A. The Power and Success of an Open Market

Since its take-off upon the inception of the reform and opening policy in the late 1970s, China’s economy has mostly maintained double-digit growth annually. China’s annual growth rate achieved 9% between 1979 and 1990, and increased to 10.4% during the period 1990-2010.Footnote ¹¹ During the three decades from 1979 to 2009, China’s exports grew by 16% each year.Footnote ¹² In 1983, China only accounted for 1.1% of the merchandise imports and 1.2% of the merchandise exports in world trade, significantly behind the then number one merchandise importer and exporter, the United States (US), who accounted for 14.3% of the imports and 11.2% of the exports of the world merchandise trade respectively.Footnote ¹³ In 2011, however, China accounted for 9.7% of world merchandise imports—ranked second in the world next to the US who accounted for 12.5% of world trade—and 10.7% of the world merchandise exports which overtook the US, the number two exporter, who accounted for 8.3% of the world trade.Footnote ¹⁴ As one of the key destinations of FDI inflows, China ranked second of the top host economics after the US in 2012 and 2013,Footnote ¹⁵ and overtook the US as the number one destination for FDI in 2014.Footnote ¹⁶ Upon the outbreak of the recent global financial crisis in 2008, China continued its legendary growth amid the general trend of global economic downturn, and led its economic reform to another stage through the opening of FTZs in Shanghai in 2013, and in Guangdong, Fujian, and Tianjin in 2015.Footnote ¹⁷ China’s new moves certainly attracted global attention to China’s economic reform. It is generally believed that China’s FTZs will accelerate China’s economic reform to yet another level.Footnote ¹⁸

China’s unprecedented economic performance since 1978 started with the growth of its private sector. China’s reform and opening policy encouraged the development of a strong private sector alongside the public sector, and the gradual acceptance of FDI.Footnote ¹⁹ The private sector’s share of gross domestic product (GDP) overtook that of the public sector in 1998 and reached 59% in 2003, and the change in ownership structure during the continued re-orientation of the economy towards the private sector in the industrial sector raised total factor productivity (TFP) by 9.5% between 1998 and 2003.Footnote ²⁰ At the end of 2011, the domestic private sector’s investment in fixed assets accounted for 58.2% of total national fixed asset investment and reached RMB 7.6 trillion.Footnote ²¹ Encouraging the development of the non-public sector has been one of the Chinese government’s key foci.Footnote ²² Within the non-state sector, FDI has made a significant contribution. FDI accounted for a 21% share of China’s GDP in 2006, and foreign companies in China accounted for over 57% of China’s exports and 60% of imports in 2004.Footnote ²³ Rising from 2.3% in 1990, the share of Foreign Invested Enterprises (FIEs) in China’s industrial output steadily ranged from 25% to 35% between 1998 and 2011 with a high of 35.9% in 2003; and FIEs accounted for 45% of China’s exports and 46.4% of its imports in 2014.Footnote ²⁴ Studies have shown that in addition to the rise of the rural sector and private business, the opening up to foreign trade and investment has brought competitive forces into the Chinese economy and contributed significantly to the improvement of productivity in China.Footnote ²⁵ According to Hu and Khan, China’s open-door policy and ‘special economic zones’ attracting massive FDI and its emergence as an ‘export powerhouse’ through international trade engagement have been two of the direct factors related to productivity growth in the market-oriented reform period.Footnote ²⁶ Productivity growth was a significant source of economic growth and ‘contributed 42% of the output growth in the reform period 1979-94.’Footnote ²⁷

Undoubtedly, the market-oriented reform in China, which attracted significant FDI inflows and facilitated China’s engagement in international trade, unlocked the powerful potential of China’s gigantic market. It is indeed no secret that economic development can be unleashed by the power of a large market. In the Federalist Papers published more than 200 years ago, the founding fathers of the US once pointed out that:

China’s reform and opening that started in 1979, to some extent, shares the wisdom of the American founding fathers in its vision of unlocking the potential of the market for national development. China promulgated its first foreign investment law, the Equity Joint Venture Law in 1979.Footnote ²⁹ In 1979-1980, four SEZs, i.e. Shenzhen, Zhuhai, Shantou, and Xiamen, were strategically established to attract FDI from Hong Kong, Macau, the Southeast Asia Chaozhou ethnic group, and Taiwan respectively.Footnote ³⁰ Following Deng Xiaoping’s visit to the Shenzhen SEZ in 1984, China’s second wave of liberalization designated fourteen new ‘Coastal Open Cities’ and each set up Economic and Technological Development Zones (ETDZs) to further attract FDI.Footnote ³¹ A dramatic proliferation of economic zones then began and China’s biggest SEZ, the Hainan Island SEZ, was established in 1988, which was followed by the third wave of economic opening marked by the establishment of Pudong’s SEZ and eighteen new ETDZs’ approval in 1992-1993.Footnote ³² By 2003, China had more than a hundred central-government-recognized investment zones, six SEZs, fifty-four national-level ETDZs, fifty-three nationally recognized high-tech industrial zones, and fifteen Bonded Zones.Footnote ³³ The liberalization of investment policy and proliferation of zones attracted significant inflows of FDI.

In this process of investment liberalization, China promulgated two other sets of laws offering more choices of investment vehicles for FDI into China. Following the promulgation of the EJV Law in 1979, China promulgated the Wholly Foreign-Owned Enterprise Law in 1986 (1986 WFOE Law)Footnote ³⁴ and the Chinese-Foreign Contractual Joint Venture Law in 1988.Footnote ³⁵ Differing from EJV-structured investments in which investment return and risk depend on the parties’ equity contribution,Footnote ³⁶ the CJV-structured investment runs in a more flexible way in which investment return and risk allocation are fully subject to the parties’ agreement.Footnote ³⁷ The 1986 WFOE Law, on the other hand, allows foreign investments that establish a Wholly Foreign-Owned Enterprise and gives foreign investors full control of their investment in China.Footnote ³⁸ All these investment laws in one way or another encourage the introduction of foreign technology into China.Footnote ³⁹ As Hu and Khan rightly pointed out, ‘[s]ignificant spillover in technology and managerial know-how was likely through the numerous joint ventures and wholly owned foreign enterprises that have sprung up along China’s coastal provinces in the last decade.’Footnote ⁴⁰ The liberalization of investment policy that came with the decentralization of government control over foreign investment gained foreign investors’ trust over time. While most of the FDI took EJV as their primary investment vehicle between 1987 to 1999, the WFOE has become the most popular mode of FDI since 1999 and accounted for about 70% of all FDI into China in 2005.Footnote ⁴¹ As will be shown below, China continued improving its FDI management regime during this process of decentralization and liberalization of foreign investment control.

B. Market-oriented Decentralization in Service of the Interests of National Development

China’s 1979 EJV Law, 1986 WFOE Law, and 1988 CJV Law together establish a comprehensive foreign investment regime. While the flexibility of choices of investment vehicles certainly indicates the decentralization of control, China’s investment regime has never forgotten its mission of attracting foreign capital and technology to facilitate national development. In 1995, several ministerial departments in China jointly promulgated the Provisional Rules on Guiding Foreign Investment Orientation (1995 Provisional Rules) together with the Guiding Catalogue of Industries for Foreign Investment 1995 (1995 Guiding Catalogue).Footnote ⁴² The 1995 Provisional Rules were then formally repealed and superseded by the State Council’s Rules on Guiding Foreign Investment Orientation in 2002 (2002 Rules),Footnote ⁴³ and the 1995 Guiding Catalogue was subsequently amended several times.Footnote ⁴⁴ According to the 2002 Rules, the Guiding Catalogue regulates the approval of foreign investment projects.Footnote ⁴⁵

According to the 2002 Rules, foreign investment projects are divided into four categories including encouraged, permitted, restricted, and prohibited investment, and investment into the restricted category is subject to more requirements and stricter approval procedures.Footnote ⁴⁶ Under the FDI guiding system, foreign investment projects that fall into the categories of new agriculture technology, high and new technology that improves production capacity, meeting market needs with competitive capacity, resource or environmentally friendly, or enhancing manpower or resources advantage will be categorized as encouraged projects.Footnote ⁴⁷ The system restricts foreign investment from entering into projects either using outdated technologies, producing adverse effects against resources and environment, or exploiting protected natural resources and state-supported infant industries.Footnote ⁴⁸ The system encourages foreign-funded projects to engage in the construction and operation of energy, transportation, or municipal infrastructure that need large monetary investment and a long time period for investment return. Apart from enjoying preferential treatments according to the provisions of the relevant laws and administrative regulations, FDI into these projects may expand their relevant business scope upon approval.Footnote ⁴⁹

The evolution of the FDI guiding system has been a process of gradual decentralization of the government’s authority in FDI control. The 1995 Guiding Catalogue was amended seven times from 1995 to 2015. Each amendment saw a substantial reduction in prohibited and restricted fields of foreign investment to facilitate trade and investment liberalization. In the 2007 Guiding Catalogue, for example, encouraged projects increased to 73%—compared to 69% in the 2004 Catalogue—of the whole of the listed items in the Catalogue.Footnote ⁵⁰ The 2007 Guiding Catalogue encouraged FDI in high and clean technology to promote innovation and industrial structure optimization. The 2011 Guiding Catalogue further opened market access for foreign investment by loosening FDI equity ratio restrictions on 11 items within the restricted and encouraged categories, and increasing encouraged items by three items while at the same time reducing restricted and prohibited items by eight items.Footnote ⁵¹ The Catalogue also emphasized modernization of the service industry and encouraged foreign investment into ‘emerging strategic industries’ in high-tech, new energy, new materials, environmentally sustainable, and value-added manufacturing. In the latest catalogue amended in 2015, a substantial liberalization of FDI control was once again observed.Footnote ⁵² Under the 2015 Guiding Catalogue, the number of FDI projects under the restricted category was significantly reduced from 79 to 38. FDI now enjoys more flexibility in choices of investment vehicles, as the number of FDI projects designated in either the EJV or CJV structures has been reduced from 43 to 15, and the number of FDI projects of which majority equity share holding is limited only to Chinese parties has also been reduced from 44 to 35. The 2015 Guiding Catalogue also liberalizes restrictions on manufacturing and service industries, including logistics, e-commerce, finance, and FIE commercial distribution rights in retail and wholesale. According to the authorities, the key consideration of this significant liberalization of FDI control through significant reduction of the number of projects under the restricted category as well as projects requiring joint-venture (JV) structures or Chinese party majority holding, is to pave the way for the ongoing FDI regulatory reform from the ‘positive list’ to ‘negative list’ and for the future Foreign Investment Law that will consolidate and eventually supersede the EJV Law, WFOE Law, and CJV Law.Footnote ⁵³ The 2015 FDI Guiding Catalogue is certainly a big step in the direction of market-oriented FDI management reform and the continuing decentralization of China’s FDI managing regime.

The decentralization of the FDI guiding system has been accompanied by the gradual relaxation of the FDI examination and approval system evolving towards a market-oriented FDI approval regime. In 2004, the Chinese government reformed its investment management regime from an investment approval system to an investment approval, verification, or registration system.Footnote ⁵⁴ All investment projects, except for those the Chinese government directly invested in, are subject only to either verification or registration.Footnote ⁵⁵ Under this new investment examination mechanism, FDIs and other ‘important or restricted’ projects are subject only to a verification procedure, and all other investment projects, regardless of the amount of investment involved, are only required to register with the designated authorities.Footnote ⁵⁶ The government’s reviewing focus has shifted from the commercial aspects of the project such as market prospects and profitability or technical feasibility to the project’s environmental impact, resource consumption, economic security, and competition policy implications. The reform gives full play to the market allocation of resources and marks a major step forward in reducing the government’s role in review and approval of investment projects. In 2013, the Chinese government further relaxed FDI projects’ verification control. Under the new rules, except for those requiring the Chinese investing party to hold majority shares or those ‘important or restricted’ projects, all other FDI projects are subject only to a registration requirement.Footnote ⁵⁷ Under this new system, while FDI projects are subject to either a verification or registration requirement, the scope of FDI projects that requires verification is substantially reduced, and verification and registration power is substantially decentralized from central to local authorities.Footnote ⁵⁸

C. Continuous Decentralization through New Free Trade Arrangements

As a result of China’s effort to integrate into the international trading framework, China joined and became a member of the WTO on 11 December 2001.Footnote ⁵⁹ China’s WTO entry in 2001 is indeed both a milestone in China’s integration with the international trading framework and a starting point of a new stage in China’s domestic reform and liberalization. One of the key developments in this aspect is the regional free trade cooperation in the Pearl River Delta (PRD) during China’s WTO grace period.Footnote ⁶⁰ Mainland China and Hong Kong signed the main text of the CEPA on 29 June 2003 and its six annexes on 29 September 2003. The purposes of CEPA were to strengthen trade and investment cooperation and promote joint development of the Mainland and Hong Kong through measures in three areas covering liberalization of trade in goods, liberalization of trade in services, and promoting trade and investment facilitation.Footnote ⁶¹ Pursuant to Article 3 of CEPA, both parties broadened and enriched the content of CEPA and signed the Ten Supplements between 2004 and 2013, expanding market liberalization and further facilitating trade and investment which deepened economic cooperation between the two. On 18 December 2014, the two sides signed the Agreement between the Mainland and Hong Kong on Achieving Basic Liberalization of Trade in Services in Guangdong. The same CEPA arrangement was concluded between the Mainland and Macau on 17 October 2003 and followed by the Ten Supplements between 2004 and 2013 and an Agreement on Achieving Basic Liberalization of Trade in Service in Guangdong in 2014.Footnote ⁶²

The CEPA framework covers trade in goods, trade in services, and trade and investment facilitation in the PRD which goes beyond national development in that it brings new business opportunities to the Mainland, Hong Kong, Macau, and all foreign investors. CEPA as a kind of regional economic integration via establishment of customs unions or free-trade areas is permitted under the WTO framework. The WTO ‘recognize[s] the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements’ for the purpose of trade facilitation between constituent territories.Footnote ⁶³ Considering that Hong Kong has always been a key contributor to FDI, accounting for 50% of the FDI inflows into China, the importance of trade and investment liberalization in the PRD should not be underestimated.

On 27 November 2015, on the basis of the 2014 Guangdong Agreement, the Mainland and Hong Kong signed a new Agreement on Trade in Services that extends the geographical coverage of basic liberalization of trade in services to the whole of Mainland China.Footnote ⁶⁴ This 2015 Agreement continues the 2014 Guangdong Agreement’s use of a ‘negative list’ as to ‘commercial presence’ that sets out the restrictive measures within 134 services trade sectors reserved by the Mainland on Hong Kong side that are inconsistent with the national treatment requirement.Footnote ⁶⁵

When the CEPA framework reached its tenth year, China pushed forward its trade liberalization process through the development of FTZs. The first of this kind was the Shanghai FTZ that came into operation in September 2013.Footnote ⁶⁶ According to the Framework Plan, the FTZ reform aimed to ‘boost China’s reform and opening up,’ and ‘to expedite the functional transformation of the government, explore administrative innovation, stimulate trading and investment facilitation, and accumulate experience on achieving a more open China economy.’Footnote ⁶⁷ Moreover, the FTZ government ‘shall explore the administration approach of ‘National Treatment’ on investment permission and ‘Negative List’, and deepen the reform on the administrative approval system.’Footnote ⁶⁸ Legally, the reform to the FDI approval regime is based on the authorization from the Standing Committee of the National People’s Congress (NPCSC).Footnote ⁶⁹ The same authorization was granted by the NPCSC to the State Council to adjust the relevant FIE laws to be applied in Guangdong, Tianjin, and Fujian FTZs for three years as of 1 March 2015. The Framework Proposals of these three new FTZs were subsequently approved by the State Council on 24 March 2015.Footnote ⁷⁰ Around the time of the approval of the Framework Proposals for the three new FTZs, the General Office of the State Council released the Negative List 2015 to be applied in all FTZs.Footnote ⁷¹ The Negative List 2015 lists 122 ‘Special (Restrictive) Measures’ setting out the sectors in which FDI is either restricted or prohibited. Foreign investors engaged in activities that are not listed will enjoy national treatment, and they only need to register and need not obtain prior approval.

The key of the FTZs is the significant reform of China’s FDI approval regime, a clear benchmark of China’s liberalization and decentralization of its trade and investment control, which was pushed further in 2015. On 19 January 2015, the Ministry of Commerce (MOFCOM) released a draft of the PRC Foreign Investment Law for public consultation.Footnote ⁷² If adopted, the new Foreign Investment Law will supersede the EJV Law, WFOE Law, and CJV Law.Footnote ⁷³ According to the MOFCOM, one of the key purposes of the Foreign Investment Law is to reform China’s FDI approval regime.Footnote ⁷⁴ According to the draft, FDI market access management according to the ‘Negative List’ system will replace the current FDI approval system.Footnote ⁷⁵ Under the new regime, if adopted, foreign investments are entitled to national treatment subject only to market access restrictions set forth in a ‘Negative List’—a Special Administrative Measure Catalogue—to be announced by the relevant authority.Footnote ⁷⁶ While the ‘Negative List’ covers an exhaustive list of prohibitions and restrictions on foreign investment, any foreign investment that falls outside of the ‘Negative List’ no longer requires any MOFCOM approval.Footnote ⁷⁷ From the CEPA framework operating in the Pearl River Delta, to the proliferation of FTZs, and eventually to the recent formulation of the Foreign Investment Law, China is certainly setting the development of its FDI regime into a process of continuing decentralization.

As a latest effort in facilitating continuous decentralization of FDI control, the Chinese government announced ‘The Opinions on Implementing the Negative List System for Market Access’ to accelerate the FDI regime reform.Footnote ⁷⁸ This Negative List System for market access will be implemented first at pilot regions on a trial basis for two years from 2015 to 2017, and a national unified Negative List System for market access will be in operation from 2018 onwards.Footnote ⁷⁹ The Negative List System will provide a Negative List for both domestic and foreign investors covering both access-prohibited or access-restricted categories applying to approvals of initial investments, expansions of investments, and mergers and acquisitions.Footnote ⁸⁰ This new policy makes it clear that the Negative List System for market access is expected to be in operation in China in the next several years, which marks another milestone in China’s continuous decentralization of FDI control.

A. The Contrast between the Beijing Consensus and the Washington Consensus

As Lin pointed out, when China started its economic reform in the late 1970s, other developing countries that also underwent various reforms were ‘guided by the then-prevalent Washington Consensus.’Footnote ⁸¹ Based on neoliberalism’s privatization, marketization, and liberalization ideology, the Washington Consensus calls for fiscal discipline, social expenditure, tax reform, banking supervision, competitive exchange rates, trade liberalization, privatization and deregulation, property rights, independent institutions, and educational spending.Footnote ⁸² The shock therapy based on the Washington Consensus was then popular in Eastern Europe reforms and has to some extent contributed to the lost decade in Eastern Europe. The failures of the Washington Consensus became evident after economic crises ‘beginning with the Mexican crisis and followed by the East Asian crisis, the Russian crisis, and the Argentine crisis.’Footnote ⁸³ The philosophy and implementation of the Washington Consensus have thus been under serious attack, in particular from Latin American political leaders, and the World Bank and the IMF ‘[have been] accused of adopting Washington Consensus policies to benefit US economic and financial interests.’Footnote ⁸⁴ As ‘a hallmark of end-of-history arrogance’, the Washington Consensus unfortunately ‘left a trail of destroyed economies and bad feelings around the globe.’Footnote ⁸⁵ However, the piecemeal, gradualist reform approach adopted by China has worked out its own way—the so-called ‘Beijing Consensus’. According to Williamson, the Beijing Consensus consists of five key points, including: (1) incremental reform; (2) innovation and experimentation; (3) export-led growth; (4) state capitalism; and (5) authoritarianism.Footnote ⁸⁶ Ramo, on the other hand, suggests that the Beijing Consensus’ success lies in its commitment to ‘the value of innovation,’ prioritizing ‘sustainability and equality’ as first considerations, and its emphasis on ‘self-determination’.Footnote ⁸⁷

Views on the contrasting Washington Consensus and Beijing Consensus vary. On the one hand, Kennedy, for example, argues that the Beijing Consensus is a myth ‘based on a misguided analysis of China’s political economy.’Footnote ⁸⁸ According to Kennedy, not only has technological innovation never been the ‘centerpiece’ of China’s development and that China has not been an innovation leader, but the evidence for China’s pursuit of sustainability and equality is also ‘highly limited.’Footnote ⁸⁹ The uniqueness of China’s development, due to ‘the country’s size and political institutions,’ should not be ‘hail[ed]’ as a new consensus; China’s development strategy has never been a coherent one and the so-called Beijing Consensus is not even truly accepted by China’s academics and bureaucracy. Footnote ⁹⁰ On the other hand, Stiglitz offered a strong criticism of the Washington Consensus. On the question of whether there is a consensus on development strategies, Stiglitz emphasized that ‘there is no consensus except that the Washington Consensus did not provide the answer.’Footnote ⁹¹ According to Stiglitz, the problem of the Washington Consensus lies in its ‘failure in understanding economic structures within developing countries, in focusing on too narrow a set of objectives, and on too limited a set of instruments.’Footnote ⁹² Stiglitz thus argued that ‘one-size-fits-all policies are doomed to fail’, and that a post-Washington Consensus can only be arrived at beyond the confines of Washington, and requires a ‘balanced role’ of the state and ‘strengthening of both market and state institutions’.Footnote ⁹³ Along the same lines of reasoning, the Barcelona Development Agenda suggests that ‘institutional quality … plus a market orientation with an appropriate balance between market and state, and attention to the distribution of income, are at the root of successful development strategies.’Footnote ⁹⁴

The evolution of China’s FDI regulatory regime offers a good reference to the debates between the Washington Consensus and the Beijing Consensus, and to some extent can be considered as the Beijing Consensus in operation. The FDI regulatory management regime and the free trade development in China, from SEZs, to CEPA, and to FTZs, has been a constant process of liberalization of free trade management and decentralization of government control. The flexibility of choices of investment vehicles between EJV, WFOE, and CJV at the beginning of the reform and opening shows the Chinese authorities’ pragmatism and willingness to decentralize FDI control. The loosening of the free trade rights control and the construction of the CEPA frameworks upon China’s WTO entry around the turn of the millennium continues the process of liberalization and decentralization. During this process, the establishment of the FDI guiding regime in 1995 and its continuous amendment throughout the years attempts a balance between the government’s policy priorities of innovation and sustainability—through encouragement of high, new, and environmental technologies—and continuous liberalization and decentralization through reducing the items under restricted and prohibited categories of FDI.

It is worth mentioning here that the FDI guiding regime started in 1995 is essentially a dual-list system incorporating both a positive list—as seen in the encouraged and permitted categories—and a negative list—as seen in the restricted and prohibited categories. The 2014 Guangdong Agreement and the 2015 Agreement under the CEPA framework further pushed the comprehensive liberalization of trade in services first in Guangdong in 2014 and in the whole of Mainland China in 2015 with partial adoption of the Negative List System.Footnote ⁹⁵ The comprehensive reduction of FDI control in the 2015 FDI Guiding Catalogue and the full adoption of the negative list in the new wave of reforms in FTZs from Shanghai to Guangdong, Tianjin, and Fujian show a significant trade liberalization and decentralization of FDI control. The upcoming nation-wide operationalization of the negative list in 2018 will certainly take the decentralization process to new heights.Footnote ⁹⁶ The Beijing Consensus’ manifestation in the process of constant liberalization and decentralization of FDI control, to some extent, might be an example of ‘Washington Consensus in function’.Footnote ⁹⁷ During the whole process of evolution from SEZs, CEPA, to FTZs, however, the emphasis on ‘self-determination’ has always been the key factor in the path and pace, extent, and schedule of liberalization and decentralization. The function of the Beijing Consensus in China’s free trade development is a process of well-planned liberalization.

Moreover, the Beijing Consensus is taking root in developing countries. The African Union’s ‘Agenda 2063’ is a clear example.Footnote ⁹⁸ Africa’s Agenda 2063, is ‘a strategic framework for the socio-economic transformation of the continent over the next 50 years’ that ‘builds on, and seeks to accelerate the implementation of past and existing continental initiatives for growth and sustainable development.’Footnote ⁹⁹ Under Agenda 2063, on top of the aspirations lies the commitment to ‘inclusive growth and sustainable development’.Footnote ¹⁰⁰ Together with Agenda 2063, the AU Summit also approved the First Ten-year Implementation Plan.Footnote ¹⁰¹ The Ten-year Plan is to outline priority areas and institutional arrangements and to indicate the potential sources of funding.Footnote ¹⁰² In a recent visit to Africa in December 2015, at the summit of the Forum on China-Africa Cooperation (FOCAC), President Xi Jinping announced a cooperation framework backed by USD 60 billion to improve the strategic partnership between the two.Footnote ¹⁰³ Under the cooperation framework:

China will offer USD 60 billion of funding support to ensure the smooth implementation of the Ten-year Plan framework.Footnote ¹⁰⁵ Similarly in early 2016, the Chinese government announced a USD 55 billion support to countries in the Middle East to boost cooperation in the energy sector and support projects in the electricity, transport and infrastructure sectors in the region.Footnote ¹⁰⁶ Most importantly, the Chinese government emphasized that China is ‘not setting up proxies or building a sphere of influence in the region.’Footnote ¹⁰⁷ To some extent, Agenda 2063 follows China’s path in emphasizing the importance of self-determination in development and the commitment to innovation and sustainability. China’s recent support to the Middle East will certainly extend the influence of China’s development model. It should not be surprising if the Beijing Consensus takes root in the African continent and the Middle East. Of course, it is inadequate to suggest that Agenda 2063 and its First Ten-year Implementation Plan indicate the success of the Beijing Consensus or the failure of the Washington Consensus. The African Continent’s move, however, further leads us to the issue of the Chinese model’s implications and the significant contrast between the Beijing Consensus and the Washington Consensus.

B. Development Legitimacy and the Law and Development Critique

The Beijing Consensus’ emphasis on self-determination clearly distinguishes it from and challenges the path prescribed by the Washington Consensus. The contrast between the Washington Consensus versus the Beijing Consensus goes beyond a simple economic issue to an issue of political legitimacy. According to Ramo, the Beijing Consensus ‘is as much about social change as economic change’ and is ‘about using economics and governance to improve society.’Footnote ¹⁰⁸ Indeed, both the Beijing Consensus and the Washington Consensus travel beyond the economics realm and touch the issues of the global balance of power, equality, and political legitimacy.Footnote ¹⁰⁹ According to Halper, one of the central critiques of the Beijing Consensus as a ‘market-authoritarian’ model has been building on its deviation from the ‘market-democratic’ model’s endorsement of economic freedom, political freedom, and a limited government.Footnote ¹¹⁰ Williamson, too, categorizes China’s pursuit of authoritarianism in resisting ‘the installation of democracy’ as one of the key features of the Beijing Consensus.Footnote ¹¹¹ The Beijing Consensus’ contrast with or challenge against the Washington Consensus, then, is a deviation from democracy, which leaves the Beijing Consensus with a serious concern over its political legitimacy. At the center of the contrast between the Beijing Consensus and the Washington Consensus lies the issue of legitimacy of development models, which implicates the history and theory of the contemporary development paradigm.

The contemporary development paradigm emerged during the reconstruction of the international order after the Second World War. Development itself as a concept of social programming can be traced back to US President Harry S Truman’s reference to a ‘fair deal’ in his 1949 State of the Union address, in which he proposed ‘a program of development based on the concepts of democratic fair dealing’ to benefit the lives of those people in the ‘underdeveloped areas’ of the world.Footnote ¹¹² Since the birth of the economic-growth-oriented development paradigm, the world has seen a gradual transformation of the development paradigm from an economy-oriented, single-dimensional paradigm to a multi-dimensional paradigm.Footnote ¹¹³ In the first several decades, the focus of the development paradigm experienced shifts from the 1950s’ modernization, to the 1960s’ poverty alleviation, and then to the 1970s’ social development. After the ‘lost decade’ of development in the 1980s featuring the Third World Debt Crisis, we see an emergence of the dominance of the Washington Consensus doctrine emphasizing economic liberalization, privatization, and marketization in the late 1980s and 1990s. Unfortunately, the economic collapse in Chile and the Asian financial crisis have shaken the Washington Consensus doctrine and triggered intensive research on development theory.Footnote ¹¹⁴

More than the failure of economic growth, the law and development critique found the key of the problematic development paradigm in its self-legitimized cultural domination. By examining development theory’s problematization of and domination over developing countries, Escobar reveals how development projects aiming to provide help turned into a destructive force on the people and cultures of developing countries.Footnote ¹¹⁵ The contemporary development paradigm’s problematization of the ‘developing’ goes hand in hand with the self-legitimization of the ‘developed’. Moreover, the self-legitimization of the developed in turn further facilitates the problematization of the developing. However, development is ‘not a natural process’ rather a ‘central myth of Western society’ that has been developed from a notion of the perfection of progress since the Enlightenment in which the progression notion was used to ‘legitimize slavery, genocide, colonialism and all forms of human exploitation.’Footnote ¹¹⁶ Further examination of the genealogy of development thought reveals that the concept of ‘traditional society’ is also a myth—it is said to be an ‘invention of the European mind’ and the ‘modernization of ‘traditional’ societies has involved the colonization of the imagination of other societies.’Footnote ¹¹⁷ Central to economic, political, and military domination is the cultural dimension, which provides fundamental support for the contemporary development paradigm.Footnote ¹¹⁸ Supported or justified by this cultural domination, development becomes ‘the process whereby other peoples are dominated and their destinies are shaped’ according to a Western worldview, and the development discourse is part of this ‘imperial process’ in which ‘other peoples are appropriated and turned into objects.’Footnote ¹¹⁹ By turning the people in developing countries into objects of examination, the doctrines of development theory on how to manage poverty are then created and legitimized as a science. Through this technological mechanism of knowledge, the contemporary development paradigm ‘bears its own legitimization.’Footnote ¹²⁰

Moreover, this egocentric development paradigm has its roots deep in the tradition of Western philosophy’s ontological myth of contractarian legitimacy. Western philosophy, according to Levinas, ‘has most often been an ontology: a reduction of the other to the same by interposition of a middle and neutral term that ensures the comprehension of being.’Footnote ¹²¹ At the root of Western philosophy, therefore, is the traditional legal voluntarism that ‘take[s] the individual as a starting point, rather than seeing him as a part of a wider social body,’ and legal inquiry begins with ‘the will of the individual subject, rather than with his social context’.Footnote ¹²² Accordingly, the starting point of laws is the self-sufficient individual subject removed from any binding context. Carty attributes this ‘Western alienation’ to a philosophy of physics from the early Renaissance: the abstraction of man from society and nature is just like Descartes’ reduction of all human experience with the world and other human beings to the experience between man and himself, thus reducing real relationships into logical relations between symbols.Footnote ¹²³ Legal rights thus become self-sufficient. This Cartesian self-alienation however creates legal rights’ self-undermining nature in return. Once the subject becomes self-sufficient, the self ‘contracts’ with the self, and thus commands and obeys him/herself at the same time.Footnote ¹²⁴ Not only does the social contract become a circular construction, but also consent becomes unnecessary and power self-evident, as the self is the subject and author of the laws at the same time.Footnote ¹²⁵ This self-sufficient ontology of legal rights makes it impossible to justify power and obedience simultaneously. The legitimacy of law becomes unattainable. As the power of the ruler and the rights of the ruled are mutually interdependent and inseparable, once power cannot be justified, legal rights cannot be realized either. Self-sufficient rights thus become self-undermining and lose their legitimacy.

When it comes to the contemporary development paradigm, once the populations in developing countries become the information of the knowledge of development and objects to be managed during the battle with poverty, our knowledge of developing countries replaces their real existence and becomes reality. The relation of developed countries to developing countries is then reduced to the knowledge of developing countries by developed countries. The real social relation becomes an ontological issue in abstract. This egocentric and other-reducing ontological tradition reveals itself as a technical management force on the developing in the development paradigm, and as an oppressive force of assimilation in modern law.Footnote ¹²⁶ Once the Washington Consensus transposes the past of the developed into the future of the developing, the people in developing countries become information, and their development can be understood only if they follow the Washington Consensus experience and model. As other possibilities are excluded, the Washington Consensus model is then naturally legitimized. It is probably in this regard that Tucker argues that the development paradigm ‘bears its own legitimization,’ and that the myth of development is ‘the founding myth of the West’ colonizing ‘other histories and existence rationalities.’Footnote ¹²⁷ Accordingly, at the heart of the development paradigm we see its oppressive nature and its legitimacy crisis due to its inability to appreciate other possible development models. Intending to provide help, development projects instead turned into destructive forces in developing countries, thus undermining their own legitimacy. Indeed, as the Barcelona Development Agenda emphasizes, ‘there is no single set of policies that can be guaranteed to ignite sustained growth,’ and ‘[e]ncouraging developing nations to copy mechanically the institutions of rich countries—as international financial institutions tend to do—is not guaranteed to yield results, and can do more harm than good.’Footnote ¹²⁸ The Beijing Consensus’ attention to local conditions and emphasis on the self-determination of its path and pace of development, therefore, has its own justification.

C. The Beijing Consensus: Development Legitimacy from Transcending Limits

Therefore, both the Washington Consensus and the Beijing Consensus have their own unique positions as to legitimacy. While the Washington Consensus relies on towards self-legitimization, the Beijing Consensus seeks legitimacy in self-determination and adaptation to local conditions. The Washington Consensus, as Ramo criticizes, is ‘an economic theory made famous in the 1990s for its prescriptive, Washington-knows-best approach to telling other nations how to run themselves.’Footnote ¹²⁹ Therefore, the Washington Consensus was intended to have universal application and bears its popular legitimacy. On the contrary, the emergence of the Beijing Consensus for development holds fundamental significance as it marks China’s ‘shift from a reform process that was young and susceptible to externalities to one that is now self-fulfilling, cranking like a chain reaction and more determined by its internal dynamics than by the external pushes and pokes of things like WTO accession.’Footnote ¹³⁰ China’s contrasting perspective and attention to its local conditions makes all the difference. However, the law and development critique revealing the Washington Consensus’ legitimacy deficit owing from its ontological flaw of self-sufficiency presents us with a serious paradox: independent development strategies might ground legitimacy perfectly on self-determination, yet can also develop self-alienation that undermine their own legitimacy. The key question is, how and to what extent is the Beijing Consensus legitimate?

China’s right to regulate trade and investment is an inherent power of a sovereign state. In the case China – Publications and Audiovisual Products, the WTO Appellate Body’s treatment of the tension between China’s trade regulation and its trading rights commitmentsFootnote ¹³¹ touches the nature of a government’s right to regulate trade and investment. The Appellate Body suggested that China’s trade liberalization commitment is ‘qualified’ by the condition ‘[w]ithout prejudice to China’s right to regulate trade in a manner consistent with the WTO Agreement’.Footnote ¹³² The Panel further pointed out that ‘the ‘right to regulate’, in the abstract, is an inherent power enjoyed by a Member’s government, rather than a right bestowed by international treaties such as the WTO Agreement.’Footnote ¹³³ Therefore, China’s liberalization of trade and decentralization of foreign investment control has an implication for the self-restraint of a sovereign power to regulate, a democratization move leading to the rule of law in the area of trade regulation and FDI management. This, however, does not automatically justify the legitimacy of China’s model; in particular, as people have claimed, ‘China essentially followed 8 of the 10 elements’ of the original Washington Consensus, including fiscal discipline, maintaining a competitive exchange rate, and liberalizing trade and FDI.Footnote ¹³⁴

Indeed, China’s unprecedented economic growth in the last three decades has never overshadowed doubts about China’s model, but rather has left Chinese law scholars contemplating the role legal reform has played in China’s recent development.Footnote ¹³⁵ Some question whether China’s legal regime has played any positive role in the rapid economic growth. According to Lubman, for example, due to ‘the absence of a unifying concept of law and a considerable fragmentation of authority,’ as well as weak differentiation of the judicial system from the administrative bureaucracy, China does not have an effective legal system.Footnote ¹³⁶ Some even go further to question China’s international compliance by arguing that the ‘main driver of change’ in China remains ‘internal developments’, such that China’s international integration and compliance are domestic instead of internationally oriented and ‘are unlikely to go beyond surface compliance.’Footnote ¹³⁷ On the other hand, a more optimistic perspective suggests that China’s legal reform—on the whole—indicates a shift from a rule-by-law regime towards ‘a system that complies with the basic elements of a thin rule of law’. This perspective is bolstered by the Chinese government’s explicit commitment to develop a ‘rule of law with Chinese characteristics’.Footnote ¹³⁸ Nonetheless, some maintain that international practice presupposes a normative standard, an ‘international’ rule of law, which China only conforms to in a ‘thin’ sense. Accordingly, legitimacy is something that is either given or presupposed in both pessimistic and optimistic perspectives, and China’s deviation undermines the legitimacy of China’s model, which brings us further to the theory of legitimacy.

Legitimacy as a concept developed as the result of the vanishing of direct democracy, and did not appear until the Middle Ages.Footnote ¹³⁹ Legitimacy as a concept refers to the ‘quality of the title to rulership’ and thus was established in medieval legal philosophy.Footnote ¹⁴⁰ Ever since then, the problem of legitimacy in power relations has been at the core of enquiry for theorists, from early modern philosophers like Grotius, Hobbes, Locke, and Rousseau to modern theorists like Kelsen and Hart.Footnote ¹⁴¹ To justify power and submission simultaneously, legitimacy must be derived from consent.Footnote ¹⁴² As for how this consent has been given to constitute governmental legitimacy, many theorists, such as Locke, Rousseau, and Kant, argue that it all boils down to a social contract.Footnote ¹⁴³ Through building legitimacy on consent, the centuries-old social contract theory makes its significant contribution to the evolution of modern law. It constitutes the key components of the Enlightenment project and marks the beginning of the modernity of law.Footnote ¹⁴⁴ Being legitimatized through the consent of the governed, law as the social contract therefore becomes ‘autonomous from history, tradition and ultimately, from any religious source.’Footnote ¹⁴⁵ Because of consent, law also escapes from the mythology of the divine order and thus becomes modern in the era of the Enlightenment.Footnote ¹⁴⁶

Social contract theorists from Montesquieu to Locke, Kant, and Rousseau all to a certain extent participate in the Enlightenment project—a social movement to liberate human beings from superstition, passion, and myth by empowering them with knowledge, reason, and truth. To ensure the autonomy and independence of the self from any constraints, social contract theory made the self into the subject and author of law at the same time,Footnote ¹⁴⁷ thus developing a circular construction of legitimacy as the self contracts with the self. Although social contract theory marks the beginning of the modernity of law, a static interpretation seeking consent through a contract that is concluded by a split self, therefore, inevitably traps modern law into the self-sufficient legitimacy deficit. Right at the time when the self gains its complete autonomy, the self however became alienated and the legal voluntarism tradition was born. The legitimacy deficit of the social contract theory and the development paradigm’s self-sufficiency deficit share with each other the same origin of voluntarism’s ontological myth of the Enlightenment.Footnote ¹⁴⁸ Static contractarian theory’s attention to concept instead of process has been the key reason for the vacuity of legal rights, by which law becomes ideology, facts are confused with norms, and legitimacy collapses into legality. Legitimacy or justice has to be found in a dynamic process instead of the origin of the first mover. Similarly, when the Washington Consensus excludes other alternatives, the ‘consent’ from the developing vanishes and legitimacy becomes unattainable. The legitimacy of the Washington Consensus is then only available when it is being challenged as the self-determination of the developing brings in ‘consent’.

Therefore, the key to unlocking the myth of the Enlightenment must be the key to unlocking the ontological myth of the development paradigm and the legitimacy deficit of the Washington Consensus. Foucault’s ‘What is Enlightenment?’ provides helpful insights in unlocking the ontological myth. According to Foucault, the Enlightenment was a historical turning point when we started using reason to question contemporary reality.Footnote ¹⁴⁹ Therefore, the Enlightenment is an ongoing process of critiquing the present and ourselves as free beings, an ever-shifting limit reified and confirmed through constant possible transgressions.Footnote ¹⁵⁰ Through working on the limit, critique thus contributes more to the construction of legitimacy than consent does. As critique brings in differences to confirm and enrich legitimacy, not only does legitimacy become possible, but the legal system as a whole becomes alive.

The Beijing Consensus, while holding true to its local conditions and cultural imperatives as seen in its insistence on self-determination, at the same time adapts to the market mechanism and free trade through its constant decentralization and liberalization of FDI control. It thus offers a great example of the dynamics of critique. In fact, as Potter suggested, the two decades of legal system development in China before its WTO accession has been a process of ‘selective adaptation’ by which ‘conditions of local legal culture’ constantly mediate the application of foreign norms.Footnote ¹⁵¹ The theory of selective adaptation, on the other hand, addresses the issue of legitimacy by reference to the dynamic mediation between foreign norms and local imperatives, and therefore gives us a different perspective in looking at the legitimacy issue regarding China’s development model. The ‘selective adaptation’ perspective, indeed, provides a better explanation for the legitimacy issue of the Beijing Consensus. The Beijing Consensus, through its transgressing of the limit of the Washington Consensus, gains its development legitimacy in the dynamic process of selective adaptation through which local conditions and cultural imperatives mediate and enrich international practice with regards to social development.