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| Frank Sieren & Andreas Sieren: Dogged persistence |
| Frank Sieren & Andreas Sieren / May 05, 2009, 00:07 IST |
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The Chinese have become more assertive in the global economic stakes.
The prime interest rate levels have hit “record lows”, and fiscal deficits “have soared”, is the sobering analysis of Zhou Xiaochuan, Governor of the People’s Bank of China, on the global economy. The threat to the global economy “of a property bubble burst should not be overlooked,” he continues. And a substantive decrease of housing prices would “inevitably deal a new blow to investment and consumption, and drag down global growth.” One might assume that these comments were made in the last few months; the fact is they are more than five years old, and were made during the eighth meeting of the International Monetary and Financial Committee of the IMF in Dubai. The chair of the meeting was the then British Secretary of Treasury, Gordon Brown.
Insiders have been aware of this commentary and therefore anticipated that the Chinese would seek, with their characteristic dogged persistence, to strengthen their position within the international financial system during the IMF Spring Meeting in Washington last weekend.
During the recent G20 summit, the world noted with astonishment that the Chinese started to highlight issues related to the global economy. This has little to do with fact that the Chinese had not spoken loudly before. Rather they had lacked the power to attract much attention from anyone who mattered.
The Chinese leadership have put their setbacks behind them and have stuck to their long-term goal: the redistribution of opportunities and risks of the global economy towards emerging markets. Hence a more multi-polar world order with a China that plays a leading role. Even some years back, Zhou did not hesitate to name the culprits of the current economic misery, stating that the global economy “still relies heavily on US performance, intensifying the risk of world economic fluctuations.” The possibility of extremely volatile exchange rate movements “cannot be ruled out, posing a threat to recovery and restructuring in the affected regions,” he said, with evident foresight. “It is the industrial and not the developing nations causing an exacerbated risk to the global economy,” he added. Therefore, the IMF should “intensify its surveillance and assessment of these countries’ financial sectors and markets, and timely summarise the lessons and experiences to further improve the methodology and indicator system.”
At that time, Zhou was the only member in the IMF to openly touch upon these economic risks, and everyone smirked at his comments. The final document was coloured by the views of industrial nations. Yet the industrialised nations were convinced that improved frameworks of the financial markets would create valuable leverage for developing nations. The talk was about “improved prospects of a gradual and increasing global recovery.” The leading economies in the world asserted that “major economic uncertainties have decreased.”
And we know where we are now.
The Chinese were correct in their analysis, although this did not stop them from making money out of the existing global economic imbalances by lending billions of dollars to the Americans so that they could buy Chinese products they were no longer able to afford.
Yet the Chinese leadership rejects such criticism. Their actions were not as negative as suggested, they answer. Of all major economic powers, China has come out of the crisis the least scathed and is doing as much as possible to soften the blows of the crisis. No one doubts this now.
A newly-acquired respect strengthens China’s self-confidence. This has been built over time and features little arrogance and exaggerated self-opinion. Zhou was not the first Chinese official to break ranks. He is not even the most senior official to be this open. During the Asian financial crisis of the late 1990s the then Chinese Prime Minister, Li Peng had denounced the weaknesses of the global economic system. “Free flow of capital across national boundaries is a strong feature of the development of the world economy,” noted Li, during the annual meeting of the IMF in Hong Kong in October 1998. “It can facilitate absorption of capital by various countries but may also carry financial risks. Being prone to such risks, developing countries may also become easy targets for international financial speculation. Financial crises will do no country any good.” Li Peng may have had difficulties understanding the full implications of this statement.
His successor, Prime Minister Zhou Rongji, was more of an economic expert. Only one year later, in 1999, during a speech at the Massachusetts Institute of Technology, he argued: “The current trade deficit between China and the US is not only in the interest of China but also to a large extent in the interest of the US.” A few months later during a meeting of Asian countries in Manila, he requested the establishment of an “ad hoc committee” tasked with “supervising and regulating trans-national flow of capital” with the goal “of reforming the international financial system.” The main aim of the committee would be predominantly to “reduce the risks” and to be more proactive.
However, little progress was made, as a result the Chinese adopted drastic measures. In December 2005, the Chinese under the leadership of Prime Minister Wen Jiabao initiated a meeting of ASEAN heads of government in Kuala Lumpur. The meeting was designed to coincide with the WTO meeting in Hong Kong. In Kuala Lumpur, the Prime Minister of Japan was spotted next to Wen Jiabao in a jovial mood. Australia, New Zealand and India also attended the meeting. A spirit of optimism in challenging the global financial system was palpable. WTO officials were disgruntled, especially as the Chinese leadership paid little attention to the WTO event despite its Chinese venue. Since then an Asian monetary fund is taking shape within the context of the current global financial crisis.
With all this in mind world leaders convened.
The Chinese are comfortable with persistence. And they are even enjoying it as nowadays developments are in their favour. However, they are also being accused of fostering debt-based capitalism in which they make good money, despite their critical views on the global financial system. The Chinese, nevertheless, have been careful to build sufficient financial reserves allowing them to meet the global financial crisis most capably among the major economic powers.
This adds to their self-confidence which they used in the demands they tabled at the IMF meeting last weekend. Li Yong, the Chinese Vice-Minister of Finance, set the tone for the new Chinese assertiveness, calling for an accelerated timetable for the Voice and Participation reform of the World Bank: “We expect that all member countries demonstrate their political will in advancing the reform, in order to further strengthen the Bank’s capacity of effectively fulfilling its development mandate in the new era.” He added: “Achieving parity voting power between developing and transition countries (DTC) on the one hand and developed countries on the other, should be the ultimate and overarching target of the Voice and Participation reform.” Regarding the selection process of the World Bank leader, he insisted that it “should truly reflect the demand of the times, represent a modern approach to governance and adhere to open, competitive and merit-based principles.” Li concluded that based on this, China is “willing to actively participate in discussions on all options for reforming shareholding structure and voting mechanism.”
The Chinese have sporadically yet persistently undermined US dominance in the global financial system for the past decade. Nobody was listening initially as it was perceived that the Chinese voice bore little significance in the world. This has changed. The Chinese also know that patience and persistence are important for success. They won’t voice exaggerated demands, they can’t afford this. But they are no longer willing to play second fiddle. The price for Western nations to underestimate the Chinese is increasing.
The bestselling author Frank Sieren has been living in Beijing for 15 years and is regarded as one of the leading German China experts. His brother Andreas is a specialist in international relations and development aid. He worked for many years for the UN in Asia and Africa
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