Monday 21 March 2011

US ‘must adjust to China’s rise at World Bank’

The rise of China’s influence in international institutions including the International Monetary Fund and World Bank is inevitable and must be accepted by the United States, according to a US security review of Sino-US ties.

2 comments:

Guanyu said...

US ‘must adjust to China’s rise at World Bank’

Toh Han Shih
21 March 2011

The rise of China’s influence in international institutions including the International Monetary Fund and World Bank is inevitable and must be accepted by the United States, according to a US security review of Sino-US ties.

The advice comes in a report, “The Evolving Role of China in International Institutions”, which was commissioned by the US-China Economic and Security Review Commission, an agency that advises the US Congress, and released on Friday.

Prepared by the Economic Strategy Institute, a US-based policy research organisation, the report warns that China will not be content to continue operating within the confines of a US-led global system.

It advises that the US should not block China’s rise, but adjust pragmatically to its increasing influence in global institutions and the declining influence of the US.

“China’s rising influence will impact the ability of the US to pursue its interests within the international system, by constraining the ability of the US to obtain US solutions,” the report notes.

“By dint of its growing economic and strategic power, [China] could eventually be in a position to fundamentally alter the existing system far beyond the largely token reforms currently under consideration.”

The institute describes itself as having had a major influence on US economic policy towards Japan, China and Europe.

China’s ability to influence international institutions like the IMF has grown over the last 10 years and accelerated after the global financial crisis struck in 2008, says the report.

For decades, the US view of economic development, reflected in the Washington Consensus, was mostly unchallenged within leading international institutions, the report adds.

“As a result of China’s rising effectiveness on the world stage, this period of unrivalled ascendancy for US solutions is now likely over. The capability of the US to engineer its vision of policy to global issues is now significantly less than recent decades.

“Attempting to cling to institutional power structures that reflect the state of the world at the end of World War Two that ended [66] years ago would put the US on the wrong side of history. It would feed Chinese fears that the US is determined to block China, and result in a hardening of Chinese positions,” the report says.

Earlier this month, US Secretary of State Hillary Rodham Clinton bluntly told the Senate Foreign Relations Committee that the US and China are in competition for global influence.

China’s success in shaping policies of international institutions has increased its ability to resist US pressure, the report says.

“International institutions are becoming more neutral or in some cases supportive of the Chinese view on issues where the US and China do not see eye to eye.”

One example is US pressure on China to revalue its currency.

China has successfully neutralised the G20 by removing any reference to China’s currency valuation, the report notes. This is also true in the IMF, where the multilateral agency’s statements have taken more of a tone that “China will move at China’s pace”.

China will not be as amenable to US pressure on currency as Japan in the 1980s, the report warns.

In 1985, the US was able to get Japan and leading Western European nations to agree to the US-conceived policy called the Plaza Accord, which engineered an appreciation in the yen against the US dollar and which helped pull the US out of a recession in the early 1980s but plunged Japan into its “lost decade”.

“There will be no Plaza Accord with China,” the report says.

Guanyu said...

China has been skilful in averting international pressure to revalue the yuan by changing the topic of conversation, the report notes.

“China is a tactically shrewd and disciplined player who also happens to be in an exceedingly strong position.”

In the run-up to the G20 meeting in Toronto in June last year, the meeting was widely expected to result in a showdown over the yuan. A few days before the summit, China announced it would introduce greater flexibility into its currency exchange rate.

“In one stroke, the issue of yuan valuation was taken off the table during the G20 discussions, stealing the thunder from the US and other countries that hoped to use the meeting to pressure China,” says the report, noting that a similar pattern was seen at the G20 summit in London in 2009.

At that meeting, China’s large current account surplus was expected to be a major agenda item. But before the meeting the governor of the People’s Bank of China, Zhou Xiaochuan, made a high-profile call for the replacement of the US dollar as the world’s reserve currency.

“This statement had the effect of knocking the US back, forcing it to defend the stability of the US dollar as the world’s reserve currency and the US government’s commitment to maintain its value.

“The discussion at the G20 summit was tilted away from China in the direction of the US economy,” the report says.

Recent senior appointments of Chinese officials at the World Bank and IMF are indications of China’s growing clout within these institutions, the report notes.

In 2008, Justin Lin Yifu, a Chinese professor, was appointed chief economist at the World Bank, a position previously occupied by Nobel Prize winner Joseph Stiglitz and former US treasury secretary Lawrence Summers.

Earlier this year, Zhu Min, deputy governor of the People’s Bank of China, was appointed special adviser to IMF managing director Dominique Strauss-Kahn. The IMF chief said Zhu would strengthen the fund’s understanding of Asia and emerging markets.

“From China’s perspective, a more substantial presence with the IMF is a reflection of the economic-power shift from West to East,” says the report.

“China has a progressively stronger ability to block or deflect US interests in international organisations in which the US viewpoint has historically dominated. As any institution proves to be less conducive to US objectives, the US should look for other avenues to pursue its interests.”

The US should talk to China in terms it understands, namely relating to Chinese national interests, the report says.

“Engage China in a frank, realpolitik manner, and strike bargains when they make sense.

“Despite differences between the US and China, there is scope for co-operation.”