Global IssuesECONOMY-CHINA: Chance to Reform IMF in EU-US Split?
Differences between the United States and Europe over how to restore global economic growth have given rise to speculations here on whether a failure to agree on a grand strategy at the upcoming G20 summit might create room for China to assert its national agenda.
'It is well remembered that the collapse of international talks at the 1933 London summit laid the foundation for the U.S.’s consequent emergence as a dominant financial power,' said an editorial in the ‘China Business News’ on the weekend.
'With the U.S.-based financial system facing unprecedented challenges, could a failure at the upcoming London meeting serve to advance China’s aspirations for the creation of new financial order?' the editorial asked.
Officially at least, China has declared low expectations regarding the outcome of the Apr. 2 summit of the leaders of the Group of 20 countries. Wu Xiaoling, former vice-governor of the People’s Bank of China, told a financial conference in Shanghai on the weekend that the summit was unlikely to bear much fruit.
'It is impossible for any concrete agreements to be reached at the G20. We should not put much hope on it,' Wu said.'That’s why we should have our voice heard.'
Low expectations aside, Beijing has invested substantial effort in preparing for the global summit. Officials from the ministries of commerce and finance, the Central Bank and the banking regulatory commission have been dispatched to London since early March to forge and present a united strategy at the meeting.
Divided into working groups, they have been laying the ground for China’s participation in sweeping talks, including the reform of the International Monetary Fund (IMF) and other multilateral bodies, the size and timing of coordinated stimulus measures and the inception of a global regulatory system.
Indications of China’s stance came during the meeting of the G20 finance ministers’ preparatory to the Apr. 2 summit. Finance minister Xie Xueren called on the global community to accelerate the reforms of international financial institutions and build a new financial system, which is 'fair and square, compatible and orderly'.
Speaking from Shanghai, Wu Xiaoling echoed Xie’s statement, saying developed nations should shoulder greater responsibility in protecting the interests of developing countries and give emerging economies more power in international bodies like the IMF.
'The IMF should increase the share from emerging economies, and treat all members equally,' Wu said. 'A new set of rules should be set up to regulate the world economy, with a focus on global superpowers.'
The meeting of the G20 finance ministers on the weekend revealed also the scope of existing disagreements between the U.S. and Europe. U.S. officials, backed by Britain and Japan, are seeking to line up global support for more government-backed stimulus measures.
European nations, though, are wary of such debt-fuelled stimulus measures and have pushed for more regulation and oversight to prevent further deterioration of the global economy.
The split between U.S. and Europe and the deepening economic downturn have provided a distraction from the debate about China’s role in creating global economic imbalances that had dominated economic circles in late 2008.
But to China’s chagrin, the divergence of opinions has also pushed the summit agenda towards discussing an increase in financing to the IMF, instead of debating the much anticipated reform of the financing body.
'What should have been the core issue of the summit - how to reform the IMF- has now been left by developed nations to fall by the wayside,' Xu Mingqi, economist with the Shanghai Academy of Social Sciences, told the financial conference.
Xu argued that instead of debating how to redistribute voting rights inside the body, world leaders should decide on the creation of a monetary mechanism to be applied to countries issuing hard currencies that would work to protect the interests of global investors.
A similar concern was voiced by Chinese Premier Wen Jiabao during his once-a-year meeting with the press last week. Wen said he was 'worried' about the safety of China’s assets in the U.S., and asked Washington to provide guarantees that it would protect their value.
China is the largest holder of U.S. treasury bonds. As of Dec.31, the volume of the country’s investments had reached 696 billion dollars.
While China also grapples with the implications of slumping global demand for its export-driven economy, Beijing sees the crisis as an opportunity to advance its own priorities of raising the country’s global profile and acquiring more say in international financial institutions.
Over the last few months, Beijing has taken the first steps towards transforming its controlled, partially convertible currency into a regional currency by pushing loans and some trade settlements in yuan across Asia.
At the same time, China has said that it would use its huge foreign exchange reserves to contribute to the bailout fund of the IMF on the condition that its share of voting rights in the international body is increased.
Currently, the voting rights of the BRIC countries, namely Brazil, Russia, India and China, in the IMF are 9.62 percent of the total, together accounting for about half of the voting rights that the U.S. holds.
Some Chinese economists have cautioned against committing any funds to the IMF before the removal of the U.S.’s right to veto in the IMF.
'Even if China decides to inject a large sum of money, it is pointless to increase its weight in the international financial organisation,' Yu Yongding, president of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, told the ‘China Daily.’ This is because the U.S. holds veto rights in the decision-making process of the IMF.
But other experts see more room for advancing China’s priorities by cooperating directly with the U.S. 'In solving the crisis I would place more hope in the G2, or the U.S. and China, rather than in the G20,' says Liu Yuhui, economist at the Institute for Financial Studies of the Chinese Academy of Social Sciences.
'I expect few concrete results to emerge from this G20 meeting,' Liu says. 'Currently, the IMF is an institution of rigidly allocated financial power and it would take a long time to change the status quo.'
© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service