Global Economic Governance Reform and China's Response

By Wang Pengyuan

Profound global transformations are accelerating worldwide, marked by an economic governance system undergoing its most significant restructuring since the end of the Cold War.

The spread of unilateralism and protectionism, coupled with the convergence of anti-globalization sentiment and geopolitical rivalry, has eroded the foundations of the multilateral trading system and accelerated the reorganization of global industrial and supply chains. Consequently, industrial policy has evolved from a supplementary instrument into a central domain of strategic competition among major economies, accompanied by fundamental shifts in its underlying logic, paradigm, and strategic orientation. Understanding the nature and drivers of this transformation, as well as apprehending the trajectory of governance reform, is of critical importance to China. It is imperative for China to maintain strategic resolve, undertake proactive measures amid complex competitive dynamics, propel global growth through its own development, and advance the establishment of a more equitable global governance framework.

The transformation of global economic governance is driving a paradigm shift in the logic of industrial policy competition. In the preceding era, governance concepts dominated by neoliberalism prevailed, wherein market mechanisms were regarded as the primary means of resource allocation, and industrial policy was largely confined to addressing market failures. The trading system led by the World Trade Organization (WTO) facilitated a global division of labor founded on efficiency and free trade, giving rise to extensive global supply chains. However, in the aftermath of the global financial crisis, economic growth has slowed, and structural contradictions—such as wealth polarization—have intensified.

The conventional governance system has proven inadequate in addressing emerging challenges. More recently, the COVID-19 pandemic and heightened geopolitical tensions have revealed acute vulnerabilities within global supply networks. As a result, nations have increasingly prioritized industrial security, autonomy, and resilience. Concurrently, rapid advances in new technological revolutions—such as artificial intelligence, renewable energy, and biomedicine—are intensifying, becoming pivotal to future economic competitiveness and influence in global governance. In response, major economies have largely abandoned the notion of the “ineffectiveness of industrial policy,” and have instead launched new strategic policy initiatives, entering a new phase of systemic competition.

The transformation in the logic of current global industrial policy competition is manifested in four fundamental dimensions of restructuring, representing, in essence, a profound contest for dominance in global economic governance and initiative in industrial development.

First, a shift in policy positioning: from a functional instrument of "market correction" to a substantive pillar of "national strategy." The core positioning of traditional industrial policy was as a supplementary corrective to market failures within the framework of a market economy, always remaining subordinate to the market mechanism. By contrast, the industrial policies of major global economies have now been elevated to the status of core national strategy, serving as the central vehicle for safeguarding national economic security, enhancing global industrial competitiveness, and vying for the right to set rules in global governance.

The role of state power in industrial development has shifted from that of a "rule maintainer" and "market referee" to that of an organizer of industrial ecosystems, a sharer of innovation risks, and a leader of strategic direction. Major economies are systematically deploying comprehensive, whole-of-chain layouts in industrial sectors critical to national competitiveness through dedicated legislation, fiscal support, and strategic planning, binding industrial policy deeply with national security and geopolitical strategy. Industrial competition has thus evolved into a state-led, systematic, and institutionalized contest.

Second, a shift in policy paradigm: from a "horizontal, inclusive" universal framework to "vertical, focused" track-based competition. The implementation of traditional industrial policy focused primarily on horizontal domains such as inclusive improvements to the business environment, infrastructure construction, and basic R&D support—aimed at creating a fair competitive environment for all market entities. Current global industrial policy competition, however, exhibits highly precise and targeted track-focused characteristics, with policy resources being concentrated comprehensively on strategic emerging industries and key core technology areas such as advanced manufacturing, semiconductors, artificial intelligence, new energy, and critical minerals. Countries are implementing targeted R&D subsidies, market support, and talent cultivation policies around these key tracks, attempting to build leading advantages in core technology areas. Some even employ non-market means to construct exclusive industrial ecosystem barriers, driving the global industrial division of labor from globalization based on comparative advantage toward camp-based and bloc-based arrangements grounded in strategic competition.

Third, a shift in policy boundaries: from "domestically implemented" territorial constraints to "globally extended" rule-based competition. The implementation boundaries of traditional industrial policy were largely confined within national borders, with policy formulation and implementation premised on not violating multilateral economic and trade rules, the core objective being to optimize the domestic industrial development environment. Current global industrial policy competition, however, has comprehensively broken through national boundaries, evolving into a global contest of rule restructuring and institutional competition. Major economies are not only strengthening domestic industrial advantages through large-scale domestic industrial support policies, but also extending domestic industrial policies to every link in global industrial and supply chains through unilateral sanctions, export controls, "long-arm jurisdiction," "friend-shoring," and "near-shoring," attempting to artificially reshape the pattern of global industrial division of labor. Simultaneously, the main venue for formulating global industrial rules is shifting from the traditional multilateral trading system to plurilateral and bilateral platforms dominated by developed countries.

Through the formulation of exclusive, high-standard industrial and trade rules, they attempt to codify their own industrial advantages into the global rules system, further squeezing the industrial development space and policy autonomy of other countries.

Fourth, a shift in value orientation: from the singular objective of "efficiency first" to the dual dimensions of "security and development." The core objective of traditional industrial policy was to enhance industrial development efficiency and drive economic growth through optimized resource allocation; efficiency first was its core value orientation. The current target system of global industrial policy, however, has undergone fundamental restructuring. Non-economic objectives such as economic security, resilience of industrial and supply chains, technological sovereignty, and employment stability have been placed on an equal footing with goals of economic growth and efficiency enhancement; in key core areas, security objectives are even given priority. This shift in value orientation has fundamentally altered the underlying logic of the global industrial division of labor. The past global industrial chain layout based on cost minimization and efficiency maximization is being replaced by diversified and localized layouts based on risk controllability and self-controllability, significantly increasing the confrontational and complex nature of global industrial policy competition.

The logical shift in the current round of global industrial policy competition has had a profound impact on the global economic governance system and the development of the world economy. On the one hand, some developed countries have distorted industrial policy into a tool for geopolitical games, vigorously pursuing "decoupling and severing supply chains" and building "small yards with high fences." This severely violates the objective laws of economic globalization and market principles, exacerbating global trade frictions and the risk of fragmentation in the world economy. It distorts the efficiency of resource allocation in global markets and undermines the stability and smooth operation of global industrial and supply chains. What is more alarming is that these developed countries, leveraging their economic and technological advantages, erect technological and regulatory barriers through industrial policies, severely compressing the space for industrial upgrading and the development rights of a large number of developing countries. This widens the global development divide and runs counter to the principles of inclusivity and shared benefit that global economic governance should uphold. On the other hand, the profound transformation of the global economic governance system has also broken the monopoly on discourse once held by developed countries in traditional governance systems. This provides an important historical opportunity for numerous emerging economies and developing countries to promote the reform of the global governance system and to propose fairer and more reasonable rules and propositions. The trend towards diversification and globalization of industrial development is irreversible.

The universal demand of all countries for industrial security and common development has also laid an important practical foundation for building a new, more balanced, coordinated, and mutually beneficial global industrial governance system.

China stands on the right side of history and human progress amid global economic governance changes and industrial policy competition. With strategic clarity, it follows its own path of industrial development with Chinese characteristics. With an open and win-win attitude, it promotes reform of the global economic governance system.

First, maintain strategic focus to build a Chinese-characteristic industrial policy system and grasp industrial development initiative. China's industrial policy adheres to socialist market economy reform, balancing government and market roles, differing from Western zero-sum policies.

It upholds competition policy, aims for tech self-reliance, breaks through key technologies, and promotes high-end, intelligent, green transformation to build a modern, secure industrial system.

Second, adhere to open cooperation, uphold multilateralism, and promote a more just global economic governance system. Economic globalization is irreversible; decoupling harms all. China defends globalization, follows WTO rules, opposes politicization of industrial policies, and participates in multilateral rule-making for mutual benefit and common development.

Third, coordinate development and security, balance openness and self-reliance, and enhance risk resilience through global integration. We adhere to coordinating both, integrating into the global division of labor to utilize markets and resources for industrial growth, while embedding security throughout. With a bottom-line mindset, we focus on key sectors, building independent and secure supply chains to boost resilience. We pursue development through opening-up and security through cooperation, never turning inward due to risks. By expanding opening-up, we foster domestic-international dual circulation. Through global industrial cooperation, we achieve complementarity and risk-sharing, ensuring our security and contributing to global stability.

Fourth, uphold global governance through consultation and shared benefits, promote inclusive global industrial development, and contribute China's wisdom and strength to worldwide economic prosperity. The future of global industry lies in inclusive cooperation, not containment or confrontation. China adheres to openness and mutual benefit, driving its own industrial upgrading and global progress. Through initiatives like the Belt and Road, we deepen industrial collaboration, enhance technological exchange, support developing countries in strengthening industrial capacity and integrating into global supply chains to reduce development gaps. We foster an inclusive, innovation-driven, green industrial paradigm, ensuring broader sharing of economic governance benefits. Together, we seize opportunities and create a better future for the world economy.

The world trend is vast, bringing both challenges and opportunities. China maintains strategic focus, unswervingly follows socialism with Chinese characteristics, and promotes high-quality development and high-level opening-up. We concentrate on managing our own affairs well, responding to external uncertainties with our development certainty, and work with all countries to address common challenges. We push for a more just, reasonable, inclusive, and mutually beneficial global economic governance system, contributing to a community with a shared future for mankind.

(Wang Pengyuan is a scholar at the Weinan Normal University，P.R. China)