceptualizes core, semi-periphery, and periphery
based on world-systems theory and outlines the structural positions of the
US and China in the world economy. The second section analyzes the
symbiotic but asymmetric relationship between the US as the core and
China as the semi-periphery. The third section examines the recent global
financial and economic crisis, further arguing that the unbalanced US–
China economic relations are not sustainable in the long term. That section
also examines China’s policy responses in both domestic and international
domains after the global crisis. The final section offers some concluding
remarks.

CRITICAL REVIEW OF THE REVIVED BRETTON WOODS SYSTEM

In the BW2 argument, core-and-periphery is the central duality that stems

from dependency theory and world-systems theory. As mentioned in the
introduction, Dooley, Folkerts-Landau, and Garber comfortably claim that
the US and China have a core–periphery relationship in BW2. However, this
section will argue that although the position of the US as the core is unques-
tionable because the dollar remains the key international currency, China as
the periphery is a position that calls for debate and rejection.

World-Systems Theory: Core, Periphery, and Semi-Periphery

World-systems theorists hold that the division of labor in the capitalist world
economy divides production into core-like products and periphery-like
products, and states into statuses of core, periphery, and semi-periphery.8
The core specializes in the production of the most advanced goods, which
involves the use of the most sophisticated technologies and highly mecha-
nized methods of production (capital-intensive production). The core states
are the most economically and politically dominant, militarily powerful, and

7. Gregory Chin, ‘‘China’s Rising Monetary Power’’, in The Great Wall of Money: Power and
Politics in China’s International Monetary Relations, eds. Eric Helleiner and Jonathan Kirshner (New
York: Cornell University Press, 2014): 184–212.
8. Immanuel Wallerstein, World-Systems Analysis: An Introduction (Durham, NC: Duke Uni-
versity Press, 2004).
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  599

administratively well organized in the world-system.9 At the other extreme,

the periphery specializes in the production and export of raw materials and
labor-intensive goods. The peripheral states are militarily and organization-
ally weak.10 Between these two extremes are those states in the semi-
periphery. They have some economic activities similar to those of the core
(core-like production) and some more typical of the periphery (periphery-like
production). Some world-systems theorists suggest that the semi-peripheral
states play a critical role as ‘‘buffer zones’’ or ‘‘intermediaries’’ between the
core and the periphery.11
World-systems theorists view the nature of the economic relationship
between core and periphery in some aspects similarly to dependency theory;
that is, the trading relationship is fundamentally exploitative. Wallerstein
describes the nature of exploitation as ‘‘unequal exchange,’’ more specifically
‘‘a constant flow of surplus-value from the producers of peripheral products
to the producers of core-like products.’’12 Nevertheless, world-systems theor-
ists do not accept all the tenets of dependency theory without reservation.
For instance, world-systems theorists raise questions about whether all
peripheral countries are permanently locked into a dependent relationship
with the advanced capitalist countries, as most dependency theorists claim.
World-systems theorists argue that ‘‘quasi-monopolies are self-liquidating,’’
which means that quasi-monopolies can exhaust themselves, and a core-like
process today could downgrade to a periphery-like process tomorrow.13 For
example, in the late eighteenth century and early nineteenth century, the
production of textiles was the preeminent core-like production process,
whereas in the twenty-first century it is one of the least profitable peripheral
production processes. Furthermore, world-systems theorists hold that
a peripheral state is not necessarily permanently locked in the disadvantaged
position, which means it is possible to upgrade to a semi-peripheral state.

9. Terence Hopkins, ‘‘The Study of the Capitalist World-Economy: Some Introductory Con-
siderations,’’ in World-Systems Analysis: Theory and Methodology, ed. Terence Hopkins and Immanuel
Wallerstein (Beverly Hills, CA: Sage, 1982): 12–13.
10. Ibid.
11. Immanuel Wallerstein, The Capitalist World-Economy (Cambridge: Cambridge University Press,
1979); Giovanni Arrighi and Jessica Drangel, ‘‘The Stratification of the World-Economy: An Explo-
ration of the Semiperipheral Zone’’, Review (Fernand Braudel Center) 10:1 (Summer 1986): 9–10.
12. Wallerstein, World-Systems Analysis, p. 28.
13. Wallerstein, World-Systems Analysis, p. 27; Immanuel Wallerstein, The Decline of American
Power: The US in a Chaotic World (New York: New Press, 2013).
600  ASIAN SURVEY 57:4

China’s upgrade from periphery to semi-periphery is well suited to illustrate

this point, which will be discussed in more detail later.
Based on the conceptualization of core, periphery, and semi-periphery by
world-systems theory, the following sections will revisit the history and
dynamics of American and Chinese economic development and describe
their structural positions in the capitalist world economy.

The Dollar as the Core of the International Monetary System

The US emerged from the two world wars to become the economically and
politically dominant core state. The US specialized in the production of the
most advanced goods, which involves the use of the most sophisticated
technologies and capital-intensive production. The postwar international
monetary order, the dual-peg exchange rates or the gold exchange standard,
placed the dollar as the single core currency of the international monetary
system. The US government was committed to converting dollars into gold
at the price of $35 per ounce, and other currencies were pegged to the dollar at
fixed exchange rates.
Nevertheless, after the late 1960s the US no longer held a significant
economic advantage over its major allies in the sphere of world production;
the contrary was beginning to occur. For example, Germany and Japan could
manufacture automobiles more cheaply than the US, and German and Jap-
anese automobiles successfully entered the US market from then on. The
negative balance of payments, the soaring public debt incurred by the Viet-
nam War, and the expansionary monetary policy of the US Federal Reserve
rendered the dollar increasingly overvalued in the 1960s and finally gave rise
to the US closing of the gold window in 1971.
However, the suspension of direct convertibility of the dollar to gold
should not simply be understood as the last resort of the US as the core.
On the contrary, ‘‘by cutting itself loose from the obligations of the system,
the Americans shed the costs of serving as the world’s currency without
significantly reducing the benefits.’’14 For instance, French President Charles
de Gaulle repeatedly proposed reducing the ‘‘exorbitant privilege’’ of the US
that resulted from the special status of its currency. Ironically, after the

14. Eric Helleiner and Jonathan Kirshner, The Future of the Dollar (New York: Cornell Uni-
versity Press, 2009): 206.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  601

mid-1960s, when de Gaulle’s views were most strongly expressed, foreign

official holdings of dollars increased enormously. Foreign dollar reserves rose
from about $16 billion in 1965 to $160 billion in early 1981. Moreover, 38.2%
of this total increase, $55 billion, occurred in the 39 months from January
1970 to March 1973.15
After 1971, the Bretton Woods system was de facto replaced by a regime
of freely floating fiat currencies that remains in place to the present day.
With the wisdom of hindsight, we see that the post–Bretton Woods mon-
etary system to a large extent facilitated the US’s gain from the dollar’s
position at the core of the international monetary order. The principal
benefits the US enjoyed from the dollar’s status as the dominant interna-
tional currency were: the ability to run balance-of-payment deficits that
others could not, the willingness of foreign official institutions to purchase
and hold US government bonds, and the related and crucial discretion of
the Federal Reserve to implement expansionary monetary policy to stimu-
late a recessionary economy or inflate away debts. This could be achieved at
a certain magnitude without triggering overreaction in the international
financial markets.
In this sense, the manufacturing disadvantages and the trade deficits of the
US in the global economy were offset by the exorbitant privilege of the dollar
in the post–Bretton Woods monetary order, which perpetuated the US’s
position as the core of the world economy.

China’s Upgrade from Periphery to Semi-Periphery in the World Economy

China’s stance toward the capitalist world economy evolved from resistance
to embrace in the second half of the twentieth century. Because the prin-
ciples of the Chinese Communist Party and China’s political framework
were greatly influenced by Leninist approaches, China was incorporated
into the socialist bloc after the Second World War. Since the US and the
Soviet Union reached tacit agreement on the de facto economic disjuncture
of the two economic zones (capitalist world economy vs. Soviet zone),
China did not engage with the capitalist world economy until the late
1970s.

15. International Monetary Fund, International Financial Statistics Database, <http://data.imf.

org/?sk¼5dabaff2-c5ad-4d27-a175-1253419c02d1>, accessed December 10, 2016.
602  ASIAN SURVEY 57:4

Amid neoliberal globalization projects in the 1980s and 1990s, China

implemented Deng Xiaoping’s reform and opening-up policy and gradually
became involved in the world economy in the 1980s; integration sped up after
Deng’s Southern Tour through Chinese provinces in 1992. In an effort to
boost foreign investment and attract technology, China opened several Spe-
cial Economic Zones in its coastal regions and put forward foreigner-friendly
policies such as tax breaks, lower fees for land and infrastructure, tax rebates
on export goods, and low wages assured via a trade union tightly controlled
by the Chinese Communist Party.16 In 2001 China joined the World Trade
Organization, another milestone of reform and opening-up. China’s mea-
sures were successful in creating a more beneficial environment for foreign
investment and business, facilitating its rapid capital accumulation and
export-oriented growth, and contributing to the economic rise of China in
the twenty-first century.17
China has been characterized as a semi-periphery more than a periphery,
particularly in the twenty-first century. China has been the principal US
creditor and has become ‘‘the new focus of Asian economic regionalism.’’18
China’s recent economic activities in Africa also strongly support this argu-
ment. Despite some criticisms of China’s neo-colonialist approach, there is
no denying that China now has considerable influence in Africa, via a growing
FDI stock and surging China–Africa trade.
Therefore, it is argued that China was definitely a periphery in the 1970s
and 1980s, but over the last two decades has lifted itself out of that status
via increased high-technology goods production, huge R&D investments,
expanding energy consumption, and substantial boosts to the military. To
summarize, the idea of China as a periphery in the BW2 argument sounds
like an outlandish judgment in the context of the new millennium. It is more
accurate to regard China as a semi-periphery in the contemporary world
system.

16. Shaun Breslin, ‘‘China’s Emerging Global Role: Dissatisfied Responsible Great Power,’’
Politics 30:1 (December 2010): 52–62; Di Dongsheng, ‘‘The Renminbi’s Rise and Chinese Politics,’’ in
The Power of Currencies and Currencies of Power, ed. Alan Wheatley, International Institute for
Strategic Studies, December 2013: 115–126.
17. For more details, see Gerard Downes, ‘‘China and India: The New Powerhouses of the Semi-
Periphery?’’ in Globalization and the ‘New’ Semi-Peripheries, ed. Owen Worth and Phoebe Moore
(Basingstoke, UK: Palgrave Macmillan, 2009): 109–112.
18. Robert W. Cox, ‘‘Beyond Empire and Terror: Critical Reflections on the Political Economy
of World Order,’’ New Political Economy 9:3 (August 2004): 313.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  603

SYMBIOTIC BUT ASYMMETRIC US–CHINA ECONOMIC RELATIONS

Based on the above analysis of American and Chinese structural positions in

the world economy, this section will first argue that the US and China have
formed a symbiotic relationship because of the dollar’s core status in the
international monetary system and China’s excessive manufacturing capacity
and dependence on foreign markets.
As mentioned, amid considerable systemic inertia, the status of the dollar
as the core currency in the international monetary system was not dethroned
by the US’s closing of the gold window in 1971. It remains so now, and will be
so for the foreseeable future. The international role of the dollar endowed the
US with the advantage of issuing dollars as the world trading and reserve
currency, the willingness of foreign official institutions to purchase and hold
US government bonds, the privilege of running balance-of-payment deficits
without implementing structural adjustments like other borrowing countries,
and the related and crucial discretion of the Federal Reserve to implement
expansionary monetary policy to stimulate recessionary economy or inflate
away debts. The dollar’s core status in the international monetary system is
the centerpiece of the US’s core status in the international system.
Moreover, states (and private actors within states) that use the dollar (and
especially those that hold their reserves in dollars) naturally develop an inter-
est in the value and stability of the dollar.19 Because the dollar is so widely
used on the global scale, its fate becomes more than just the US’s concern—it
becomes the concern of all dollar-holding countries. The closely related
stakeholders were the European countries and Japan, and now include
China. China’s monetary dependence on the dollar is closely related to its
dependence on the world economy.
China in the twenty-first century has been committed to export-oriented
growth based on maintaining a low exchange rate. China was often criticized
for being a neo-mercantilist country that manipulated its currency to boost its
exports.20 More specifically, it ran persistent current account surpluses in part
because the Chinese government maintained the renminbi (RMB, or yuan)

19. Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University
of California Press, 1980); Rawi Abdelal and Jonathan Kirshner, ‘‘Strategy, Economic Relations, and
the Definition of National Interests,’’ Security Studies 9:1–2 (December 1999): 119–156.
20. See e.g., Anthony J. Makin, ‘‘Is China’s Exchange Rate Policy a Form of Trade Protection?’’
Business Economics 44:2 (June 2009): 80–86; Paul F. Cwik, ‘‘The New Neo-mercantilism: Currency
Manipulation as a Form of Protectionism,’’ Economic Affairs 31:3 (October 2011): 7–11; Dani Rodrik,
604  ASIAN SURVEY 57:4

figure 1. China’s Foreign Direct Investment (Net Inflows), 1994–2013

400
350
300
US$ billions

250
200
150
100
50
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Year

SOURCE :
Author’s elaboration based on data from the World Bank, <http://data.worldbank.org/indicator/
BX.KLT.DINV.CD.WD>.

at competitive (many analysts said undervalued) exchange rates against the

US dollar. Furthermore, China’s central bank, the People’s Bank of China,
engaged in massive sterilized intervention by selling renminbi and buying
dollars in the foreign exchange market. The result was the continuous expan-
sion of China’s foreign exchange reserves.
China used part of these foreign reserves to purchase US Treasury bonds in
order to finance American balance-of-payment deficits. On the one hand,
China repressed its own domestic consumption and exported large quantities
of inexpensive goods, which helped reduce US inflation and stimulate US
consumption. On the other hand, China’s massive purchase of US Treasury
bonds helped lower their yields and bring down US interest rates, as another
effort to secure the continuous increase of US demand for China’s exports.
China’s developmental strategy since the 1990s, which could be summarized
as integration into the world economy to facilitate FDI-driven and export-
oriented growth, is illustrated in Figures 1–5.
Figure 1 shows that China’s FDI net inflows continued to increase after
2000, and accelerated after 2004. Figure 2 reveals that China’s household
consumption continued to decrease while exports soared in the new millen-
nium. Figures 1 and 2 together demonstrate that China stimulated FDI-driven
-
‘‘The New Mercantilist Challenge,’’ Project Syndicate, January 2013, <https://www.project-syndicate.
org/commentary/the-return-of-mercantilism-by-dani-rodrik>, accessed December 10, 2016.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  605

figure 2. China’s Consumption and Export as Percentages of GDP, 1994–2013

50
45
40
35
30
25
20
15
10
5
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Year

Household consumpon Export of goods and services

Government consumpon

SOURCE : Author’s elaboration based on data from the World Bank, <http://data.worldbank.org/country/
china>.

and export-oriented growth but repressed private consumption domestically.

Figure 3 shows China’s current account balance, overall trade balance, and
bilateral trade balance with the US. The real turning point in China’s position
in global trade and payments took place after 2000. Its trade and current
account surpluses rose sharply from 2003, as did its bilateral trade surplus with
the US. Figure 4 delineates China’s exchange rates against the dollar after
China unified the dual exchange rates in 1994. China pegged its currency to
the dollar at very competitive rates for around 10 years after 1994; appreciated
its currency in a gradual manner for three years from 2005 to 2008; halted the
appreciation after July 2008 owing to the great difficulties of China’s export
sectors with the outbreak of the global financial crisis; and then allowed RMB
appreciation to resume after June 2010. Figure 5 shows the level of China’s
international reserves, with an around 18-fold increase in the first decade of the
twenty-first century. Moreover, it is estimated that about two-thirds of China’s
reserves are held in the form of dollar debt.21

21. Andrew Walter, ‘‘Addressing Global Imbalances,’’ in China Across the Divide: The Domestic and
Global in Politics and Society, ed. Rosemary Foot (New York: Oxford University Press, 2013): 152–175.
figure 3. China’s Current Account Balance, Overall Trade Balance, and Bilateral Trade
Balance with the US, 1994–2013

450.00
400.00
350.00
300.00
US$ billions

250.00
200.00
150.00
100.00
50.00
0.00
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Year

Current account balance Overall trade balance

Bilatral trade balance with the US

SOURCE : IMF Balance of Payments Statistics and Direction of Trade Statistics, <http://data.imf.org/
?sk=7A51304B-6426-40C0-83DD-CA473CA1FD52> and <http://data.imf.org/?sk=9D6028D4-F14A-
464C-A2F2-59B2CD424B85>.

figure 4. RMB Exchange Rate against the US Dollar, 1994–2013

8.5
RMB per dollar

7.5

6.5

6
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

SOURCE :IMF International Financial Statistics, <http://data.imf.org/?sk=5DABAFF2-C5AD-4D27-A175-

1253419C02D1>.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  607

figure 5. China’s International Reserves, 1994–2013

4.5

3.5

3
US$ trillions

2.5

1.5

0.5

0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Year

SOURCE :IMF International Financial Statistics, <http://data.imf.org/?sk=5DABAFF2-C5AD-4D27-A175-

1253419C02D1>.

From the above analysis, we see that the US and China have formed
a symbiotic relationship in the capitalist world economy since the 1990s: the
US consumes China’s cheap exports, paying China in dollars, and China
holds US dollars and bonds, in fact lending money to the US. It is now worth
rethinking the challenge hypothesis. Some analysts argue that this situation
gives China tremendous power over the US because China could bring the
US down by threatening to sell its dollars. However, this argument overlooks
the other side of the coin. A more careful analysis should examine interde-
pendence and power relations.22 According to Keohane and Nye, interde-
pendence involves short-run sensitivity and long-term vulnerability. China,
as a semi-periphery, is more vulnerable in the symbiotic relationship of its
own making.
On the one hand, owing to the core status of the dollar in the global
monetary system, China had to promote export-oriented growth based on
the maintenance of undervalued exchange rates, thereby accumulating large
dollar reserves. Were China to dump its dollar reserves and destabilize the

22. Robert Keohane and Joseph Nye, Power and Interdependence: World Politics in Transition
(Boston: Little, Brown, 1973).
608  ASIAN SURVEY 57:4

figure 6. China’s Monthly Export Growth Rate, 2007–2009

60
Export growth rate (annualized percent)

50
40
30
20
10
0
2007.10
2007.11
2007.12

2008.10
2008.11
2008.12

2009.10
2009.11
2009.12
2007.1
2007.2
2007.3
2007.4
2007.5
2007.6
2007.7
2007.8
2007.9

2008.1
2008.2
2008.3
2008.4
2008.5
2008.6
2008.7
2008.8
2008.9

2009.1
2009.2
2009.3
2009.4
2009.5
2009.6
2009.7
2009.8
2009.9
–10
–20
–30
–40

SOURCE : National Bureau of Statistics, People’s Republic of China, <http://data.stats.gov.cn/english/

easyquery.htm?cn=A01>.

world economy, it would definitely hurt itself as well as the US. China would
not only lose much the value of its reserves with the falling dollar, but would
also jeopardize Americans’ ability and willingness to continue to import
Chinese goods, which would probably give rise to job loss and social insta-
bility in China.
On the other hand, China’s vulnerability can be seen in the enormous
difficulties faced by its manufacturing exports after the global financial crisis.
While exports had been growing by an average of more than 20% month-
on-month for most of 2008, in November they fell dramatically by 2.2%
(Figure 6). China’s export-oriented industrialization faced the external
shock of the global financial crisis at the end of 2008, and the Chinese
leadership rolled out a series of rescue policies, including the fiscal stimulus
package and loose monetary policy in 2009. Then the Chinese leadership
reflected on the disadvantages of China’s overdependence on exports, and
began efforts to internationalize the RMB to reduce dependence on the
dollar, which will be elaborated later.
Therefore, it is more proper to describe the US–China economic relation-
ship as symbiotic but asymmetric. In this sense, this analysis does not lend
support to the challenge hypothesis, at least in terms of economic relations.
To summarize, the symbiotic but asymmetric US–China economic relation-
ship is embedded in their structural positions in the world economy. The
growth of China’s export engine and the growth of its dollar reserves and US
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  609

debts are both linked to the consumption binge and heavy indebtedness of
the US. This analysis of US–China economic relations generally resonates
with the structural analysis of BW2, but holds some reservations on the
declarations that China is still a peripheral state and that this system is stable
and sustainable. A detailed critique follows.

THE GLOBAL ECONOMIC CRISIS AND CHINA’S RESPONSE

In contrast to the BW2 argument, this paper will examine the global financial
meltdown and economic downturn, arguing that the symbiotic but asym-
metric relationship between the US and China underlies the structural crisis
of the world economy and is not sustainable in the long term.
Since the outbreak of the US subprime mortgage crisis, the failure of
financial regulation frameworks23 and the over-financialization of the US
economy24 have been the most common points of discussion. With the
crisis promptly spreading to a global scale, these two obvious pitfalls have
been partly addressed in the aftermath: on the one hand, the G20 have
pushed for a financial reform agenda to establish new global standards for
banking regulation; on the other, President Barack Obama announced and
took concrete measures to revitalize American manufacturing, discouraging
outsourcing and encouraging insourcing. However, a number of high-
profile policy and academic figures have also suggested that it is necessary
to examine other, perhaps deeper and underlying, factors that gave rise to
the financial crisis. A fair degree of consensus has been reached that
although global imbalances did not directly generate the leverage and

23. See e.g., Scott E. Harrington, ‘‘The Financial Crisis, Systemic Risk, and the Future of
Insurance Regulation,’’ Journal of Risk and Insurance 76:4 (October 2009): 785–819; Stijn Claessens,
Giovanni Dell’Ariccia, Deniz Igan, and Luc Laeven, ‘‘Lessons and Policy Implications from the
Global Financial Crisis,’’ Working Paper WP/10/44, International Monetary Fund, February 2010,
<http://citeseerx.ist.psu.edu/viewdoc/download?doi¼10.1.1.620.1418&rep¼rep1&type¼pdf>, accessed
December 10, 2016; Jeffrey Friedman and Wladimir Kraus, Engineering the Financial Crisis: Systemic
Risk and the Failure of Regulation (Philadelphia: University of Pennsylvania Press, 2011).
24. See e.g., Manuel B. Aalbers, ‘‘The Financialization of Home and the Mortgage Market
Crisis,’’ Competition and Change 12:2 (June 2008): 148–166; Costas Lapavitsas, ‘‘Financialised Cap-
italism: Crisis and Financial Expropriation,’’ Historical Materialism 17:2 (June 2009): 114–148; Gerald
F. Davis, Managed by the Markets: How Finance Re-shaped America (Oxford: Oxford University
Press, 2009); Christopher Deutschmann, ‘‘Limits to Financialization: Sociological Analyses of the
Financial Crisis,’’ European Journal of Sociology 52:3 (February 2011): 347–389.
610  ASIAN SURVEY 57:4

housing bubbles, they were a critically important contributor to the global

financial crisis.25
From the insights of the symbiotic but asymmetric US–China economic
relationship analyzed above, the causal mechanism of the global financial
meltdown and economic downturn can be summarized as follows. The
exchange rate and other economic policies followed by Asian countries,
especially China, generated large current account surpluses. This helped
boost credit expansion and risk-taking in the core capitalist countries with
persistent trade deficits, especially the US. This was done by reducing world
interest rates and/or simply allowing the US to borrow cheaply abroad, which
was conducive to asset bubbles and, ultimately, financial instability. There-
fore, in contrast with the BW2 argument, this paper argues that the symbiotic
but asymmetric relationship between the US and China, which underlies the
structural crisis of the world economy, is not sustainable in the long term.
Two questions are particularly worth examining: Is China intending to and
capable of changing the status quo? And will the dollar face competition?

Is China Intending to and Capable of Changing the Status Quo?

The Chinese leadership was not unaware of its disadvantaged position in the
asymmetric US–China economic relationship. Leaders repeatedly vowed to
carry out structural transformations to boost already-weak domestic con-
sumption and reduce overdependence on foreign markets. For instance,
then-President Hu Jintao in 2007 put forward and emphasized the concepts
of Scientific Development (Kexue fazhanguan) and Harmonious Society
(Hexie shehui),26 which are partly aimed at stimulating domestic consumption
by narrowing the gap between urban and rural as well as between rich and
poor. Then-Premier Wen Jiabao used strong words such as ‘‘unsustainable,
uncoordinated, unbalanced, and unstable’’ to describe the condition of

25. See e.g., Maurice Obstfeld and Kenneth S. Rogoff, Global Imbalances and the Financial Crisis:
Products of Common Causes (London: Centre for Economic Policy Research, 2009); Ben Bernanke,
‘‘Financial Reform to Address Systemic Risk,’’ remarks at the Council on Foreign Relations, March
10, 2009, <http://www.federalreserve.gov/newsevents/speech/bernanke20090310a.htm>, accessed
December 10, 2016; Claudio Borio and Piti Disyatat, ‘‘Global Imbalances and the Financial Crisis:
Link or no Link?’’ Working Paper no. 346, Bank for International Settlements, May 2011, <http://
www.bis.org/publ/work346.pdf>, accessed December 10, 2016.
26. ‘‘Full Text of Hu Jintao’s Report at 17th Party Congress,’’ Xinhua, October 24, 2007, <http://
news.xinhuanet.com/english/2007-10/24/content_6938749.htm>, accessed December 10, 2016.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  611

China’s economy, and often stressed that China should restructure and
rebalance its economy for sustainable growth.27
Nevertheless, some observers have argued that stability maintenance and
short-term crisis management prevail over long-term planning in the forma-
tion of China’s economic policy in the Hu-Wen era. The economic transi-
tion that halted with the outbreak of the global financial crisis could be one of
the best footnotes to this argument. The immediate response of the Chinese
government to the crisis was a large fiscal stimulus package and a return to the
dollar-pegged exchange rate. More specifically, the central government’s
stimulus package contributed less than 20% to social spending, while the
large majority went to fixed asset investments.28 China suspended the gradual
appreciation of the RMB after July 2005 and re-pegged the RMB to the dollar
after July 2008 owing to the looming problems in China’s export sectors. It is
undeniable that after November 2008 the Chinese economy returned to the
growth model that had heavily relied on investment and exports.
However, the ad hoc policies and measures taken by the Chinese Com-
munist Party to deal with the external shock of the global financial crisis are
not equivalent to China’s grand development strategy. It is evident that
China’s leaders were reform-minded in both domestic and international
domains after the crisis was relieved.
Domestically, the current Xi Jinping–Li Keqiang administration, as the
new leadership, has been committed to deepening reforms, including land
and residence registration systems, market-price mechanisms, and financial
liberalization, through which China’s economy could follow a more balanced
and sustainable growth path.29 Most importantly, Xi Jinping in November
2014 elaborated that the Chinese economy has entered a ‘‘new normal,’’ with
a medium-to-high growth rate but improved and upgraded economic struc-
ture. The leadership aimed to switch China’s growth model to one driven by
domestic consumption and innovation, instead of inexpensive exports and
low-efficiency investments.30 China’s lower growth target of 7%, announced

27. ‘‘Premier: China Confident in Maintaining Economic Growth,’’ Xinhua, March 16, 2007,
<http://news.xinhuanet.com/english/2007-03/16/content_5856569.htm>, accessed December 10, 2016.
28. Hung Ho-fung, ‘‘Rise of China’’: 149–179.
29. ‘‘CPC Announces Decision on Comprehensive Reform,’’ Xinhua, November 12, 2013, <http://
news.xinhuanet.com/english/china/2013-11/12/c_132882325.htm>, accessed December 10, 2016.
30. ‘‘Xi’s ‘New Normal’ Theory,’’ Xinhua, November 9, 2014, <http://news.xinhuanet.com/
english/china/2014-11/09/c_133776839.htm>, accessed December 10, 2016.
612  ASIAN SURVEY 57:4

by the top leadership, reduced the obsession with GDP and gave more leeway
for economic transformation and upgrading.
Internationally, the Chinese leadership recognized the danger inherent in
the dollar’s hegemony and pushed internationalization of the RMB after
the global financial crisis. Starting in mid-2009, the Chinese government
promoted RMB internationalization as an effort to diversify the international
monetary system, thereby reducing reliance on the dollar. China’s central
bank announced further reform of the RMB exchange rate system in June
2010.31 Gradual RMB appreciation and more flexibility of the RMB exchange
rate were allowed. The RMB’s potential to compete with the dollar is dis-
cussed in more detail in the next section.
Moreover, under Xi’s leadership China set out to establish international
institutions such as the Asian Infrastructure Investment Bank (AIIB) as
a complement to the IMF and the World Bank, the two most important
US-crafted transnational liberal regimes after the Second World War. By
April 15, 2015, a total of 57 countries and regions had indicated that they
intended to join the AIIB as founding members, including traditional US
allies the UK, Germany, France, Australia, South Korea, and Taiwan.32 Xi
also initiated the development strategy of One Belt, One Road (Yi Dai Yi Lu,
the New Silk Road Economic Belt and the 21st Century Maritime Silk Road),
and China pledged a US$ 40 billion Silk Road Fund designed to improve
trade and infrastructure in Asia.33 China’s investment in international insti-
tutions and its own proposed economic projects are designed to help export
its excessive international reserves, manufacturing capacity, and technology
to countries in need.
After examining China’s proposals for reforms in both domestic and inter-
national domains after the global crisis, it is also worth clarifying that the
Chinese leadership is not radically reform-minded, but intends to push
reforms in a gradual manner. China’s leaders do not seek to overthrow the

31. ‘‘Jinyibu Tuijin Renminbi Huilv Xingcheng Jizhi Gaige, Zengqiang Renminbi Huilv
Tanxing’’ [To Further Promote the Reform of RMB Exchange Rate Formation Mechanism and
Enhance the RMB Exchange Rate Flexibility], People’s Bank of China, June 19, 2010, <http://www.
pbc.gov.cn/bangongting/135485/135491/135597/1002571/index.html>, accessed June 25, 2017.
32. ‘‘AIIB Founding Members Rise to 57,’’ Zhongguo Ribao [China Daily], April 15, 2015, <http://
www.chinadaily.com.cn/business/2015-04/15/content_20440449.htm>, accessed December 10, 2016;
for more details, see the AIIB website, <http://www.aiib.org>, accessed December 10, 2016.
33. ‘‘China Pledges 40 bln USD for Silk Road Fund,’’ Xinhua, November 8, 2014, <http://news.
xinhuanet.com/english/china/2014-11/08/c_133774993.htm>, accessed December 10, 2016.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  613

current world order, from which it has prospered and still benefits. This can
be seen in Xi’s robust defense of globalization and free trade at the World
Economic Forum in Davos in January 2017.34 However, the Chinese lead-
ership does recognize the flaws in the existing order and has made several
efforts to implement incremental changes. Therefore, it is worth rethinking
the three hypotheses of the relationship between China and the existing
international order. The above analysis does not lend direct support to any
of those three. Although the future of China’s economy is by no means clear
and certain, the domestic and international reforms the country is currently
carrying out imply that it is unwilling and unlikely to retain the status quo. It
is argued that unlike the radical predictions of the challenge hypothesis, the
Chinese leadership does not intend to overthrow the existing international
order but only to implement incremental reforms.

Will the Dollar Face Competition?

Many economists and government officials have concluded that the unipolar,
dollar-based monetary system is seriously flawed. Belgian-American econo-
mist Robert Triffin pointed out in the 1960s that an international monetary
system based on the currency of one country cannot sustainably deliver both
liquidity and confidence.35 More specifically, the continuous growth of the
world economy demands a steady stream of dollars, which requires the US to
run balance-of-payments deficits. However, excessive US deficits erode peo-
ple’s confidence in the dollar’s value (convertible into gold at a fixed price).
This inherent conflict between the dollar’s role as the world’s reserve currency
and the declining confidence in the dollar in the postwar international mon-
etary system is called the Triffin dilemma.
Though the Triffin dilemma was directed against the Bretton Woods
monetary system, it remains valid for today’s international monetary system.
The modern version posits that the massive amount of dollars created by the
US authorities to satisfy world demand is inconsistent with people’s confi-
dence in the dollar’s value (convertible into a fixed basket of US goods and
services).

34. ‘‘Xi Jinping Delivers Robust Defence of Globalisation at Davos,’’ Financial Times, January 17,
2017, <https://www.ft.com/content/67ec2ec0-dca2-11e6-9d7c-be108f1c1dce>, accessed March 24, 2017.
35. Robert Triffin, Gold and the Dollar Crisis: The Future of Convertibility (London: Yale Uni-
versity Press, 1961).
614  ASIAN SURVEY 57:4

Here arises the question of why the dollar remains the preeminent cur-
rency in the international monetary system despite the relative American
economic decline and the obvious flaw of dollar hegemony. Eichengreen
provides a simple but compelling answer: ‘‘The dollar’s dominance was sup-
ported by a lack of alternatives.’’36 However, some changes have been taking
place (gradually) in the unipolar, dollar-based international monetary system
since the turn of the millennium. The potential rivals to the dollar and
possible reform of the international monetary system are elaborated below.
The dollar’s hegemony in the international monetary system is not immu-
table, and there is no guarantee of incessant demand for dollar assets and
indefinite financing of US current account deficits by borrowing.
The first newcomer to the international monetary system is the euro,
officially launched in non-physical form in 1999 to shield its members from
the monetary turbulence exported by the US. Then the new euro notes and
coins were introduced and accepted as legal tender on 1 January 2002. The
euro experienced considerably fast development after its inception. Its share
in global foreign exchange reserves reached just below one-fourth, at 24.4%
in 2013.37 The euro accounted for 33% of all foreign exchange market turnover
and 12% of global trade settlements in 2013.38 It was second only to the dollar
and seen as a prime candidate for those seeking alternatives to the dollar or
greater diversification. Though the euro faced its own share of uncertainties
arising from the Eurozone debt crisis after the end of 2009, it still played the
role of secondary reserve currency as a countervailing alternative to the dollar.
Another prominent candidate in the new millennium is the RMB. The
RMB had not played an equally important role in the global economy as
China’s economy did. After the global financial and economic crisis, China
was increasingly concerned with the massive losses of its foreign exchange
reserves owing to the Federal Reserve’s quantitative easing policy. Beijing’s
call for special drawing rights (SDRs)39 to function as an international reserve

36. Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the
International Monetary System (Oxford: Oxford University Press, 2011): 68.
37. International Monetary Fund, IMF Annual Report: From Stabilization to Sustainable Growth,
October 2014, <http://www.imf.org/external/pubs/ft/ar/2014/eng/>, accessed December 10, 2016.
38. Bank for International Settlements, ‘‘Triennial Central Bank Survey: Global Foreign
Exchange Market Turnover in 2013,’’ February 2014, <http://www.bis.org/publ/rpfxf13fxt.pdf>,
accessed December 10, 2016.
39. The SDR is an international reserve asset, created by the IMF to supplement its member
countries’ official reserves. For more details, see International Monetary Fund, ‘‘Special Drawing
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  615

currency lost momentum by 2010.40 Chinese leaders came to realize that

China must first promote the international use of its currency to reduce
reliance on the dollar in international trade.
First, the sheer size of China’s trade was certainly conducive to the RMB’s
internationalization. A 2009 regional pilot program to use the RMB to settle
trade in Hong Kong expanded rapidly, and is now open to exporters and
importers across China conducting trade with any country in the world. The
RMB has surpassed the dollar to become Asia’s new reference currency with
the growth of RMB-based trade and settlements in the region.41 Second,
Beijing relied heavily on the special status of Hong Kong as an offshore RMB
business hub to develop international investment in the RMB, such as cross-
border bond investment, cross-border direct investment, and cross-border
security investment. Finally, China’s central bank signed a number of bilat-
eral currency swap agreements with other central banks or monetary author-
ities after 2009 to help the RMB become an official foreign exchange
intervention currency and reserve currency.42
By the end of 2013, the People’s Bank of China had established bilateral
currency swap arrangements with 23 foreign central banks or monetary

-
Right SDR’’, April 21, 2017, <http://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/
Special-Drawing-Right-SDR>, accessed June 19, 2017.
40. Zhou Xiaochuan, ‘‘Guanyu Gaige Guoji Huobi Tixi De Sikao’’ [Reflections on the Reform
of the International Monetary System], People’s Bank of China, March 23, 2009, <http://www.pbc.
gov.cn/hanglingdao/128697/128719/128772/825742/>, accessed December 10, 2016. There are several
institutional limitations and political obstacles that prevented the SDR from challenging the dollar.
See e.g., Minh Ly, ‘‘Special drawing rights, the dollar, and the institutionalist approach to reserve
currency status’’, Review of International Political Economy 19:2 (March 2012): 341–362; Gregory Chin,
‘‘China’s Rising Monetary Power’’, in The Great Wall of Money: Power and Politics in China’s
International Monetary Relations, eds. Eric Helleiner and Jonathan Kirshner (New York: Cornell
University Press, 2014): 184–212.
41. Campanella suggests that there are two ways for a currency to become a reference currency of
other currencies: one is when other monetary authorities frequently anchor/peg their currencies to it,
and the other way is for foreign trade and financial transactions to be denominated/invoiced in the
currency. For more details, see Miriam Campanella, ‘‘The Internationalization of the Renminbi and
the Rise of a Multipolar Currency System,’’ Working Paper No.1, European Centre for International
Political Economy, 2014, <http://www.ecipe.org/app/uploads/2014/12/WP201201_1.pdf>, accessed
December 10, 2016.
42. People’s Bank of China, ‘‘Zhongguo Renmin Yinhang He Qita Yanghang Huo Huobi
Dangju Shuangbian Benbi Huhuan Yilanbiao (Jiezhi 2016 Nian 3 Yue)’’ [Bilateral currency swap
agreements between PBOC and other central banks or monetary authorities (up to March 2016)],
<http://www.pbc.gov.cn/huobizhengceersi/214481/214511/214541/2967384/2016040615334732261.
pdf>, accessed December 10, 2016.
616  ASIAN SURVEY 57:4

authorities, with a total volume of RMB 2.55 trillion (US$ 420 billion). The
bilateral currency swaps could provide liquidity not only in times of crisis but
also in conventional times to facilitate bilateral trade and investment, thereby
promoting the development of RMB offshore markets.
Despite the rapid development of RMB internationalization, it is also
worth noting that for the time being the inconvertibility of the RMB, as
well as China’s capital account control, both impose severe restrictions on the
RMB’s role as an international reserve currency.43 Therefore, the internation-
alization of the RMB is not expected to dethrone the dollar as the key
international reserve currency in the foreseeable future.
To summarize, although the dollar will remain at the apex of the currency
pyramid for some time, it will not be as dominant as it was in the past, for the
same reason that the US will not be as dominant economically as it once was
in the world economy. The growing roles of the euro and the RMB in the
global economy indicate that the unipolar, dollar-based monetary system is
evolving into a multipolar currency system that will exercise better discipline
over the fiat currencies in the international monetary order.

CONCLUDING REMARKS

To understand China’s strategic future, it is crucial to probe the structural

positions of the US and China in the contemporary global economy. The
approach here has been to explore the nature of contemporary US–China
economic relations and the causes and consequences of the recent global
financial and economic crisis. This article has examined the history of the
dollar’s hegemony in the postwar monetary system, China’s upgrade from
a periphery to a semi-periphery status since the 1980s, the symbiotic but
asymmetric US–China economic relationship in the 2000s, and China’s
responses to the global financial crisis. The argument offered here is that the
Chinese leadership is thinking beyond the current world system to craft
a post-Western world order in an incremental manner.
With regard to the three competing hypotheses—the convergence hypoth-
esis, the status quo hypothesis, and the challenge hypothesis—this paper

43. See e.g. Hyoung-kyu Chey, ‘‘Can the Renminbi Rise as a Global Currency? The Political
Economy of Currency Internationalization’’ Asian Survey 53:2 (March/April 2013): 348–368; Jong-
Wha Lee, ‘‘Will the Renminbi Emerge as an International Reserve Currency?’’ World Economy 37:1
(January 2014): 42–62.
 WANG / THE NATURE OF CHINA’S ECONOMIC RISE  617

lends no direct support to any of them but offers a more nuanced analysis.
Before the global economic crisis, the US as the core and China as the semi-
periphery formed a symbiotic relationship in the world economy, favoring
the structural analysis of BW2. The growth of China’s export engine and of
its dollar reserves and US debts are both linked to the consumption binge and
heavy indebtedness of the US. It is not in China’s interest to take extreme
measures to destabilize or overthrow the existing world order; thus the radical
challenge hypothesis is rejected. Moreover, the US–China economic relation-
ship is asymmetric, which underlies the structural crisis of the world economy.
It is argued that BW2 is not sustainable in the long term; thus, the status quo
hypothesis is also rejected.
After the global economic crisis, the China leadership demonstrated its
concerns with the existing international order, particularly the obvious flaw
of a unipolar dollar-based monetary system. In this sense, the convergence
hypothesis seems implausible. By anticipating the scenario that China could
eventually shift to a more sustainable development model and push the
internationalization of the RMB to reform the current international monetary
system, one might conclude that China’s policy response is more inclined to
the challenge hypothesis. Even so, it is still more proper to describe China as
a ‘‘dissatisfied responsible great power.’’44 China’s incremental reforms in both
domestic and international domains after the global crisis reveal that China as
a rising power is no longer a rule-taker, accepting the status quo with regard to
the current arrangement of international monetary order. Rather, China is
better viewed as some combination of a rule-maker (promoting global reforms
of existing arrangements) and a rule-breaker (in that it is creating its own
arrangements). In a nutshell, the relationship between China and the existing
international order lies somewhere between the status quo hypothesis and the
challenge hypothesis, if the three hypotheses can be seen as a spectrum.

44. Breslin, ‘‘China’s Emerging Global Role.’’

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