China is now front and centre, and its role as a leading dragon can be beneficial for growth prospects for the world economy. The world desperately needs engines of growth right now, and fortunately — with continued strong and pragmatic economic policy making — China can provide that impetus’.

The last 20 years of rapid economic growth in Asia’s emerging economies serve to underpin this statement. In the 1980s and 90s, the top five contributors to the growth of global GDP were all members of the G7, except for China — with the latter contributing only 13.4 per cent and 26.7 per cent of the US rate over these two decades. Between 2000 and 2010, however, China became the top contributor to global GDP growth, while only Japan and the US retained their top-five status among the G7 countries, and China’s contribution exceeded that of the US by 4 percentage points.

But still this reality is not reflected in the distribution of power in international financial institutions. Even with their share of the global economy clearly expanding, China and other emerging economies in Asia continue to hold a less prominent position in the governance of the IMF than either Europe or the U S. As Henning and Kahn note: ‘Despite periodic review, the adjustment of quotas and voting shares for member countries has lagged far behind changes in relative economic position, which has operated to the disadvantage of the fast-growing countries of East Asia in particular’.

With the redistribution of power at a standstill, looming recession in developed economies, and increasing global economic and financial interdependence, the perceived governance deficit must now lead to a revamp of regional cooperation. In Asia, China’s size and global standing mean it is bound to play a key role in the region’s economic and political issues. Its large foreign exchange assets, the financial power it is able to project via FDI and asset acquisition, and the potential internationalisation of the renminbi all signify that China is especially well placed to supply strong regional leadership. Indeed, greater economic and financial governance is needed to help ensure China’s steady economic growth, particularly at the present juncture, where it is transitioning toward to a demand-led economy. Even more importantly, China needs to develop a mechanism that minimises the likelihood of conflicts between countries in the region because of increased interdependence.

Hence, it is not surprising that Asian joint financial arrangements are growing fast. One particularly noteworthy initiative is the establishment of the ASEAN Infrastructure Fund, a timely and appropriate facility that will help direct the region’s resources toward its growing infrastructure needs. In March 2010, the Chiang Mai Initiative Multilateralisation (CMIM) also came into effect in response to the liquidity shortage experienced in the aftermath of the global financial crisis. The CMIM includes a US$120 billion pool of reserves, and is designed to provide its 13 members with support through currency-swap transactions. South Korea also proposed in February 2012 to double the foreign-currency reserve pool to over US$240 billion in case of capital flight.

These new regional financial facilities hint at a critical turn in capital investment strategies. China and the new powers in the periphery are now keen to allocate their financial resources closer to home, rather than leaving them in multilateral institutions largely controlled by the US and Europe.

The financial arrangements underway will help to establish an East Asian financial platform based on the institutionalisation of Asia’s ‘spontaneous cooperation’. This is instead of a top-down, European-like model, which relies on the feedback mechanism embedded in supranational institutions to encourage deeper integration. The difference does not mean that East Asian regional policies are doomed to irrelevance, or doomed to become a confusing ‘noodle bowl’. Nor does it mean that China and the new regional powers will not act as game changers because they continue to live within the framework of the current international system. And the difference need not give voice to the realist perspective either, found in Robert Kagan’s version of the power transition theory, because such an outlook overstates China’s intent to dispute the global pecking order as did Germany and Japan in the 1930s.

China is engaged in a co-evolutionary strategy as a regional leader and a power with true ‘global scope’, a strategy that Japan, at the height of its success story, failed to accomplish. China’s recent commitment to Asian regional governance, and its siding with emerging and developing economies, is crucial to Beijing’s strategic spatial strategy, which is to constrain rather than supplant the current global powers.

Miriam L. Campanella is Associate Professor of international political economy at the University of Turin.