China's Growing Clout Triggers Economic Arms Race With Old Order
(Bloomberg) -- China’s rise is posing a challenge to America’s role as global economic guardian.
The Asian nation’s $12 trillion economy is the world’s second largest and biggest once prices are adjusted for purchasing power parity; it’s the largest trading nation; is investing billions in a ‘new Silk Road’; is now No. 3 in terms of voting rights at the IMF and has created its own multilateral development lender -- the Asian Infrastructure Investment Bank.
That’s a tectonic shift since 2015 -- when China’s stewardship of global bodies was confined to the International Network for Bamboo and Rattan -- that will shape economic governance for decades to come. The big question: will China bend to the values espoused by existing Western-led liberal democratic institutions or end up remolding them.
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Optimists say China offers a vital source of financing for governments desperate to build infrastructure and grow their economies. They point to Beijing’s embrace of best practices -- symbolized by the ‘squeaky clean’ AIIB -- and note failures in the Western model that opened the door to China’s expansion in influence.
Take infrastructure investment. Asia alone needs $26 trillion worth of infrastructure by 2030, according to the Asian Development Bank. That gives China the perfect opportunity to win friends, said Curtis S. Chin, former U.S. ambassador to the ADB under presidents George W. Bush and Barack Obama and inaugural Asia Fellow at the Milken Institute.
"China’s promise of financial and other support through institutions and multilateral initiatives of its own making, including the Asian Infrastructure Investment Bank and its ‘One Belt One Road’ plan, can be bewitchingly enticing," he said.
At the same time, reforms of bodies like the IMF and others to allow a greater role for China have been long over due.
"Multilateral institutions and arrangements will be condemned to increasing irrelevance unless they include China and other large emerging markets," said David Loevinger, a former China specialist at the U.S. Treasury and now an analyst at fund manager TCW Group Inc. in Los Angeles.
Critics say the likes of the AIIB are merely window dressing for China’s spider’s web of lending channels that lack transparency, are effectively an arm of the Communist Party and leave mostly poorer nation’s saddled with debt.
They especially warn about the Belt and Road Initiative, a project aimed at building hundreds of billions worth of infrastructure around the world and even written into the constitution -- a vivid illustration of just how invested President Xi Jinping is to the project.
Pushback is starting to happen. Countries that once flung their doors open to Chinese investment are growing coy. U.S. President Donald Trump has started a trade war with China that observers say is less about a goods deficit and more about blocking Xi’s ambitions to develop a super-charged, technology driven economy.
"The tide of public and government opinion has turned sharply on China, and electorates are asking whether China’s net effect on world commerce has been positive or negative," Anne Stevenson-Yang, co-founder of J Capital Research, who has a quarter century of experience in China and previously worked at the U.S.-China Business Council, wrote in a recent note.
Malaysia’s new government has cooled on plans for Chinese-financed infrastructure. Trading partners routinely complain about difficulties in market access. And China draws criticism for lending to poorer countries and thereby exacerbating their debt load.
In the face of such criticisms, China has claimed to be a defender of the existing world order and rules-based system, especially the World Trade Organization. Such arguments merit close scrutiny, according to Tamar Gutner of the American University in Washington D.C. and an expert on global governance.
"The picture of China’s possible leadership role in global economic governance is a mixed one," she said, citing complaints over its trade practices and a lack of transparency around the Belt and Road Initiative and its policy banks.
Yet China’s influence is still increasing, with Trump’s America First vision in some ways aiding that process. In September, Xi greeted African leaders in Beijing and promised over $60 billion in financing. Around the same time Trump said he’d skip two major summits in Asia in November, stoking concerns about American commitment to the region.
China will continue to push for an increased role on the world stage, said Louis Kuijs, head of Asia Economics at Oxford Economics in Hong Kong and a former official at the IMF.
"My main worry about the future is the collision course between these different economic models and what that means for relations globally," said Kuijs.
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