International Cooperation in a post-Covid-19 Era – China’s Credibility Dilemma and a Possible Way out

While the world is debating whether Covid-19 will reverse economic globalization, China is more concerned about continued economic globalization without it. Even as China gradually recovers from the Covid-19 pandemic and revives its economy, it faces many challenges in responding to the economic effects of the crisis. Among them, the significant disruption to the global supply chain risks eroding China’s established role as a world production center. For example, Japan has earmarked US$2.2 billion of its economic stimulus package to help its manufacturers shift production out of China, as Covid-19 disrupts supply chains between these major trading partners. Also, decoupling from China has been issued with an objective of restoring US manufacturing even before the outbreak of Covid-19.

As risk management strategies, these measures aim to reduce risks arising from supply chain disruptions not only for business firms but also for countries seeking to avoid dependence on other countries as main component suppliers for critical products, including medical and military-related products. On the other hand, from an international legal perspective, these strategies may implicitly signal a credibility dilemma for China as a major world power. This post examines major power’s credibility dilemma in international law and its negative impacts on international cooperation in a post-Covid-19 era, and then explores a possible solution.

As Krisch notes, the international legal policies of dominant states oscillate between two poles: instrumentalization and withdrawal. While these two poles give a major power a lot of space to shape international legal orders, they also push it into a credibility dilemma: other state members would be less motivated or more concerned in developing cooperation with the major power, considering the increased inequality between them in economic and military capability, and lack of means in ensuring it could live up to its word. In other words, a credibility dilemma will constrain the major power in further developing and exercising its influence in international community through cooperating with others, which, in turn, weakens its power. This dilemma also applies to China. Being concerned by other states about its possible noncompliance with international law or shaping international law based on its national interests, China may find it more difficult in cooperating other states or even being isolated.

Also, a credibility dilemma poses a threat to future international cooperation, especially in the post-Covid-19 era. In order to deal with the global economic crisis caused by the Covid-19 pandemic, international cooperation and coordination is needed, with China playing an indispensable role. For example, as a major sovereign creditor, China is expected to participate in a series of sovereign debt restructurings by its debtor countries. In addition, climate change cannot be fully addressed without the active and deep cooperation of China, as the largest emitter of carbon. Without properly dealing with the credibility dilemma facing China, a post-Covid-19 era may see ineffective international cooperation caused by many states’ unwillingness or lack of trust in terms of cooperating with China.

To avoid the international costs created by China’s credibility dilemma, new international cooperation mechanisms should be explored. The organization of the Asian Infrastructure Investment Bank (AIIB) serves as a good model. Established in 2014, AIIB aims to mobilize resources to fill gaps in infrastructure investment and to promote sustainable development mainly in developing countries. As the first multilateral development bank (MDB), whose establishment was led by China, AIIB was once challenged by critics that the Bank was created to serve China’s own interests in reducing its overcapacity, and replacing the global norms created by the existing global financial system. However, its evolving multilateral approach has become a determinative factor in establishing the credibility of the Bank. As Jiejin Zhu explains, in the course of negotiations, China essentially tied its hands by reducing its quota allocation and capital contribution, making concessions to European demands for high standards of transparency and oversight in the Bank’s governance and management, and incorporating global best environmental and social responsibility practices into the Bank’s operation. On the other hand, China encouraged AIIB to join and work with other MDBs including the World Bank Group, to co-finance a series of projects, rather than competing with them. In a nutshell, while China maintained an important role in shaping the AIIB, it made compromises with other members in its management and governance. In return, The Bank’s credibility has been established and strengthened. By the end of 2019, 75 other countries had joined AIIB, including Switzerland and five of the G7 nations (excluding the U.S. and Japan).

As a model for future international cooperation in a post-Covid-19 era, AIIB demonstrates the values of multilateralism in addressing a major power’s credibility dilemma. In this multilateral model, while a powerful state could play a leading role in initiating a cooperation mechanism, the possibility of noncompliance or acting based on national interests would be largely limited by its willingness to make a compromise in negotiating and operating the mechanism, acknowledging that it is an effective way of avoiding its credibility dilemma. Through being involved in such multilateral model, other member states will have more bargaining space to incorporate their interests, and check and balance the predominant state’s power therein. On the other hand, this multilateral model runs in the parallel with and cooperates with other existing multilateral models, which were established by old major powers. This design aims to avoid the situation, in which possible conflicts between new and old major powers lead to competition between two multilateral models, and huge international costs arising from it. The cooperation between the two multilateral models in turn helps to cool down the frictions between two major powers.

The credibility dilemma of powerful states is not a new issue in international law, however the need to address it in order to enable effective international cooperation has become urgent in light of the current global crisis.  Readdressing the values of multilateralism may offer a way forward not only for China but the international community.

The author would like to thank Professor Robert Howse and Michele Krech for their helpful comments on the previous draft.