x Abu Dhabi, UAEMonday 22 January 2018

China pushes to reshape the global economic order

A proposal by China to create a new international currency to that would eventually replace the US dollar as the world's reserve currency is dismissed by the US but China's growing assertiveness can't be ignored. While China persists in its efforts to push the issue of Tibet off the international political agenda, it is nevertheless keen to make its voice heard in shaping the economic agenda in the midst of the ongoing global crisis.

Bowing to pressure from China, the South African government denied a visa to the Dalai Lama, preventing him from attending a peace conference in Johannesburg this week. As a result the organisers have cancelled the event that was to have drawn together five Nobel laureates. "Two of South Africa's Nobel Peace Prize laureates, the retired Anglican archbishop Desmond Tutu and former President FW de Klerk, condemned the government for giving in to pressure from China to block the Tibetan spiritual leader's entry into the country and said they would refuse to participate in the conference if he was not there. The executive director of the Norwegian Nobel Committee, Geir Lundestad, also said he would stay away," the International Herald Tribune reported. An analysis in Time magazine said: "the South African government appears to have concluded that the outrage of Archbishop Tutu and other human rights campaigners was preferable to the wrath of the country's major trading partner and foreign investor. After all, France is still paying a serious diplomatic price (that could have commercial consequences) for President Nicolas Sarkozy's decision to meet with the Dalai Lama last year. China immediately canceled a planned summit with the European Union; its premier Wen Jiabao avoided France on a European tour that was lucrative for local business; and Beijing will again snub the French leader at the forthcoming G20 summit. South Africa, with its high unemployment levels, is in a far more economically vulnerable position than France is. China has in recent years invested some $6 billion in the South African economy, which accounts for some 20 per cent of Africa's booming trade with China." While China will persist in its efforts to push the issue of Tibet off the international political agenda, it is nevertheless keen to make its voice heard in shaping the economic agenda in the midst of the ongoing global crisis. To that end, the governor of China's central bank made a bold proposal for restructuring the international monetary system. The Wall Street Journal reported: "China called for the creation of a new currency to eventually replace the dollar as the world's standard, proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the US role in the world economy. "The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China's increasingly assertive approach to shaping the global response to the financial crisis. "Mr Zhou's proposal comes amid preparations for a summit of the world's industrial and developing nations, the Group of 20, in London next week. At past such meetings, developed nations have criticised China's economic and currency policies. "This time, China is on the offensive, backed by other emerging economies such as Russia in making clear they want a global economic order less dominated by the US and other wealthy nations." On Tuesday, US Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Timothy Geithner were quick to flatly reject the Chinese proposal. Commentators were not as dismissive. At the Time blog, The Curious Capitalist, Justin Fox said that China was offering an orderly way out of what may otherwise be an intractable problem. "The advantage of having your country's currency as the world's reserve currency is that you don't really have to play by the rules: You can run big deficits financed by the rest of the world, you can spend more than you earn, and to a certain extent you can escape the consequences of your profligacy by devaluing your currency when you run into trouble. The obvious disadvantages are that running big deficits and spending more than you earn aren't really great long-term economic strategies. "Meanwhile, that thing about escaping the consequences of profligacy by devaluing has its limits. At some point it will presumably stop working: The rest of the world will give up on you and pick another currency to keep its reserves in. Until that day happens, while your currency remains the global standard, you'll struggle with issues of economic competitiveness and overindebtedness - because countries around the world are going to be more interested in buying your currency than anything else you produce." An editorial in The Financial Times said: "During the 1997 crisis, Asia's emerging market economies learnt a painful lesson: do not run out of foreign reserves. China, in common with many other Asian emerging market economies, built up towering mounds of foreign assets to give itself a backstop against future emergencies. "The People's Republic has, however, over-exposed itself to the US, piling up dollar-denominated securities. In January, its stock of US Treasuries was about $739bn - a startling leap from $535bn in June last year. Yet Washington puts domestic economic needs before its creditors; the Beijing authorities now worry that possible future inflation could cost them dearly. "Chinese attempts to diversify into other currencies lost them money and efforts to buy higher-yielding US assets ended badly. It would be in China's interests to have another safe reserve asset - but this does not mean that it would be against America's. It would, of course, make it more difficult for the US to finance its deficits. But America should not want the world to be yoked so tightly to its willingness to generate demand. Such imbalances are at the root of this crisis." In a recent report, The Economist noted: "For most of the past two decades (flare-ups with Taiwan in 1995-96 and with America in 2001 excepted) China has played a cautious game internationally. Its approach was summed up in the pithy four-character phrases into which Chinese policymakers love to distil their thinking. The late Deng Xiaoping came up with a string of them: China should keep a low profile, not take the lead, watch developments patiently and keep its capabilities hidden. Now the global economic crisis and the West's obvious weakness are causing officials to think again. "In public Chinese leaders still try to reassure. During a visit to Europe in late January and early February, China's prime minister, Wen Jiabao, stressed that China's development was no threat to anyone. It would be, he said at Cambridge University (an event better remembered for the shoe lobbed in his direction by a protesting German student), a peaceful and co-operative great power. Some sensitive Western diplomats pricked up their ears at the phrase 'great power', but it is one Mr Wen has used to describe China since well before the current crisis. In deference to foreign feelings, an English text released by the government news agency, Xinhua, used the word 'country' instead. "On the issue of Tibet, however, China has been digging in its heels. Having conceded a little to Western opinion last year by holding three rounds of talks with representatives of the Dalai Lama in the wake of the unrest in March, China has lost interest." The report said that while China welcomes its growing global power it is not about to try and dislodge the United States from its position of supremacy - at least not yet. "Some Chinese scholars and commentators have been circulating more radical visions of how China should use the current crisis to boost its strategic influence. A recent article in Economic Reference, a journal published by a government think-tank, said the crisis would severely weaken the economic, political, military and diplomatic power of developed countries. This would create an 'historic opportunity' for China to strengthen its position. China should export capital to South-East Asian countries to strengthen their economies. By so doing, it would help prevent political turmoil and win strategic influence in the region. "In America, the article suggested, China should buy up businesses in order to acquire sophisticated know-how. If the American government balks at this, 'the Chinese government absolutely can use its American dollar savings as a bargaining chip to force the American government to agree to China's acquisitions.' Diplomats say threats have even been heard from lower-ranking Chinese officials that China might sell off American Treasury bills if Washington angers China on Tibet; a meeting between Mr Obama and the Dalai Lama, for example, could be a tripwire. Few believe that China would actually risk such a self-damaging tactic, but the airing of views like this suggests that some officials are acquiring more swagger."