China’s Pursuit of a New Economic Order
Economists
are increasingly divided over China’s economic future. Optimists emphasize its capacity
for learning and rapid accumulation of human capital. Pessimists focus on the
rapid decline of its demographic dividend, its high debt-to-GDP ratio, the
contraction of its export markets, and its industrial overcapacity. But both
groups neglect a more fundamental determinant of China’s economic prospects:
the world order.
The
question is simple: Can China sustain rapid GDP growth within the confines of
the current global order, including its trade rules, or must the current
US-dominated order change drastically to accommodate China’s continued economic
rise? The answer, however, remains unclear.
One
way that China is attempting to find out is by pushing to have the renminbi
added to the basket of currencies that determine the value of the International
Monetary Fund’s reserve asset, the Special Drawing Right (SDR). As it stands,
that basket comprises the euro, the Japanese yen, the British pound, and the US
dollar.
The
SDR issue was the audience’s main concern when IMF Managing Director Christine Lagarde
spoke in Shanghai in April. Her stance – that it is just a matter of time
before the renminbi is added to the basket – garnered considerable media
attention. (Regrettably, however, the media read too much into her statement.)
Former
US Federal Reserve Chair Ben Bernanke faced the same question in Shanghai last
month. He was purposely vague in his response: the renminbi’s inclusion in the
SDR would be a positive step, he said, but it could not be taken until China
makes much more progress in reforming its financial sector and transforming its
growth model.
The
IMF is expected to vote on the renminbi’s inclusion in the SDR this October, at
its regular five-year review of the SDR basket’s composition. But even if,
unlike in 2010, a majority votes to add the renminbi to the basket, the United
States may exercise its veto power. Such an outcome would not be surprising,
given that US opposition (though in Congress, not within the Obama
administration) blocked reforms, agreed in 2010, to increase China’s voting
power within the IMF.
Limited
use of the SDR implies that adding the renminbi would be a largely symbolic
move; but it would be a powerful symbol to the extent that it served as a kind
of endorsement of the currency for global use. Such an outcome would not only
advance the renminbi’s internationalization; it would also provide insight into
just how much room there is for China within the existing global economic
order.
So
far, it seems that there is not enough. In a 2011 book, the economist Arvind Subramanian
projected that the renminbi would become a global reserve currency by the end
of this decade, or early next decade, based on his observation that the lag
between economic and currency dominance is shorter than traditionally believed.
Today, China is the world’s largest economy (based on purchasing power parity)
and the largest participant in world trade, and its government has been
actively promoting renminbi internationalization, such as through the
relaxation of foreign-exchange regulations. And yet the renminbi is used
internationally much less than Subramanian’s model predicted.
As a
result, China remains subject to US monetary policy. If the Federal Reserve
raises interest rates, China must follow suit to keep capital from flowing out,
despite the negative impact of higher interest rates on domestic growth. Given
the US dollar’s dominance in international transactions, Chinese companies
investing abroad also face risks associated with exchange-rate fluctuations.
In
fact, over the last decade, international trade rules have created significant
friction between China and many other countries, including the US. Now,
free-trade agreements are being negotiated – namely, the Trans-Pacific
Partnership and the Trans-Atlantic Trade and Investment Partnership – that will
undermine the continued expansion of Chinese exports to the extent that they
raise entry barriers for Chinese firms.
Clearly,
China has faced major challenges within the existing global system as it tries
to carve out a role befitting its economic might. That may explain why, with
its “one belt, one road” initiative and its establishment of the Asian
Infrastructure Investment Bank (AIIB), China’s government is increasingly
attempting to recast the world order – in particular, the monetary and trading
systems – on its own terms.
The
“one belt, one road” initiative aims to re-create the ancient overland and
maritime Silk Roads that carried goods and ideas from Asia to Europe. Given
that the project will entail significant Chinese investment affecting some 50
countries, its appeal in the developing world is not difficult to fathom.
The
AIIB, too, has proved appealing – and not just to developing countries. In
fact, 57 countries – including major powers like France, Germany, and the
United Kingdom – have signed up as founding members, which may reflect a
growing awareness of the US-dominated order’s diminishing returns.
From
China’s perspective, sustained domestic economic growth seems unlikely within
the existing global system – a challenge that Japan and the other East Asian
economies did not encounter during their economic rise. Indeed, the only
country that has encountered it is the US, when it replaced the UK as the
world’s dominant economic and financial power before World War II; fortunately,
that precedent is one of accommodation and a peaceful transition.
To be
sure, China still needs to undertake important domestic reforms, especially of
the financial sector, in order to eliminate distortions in resource allocation
and stem the economy’s slowdown. But the refusal by China’s leaders to pursue
export-boosting currency depreciation, even in the face of decelerating growth,
suggests that they are willing to make the needed sacrifices to secure the
renminbi’s international role and, with it, long-term economic growth and
prosperity.
Whether
or not the renminbi is added to the SDR basket this October, a gradual
transformation of the global system to accommodate China seems all but
inevitable.
文章转自 Project Syndicate
