How China is up­set­ting the old eco­nomic or­der

The China Post - - COMMENTARY - BY AURILIA END

With its huge new in­fra­struc­ture bank and its am­bi­tions for a glob­al­ized ren­minbi cur­rency, main­land China is lead­ing the up­end­ing of a 70-year-old global or­der built on Amer­i­can eco­nomic power.

Bei­jing’s rise was con­firmed this week at the spring meet­ings of the World Bank and In­ter­na­tional Mon­e­tary Fund in Wash­ing­ton, the two in­sti­tu­tions by which the eco­nomic vi­sion of the United States has been prop­a­gated across the world since their found­ing in 1944.

The U.S.-se­lected pres­i­dent of the World Bank, Jim Yong Kim, ap­plauded China’s “bold step in the di­rec­tion of mul­ti­lat­er­al­ism” for its new Asia In­fra­struc­ture In­vest­ment Bank (AIIB), even as many view it as a ri­val to the Bank.

Kim stressed though that he ex­pects the World Bank and the AIIB will work “very closely” to­gether.

That ap­peared to pull the World Bank away from its ma­jor share­holder: to­gether with ally Ja­pan, Wash­ing­ton has re­fused to join the AIIB even as nearly five dozen other coun­tries have ap­plied to Bei­jing to be part.

Bei­jing moved on the AIIB, which aims to sup­port in­fra­struc­ture devel­op­ment across the Asia re­gion, as an­other China-backed project an­nounced in 2014, the BRICS bank, has stalled.

But that in­sti­tu­tion, planned with fel­low emerg­ing eco­nomic pow­ers Brazil, Rus­sia, In­dia, and South Africa, was de­signed as well as a chal­lenge to the World Bank and IMF, where the old pow­ers the

U.S., Europe and Ja­pan dom­i­nate.

Threat to World Bank?

Crit­ics fear the new devel­op­ment banks will chal­lenge the World Bank in lend­ing to poorer coun­tries by of­fer­ing them eas­ier terms and fewer re­stric­tions gov­ern­ing the so­cial and en­vi­ron­men­tal im­pacts of large projects, un­der­min­ing stan­dards es­tab­lished to pro­tect vul­ner­a­ble pop­u­la­tions.

The Chi­nese ap­proach is more prag­matic though, with each in­sti­tu­tion fill­ing a need, said Christophe Des­tais of CEPII, the French in­ter­na­tional eco­nomics think tank.

Coun­tries are search­ing for new op­por­tu­ni­ties in public works and en­ergy, and also for their banks, he said, the lat­ter pos­si­bly ex­plain­ing why U.S. ally Bri­tain rushed to join the AIIB, he said.

For its part, China is seek­ing “an out­let for its industrial over­ca­pac­ity” while at the same time aim­ing “to weaken U.S. in­flu­ence,” said Des­tais.

But China is not aban­don­ing the U.S. and Europe-dom­i­nated Bret­ton Woods sys­tem of mul­ti­lat­eral devel­op­ment banks set up in 1944, how­ever im­per­fect it is, he said.

“China finds it use­ful. It has the means to in­flu­ence it, though still not to shape it,” es­pe­cially since the U.S. dollar re­mains the world’s core cur­rency.

But China’s grow­ing power keeps Wash­ing­ton ner­vous.

Even as new in­sti­tu­tions like the AIIB emerge, U.S. Trea­sury Sec­re­tary Ja­cob Lew said in a state­ment Satur­day: “I would like to un­der­score that the IMF re­mains the fore­most in­ter­na­tional in­sti­tu­tion for pro­mot­ing global eco­nomic sta­bil­ity.”

No­bel Prize-win­ning econ­o­mist Joseph Stiglitz said the U.S. hos­til­ity to the AIIB is a new sign of its in­se­cu­rity over its global in­flu­ence.

US Shares Blame

But Wash­ing­ton is also at fault in the ero­sion of its Bret­ton Woods­based power.

The U.S. Congress has re­fused to rat­ify cru­cial re­forms at the IMF laid out in 2010 that would dou­ble its fund­ing and rec­og­nize with higher share­holder quo­tas the rise of economies such as China and In­dia.

As the IMF’s largest share­holder by far, Wash­ing­ton has now blocked the re­forms for four years, to great crit­i­cism from al­lies and ri­vals in the world econ­omy.

“This re­mains an im­ped­i­ment to IMF cred­i­bil­ity, le­git­i­macy and ef­fec­tive­ness,” lashed the G-24 group of emerg­ing economies at the IMFWorld Bank meet­ings this week.

The AIIB is not the only front of China’s chal­lenge to the old U.S.cen­tered global eco­nomic struc­ture.

Af­ter decades of closely con­trol­ling its cur­rency, the ren­minbi or yuan, China is now mov­ing to in­ter­na­tion­al­ize it, and ask­ing that it be in­cluded in the IMF’s bench­mark bas­ket of ma­jor cur­ren­cies, known as SDRs, or spe­cial drawing rights.

That move, which could hap­pen as early as 2016, would of­fi­cially el­e­vate the yuan to world sta­tus and boost China’s pres­tige in­side the IMF.

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