Jin Liqun, President of Asia Infrastructure Investment Bank, speaks at Nepal Investment Summit in Kathmandu, capital of Nepal, on March 2 (XINHUA)
Napoleon Bonaparte's sleeping giant China is waking up to a post-Trump and Brexit world by announcing an ambitious global investment and development project. Chinese President Xi Jinping has proposed the Belt and Road Initiative to push forward what he calls the "golden age" of globalization. But what effect will it have on the world political and financial status quo?
Speaking at the opening ceremony of the Belt and Road Forum for International Cooperation in Beijing on May 14, Xi hailed the potential to create a modern Silk Road linking countries around the world.
The two-day event sought to ease concerns about China's rise and emphasized collaboration between the countries involved—the forum hosted 29 foreign heads of state and government and more than 1,500 delegates from over 130 nations.
The meeting came against a backdrop colored by increasing anti-globalization sentiments, trade protectionism and global inequality. Jason Hickel, an anthropologist at the London School of Economics and Political Science and author of The Divide: A Brief Guide to Global Inequality and its Solutions, explained that one of the major drivers of global inequality over the past four decades has been the international debt system.
Combating global inequality
During the 1970s, Wall Street banks gave large loans denominated in U.S. dollars to global South countries. But when the U.S. Federal Reserve increased interest rates in the 1980s, developing countries were unable to repay their debt, causing a Third World debt crisis. This led to the International Monetary Fund (IMF) rolling over the debts of those countries in exchange for privatizing public assets, opening markets to foreign companies as well as cuts in social spending, and labor and environmental protection. Since then, the World Bank has adopted these policies as requirements for access to development loans.
Hickel told Beijing Review that these programs had disastrous effects for global South countries, but benefited rich countries by restoring their access to cheap labor and raw materials. "Global South countries need to be able to make economic policy on their own terms, free from over-determination by Western creditors. In the South, the hope has been that the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) might provide alternative sources of finance for development, without the deleterious consequences of structural adjustment conditions. If so, these new institutions could liberate the South from remote-control power by the North."
Financial systems that could serve as an alternative to Bretton Woods institutions such as the IMF and the World Bank could be seen as a boon to developing countries in Asia. The China-proposed AIIB and Belt and Road Initiative have emerged as complements to Western financial institutions, but not without drawing similar concerns about their potential to saddle other countries with debt.
"The NDB and the AIIB pose a serious threat to the World Bank and the IMF and the West's system of remote-control power—indeed, that is why there is so much fear-mongering about these institutions in Western media," Hickel said, while noting that any competition to the World Bank and the IMF will be a good thing.
The view that China needs to improve people's perception of initiatives such as the Belt and Road has been echoed by other experts as well. Paul Haenle, a former China director on the U.S. National Security Council who is now the director for the Carnegie-Tsinghua Center for Global Policy has said that other countries may not view the Belt and Road Initiative in the same way that China does.
"Countries outside of the initiative recognize that China needs a strategy for developing nations. [China] also needs an aggressive strategy for developed nations otherwise they will project their worst fears onto the Belt and Road," Haenle said at a town hall meeting at Yale Center Beijing on May 9.
Haenle told Beijing Review that getting the Belt and Road to work as intended will be challenging for China. "China wants the Belt and Road to be seen as a positive sum game. That is laudatory, but that is challenging because... China's economic assistance will lead other countries to see it as a zero sum game."
Moreover, China's ownership of $1.06 trillion worth of U.S. debt puts the debate in a different perspective. If the NDB and AIIB end up undermining the World Bank and IMF and eroding Western power, it is possible that this could make U.S. bonds riskier, Hickel said.
"After all, U.S. bonds are seen to be so strong largely because of U.S. geopolitical hegemony. I suppose given that China has interests in U.S. bonds, they might think twice before doing anything that might compromise that system. That said, the fact that the dollar remains the world reserve currency makes it very unlikely that even the rise of the NDB and AIIB would seriously threaten the value of U.S. bonds," he added.
Jim Yong Kim (right) and K.V. Kamath, presidents of the World Bank Group and the BRICS's New Development Bank, sign a memorandum of understanding in Washington, D.C. on September 9, 2016 (XINHUA)
New world order?
Many experts are still on the fence on the effect that China-proposed financial initiatives will have on geopolitics, global finance and development. Xie Tao, a professor at the Beijing Foreign Studies University, told Beijing Review that the Chinese Government views the Belt and Road as a complement to Bretton Woods institutions—not as an alternative or a replacement.
"We're making it very sure at the beginning that the AIIB or any similar institution like the Silk Road Fund and the NDB are complements to existing multinational financial institutions," said Xie. Xie pointed out a 2017 report by the Asian Development Bank (ADB) showing that infrastructure development requirements in Asia and the Pacific will exceed $22.6 trillion through 2030 if growth momentum in the region is to be maintained. "So you do need some financial institutions to provide that kind of investment, and if the World Bank and IMF cannot provide it, why not?" Xie said.
Clare Pearson, Chair at the British Chamber of Commerce in China, sees the Belt and Road as a complete re-write of the world order. "It is like the signing of Bretton Woods. You either joined the party or you didn't," Pearson told Beijing Review. "China was at the edge of the Bretton Woods system of global government, but China will now be at the center with the AIIB and the Belt and Road."
Wang Huiyao, President at the Center for China & Globalization, told Beijing Review that if the Belt and Road is a multilateral agreement like the World Trade Organization, then everybody will be able to agree on a game plan, work together and benefit from it. This is why the initiative needs other major countries to come in. "This is a global plan. It just happens that there are so many developing countries along [the Belt and Road]. So let's get the World Bank interested, let's get the IMF, ADB, AIIB—the whole world together because the AIIB is not enough."
Copyedited by Dominic James Madar
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