China-EU financial ties could throw off US hegemony
Sticking to the “America first” policy, the administration of US President Donald Trump has been using its military and financial advantages to create trouble for China and its European allies in trade and even national sovereignty.
A typical example is the recent conflict surrounding sanctions on Iran. In order to protect European companies’ interests from US sanctions on Iran and to safeguard the EU’s trade and financial autonomy, France and Germany need to work on an independent currency settlement system to ensure the bloc’s independence and autonomy in the financial field.
The global settlement and payment system SWIFT is headquartered in Brussels, capital of Belgium, but due to its governance structure, it doesn’t take orders from the EU. In fact, banking institutions from the US have control over the system, and could use that control against European companies operating in Iran. Established half a century ago, SWIFT has played a significant role in trade globalization and facilitating financial payment and settlement. However, with the US pursuing trade protectionism, the downside of the “dollar dominance” has become increasingly apparent in global financial markets, so the EU needs to challenge the system.
With the rapid development of information technology, it is not difficult to establish a global financial payment network with the same or even more advanced functions than SWIFT. But it is no easy task to establish a “circle of friends” as large as SWIFT’s. The Brussels-based payment system is connected to roughly 11,000 financial institutions in more than 200 countries and regions around the world.
Successful financial services must be based on the real economy. Likewise, successful international financial platforms must be based on real global trade and monetary investment. The biggest obstacle for the EU in achieving financial independence and autonomy is the fact that its “circle of friends” is not big enough. For this reason, the EU’s latest move is quite understandable. France and Germany have both expressed their willingness to work with China and Russia to establish a payment system that is not in the hands of the US. Undoubtedly, this development has offered a window of opportunity for upgrading the financial cooperation between China and the EU.
China and the EU are very complementary in terms of financial development. China has the world’s largest industrial production base, with the pricing of major commodities from crude oil to soybeans generally affected by the Chinese market. But due to the relatively short period in which China’s industrialization and urbanization have taken place, its financial market is still at an early stage of development. Therefore, many Chinese companies have had to get listed on US stock markets to seek financing.
China’s “growth story” has contributed a lot to the US stock market, which has grown much faster than the European stock market over the past two decades. What the European financial institutions need is not money but a large market with the potential for upgraded consumption.
In this sense, there are strong foundations for cooperation between China, the world’s second-largest economy, and the EU, whose euro is the second-largest major currency in the world. Such cooperation will definitely bring about opportunities for rapid growth in the internationalization of the yuan and the upgrading of European financial services. While jointly working on a new global payment, clearing and settlement system, China and the EU should also take the initiative to join forces with other countries and regions as well as forging new economic partnerships with the Middle East, Russia, ASEAN and Africa. By making good use of the financial leverage within the credit system of the yuan and the euro, it would be possible to win financial support from other parties so as to finally get rid of the US’ financial hegemony.
In its talks with the EU, China also needs to take advantage of the financial innovation in its free trade zones and its Belt and Road initiative (BRI). The industrialization and urbanization of countries and regions along the BRI route offers a huge potential market for Sino-European financial cooperation. Moreover, with the volume of e-commerce trade between China and Europe having grown exponentially in recent years, it is imperative for their e-commerce finance systems to be upgraded in order to reduce their dependence on dollar-based settlement.
Looking forward, e-commerce financial connectivity, financial innovation in China’s free trade zones and the currency system based on the yuan and the euro will help China connect trade settlement, bill clearance, securities investment and other modern financial services to the world. This will not only be China’s best response to the US trade war, but will also be the best financial path for the Chinese economy to reach a new stage.
The article was compiled based on a report by Beijingbased private strategic think tank Anbound. bizopinion@ globaltimes.com.cn