China with its huge chunk of foreign reserves is posing new
challenges to International Monetary Fund by responding to the alarm bells of
foundering governments. The new facet of China began to take shape as it harped
on a new journey by generously donating $50 billion to the cash-strapped Venezuelan
economy since 2007. With the country trying to stave off deep recession the
chances of repayment are far from doubtful. Another major recipient of Chinese
funds is Argentina, struggling with its dwindling foreign reserves. As the oil
prices crashed to record low, Russian economy too tumbled down and China
offered credit to it. It is worth reckoning that all these three resource-rich
nations virtually shunned by the World were rescued by China. With these acts
of offering credit to nations, China not only asserted itself as a major
economy but emerged as challenger to the Bretton Woods institutions dominated
by the US. Till the year 2010 China was recipient of foreign aid now in the new
role of saviour it is trying to position itself as the champion of developing
world.
In recent times IMF and World Bank earned an infamous
reputation for attaching too many pre-conditions to loan while China has been undemanding.
China’s new role as a banker is raising concerns among the West for the use of
Yuan is growing and slowly threatening the domination of the western financial
institutions. Although the newly
acclaimed financial messiah status of China is under severe scrutiny, its
intentions seem to be less sinister. China in return for its monetary support,
it demanded nations to award contracts to Chinese construction companies and
the motto seems to be business is business. Since a long time developing
nations (China, India and Brazil) have been demanding World Bank and IMF for larger
voting rights. Though an agreement was stuck in 2010 to boost voting power of
the emerging markets, America continues to dominate with its veto power. With
the congress tight-lipped and failing to ratify the deal over IMF, there is
little representation for the emerging countries.
As per new IMF report China is poised to surpass America as world’s
biggest economy within a decade. Consequently, China is firmly determined to
etch a new financial testament. Accordingly, China pledged $50 billion for
instituting New Development Bank with BRICS (Brazil, Russia, India, China and
South Africa). America lobbied its allies to steer clear of China during the creation
of the Asian Infrastructure Investment Bank (AIIB), a rival bank Japan’s Asian
Development Bank (ADB) in October 2014. Unrelenting China with 24 signatory countries
successfully launched AIIB with share capital of $100 billion. In a move to
gain power befitting a giant economy of its size, it launched $40 billion worth
Silk Road Fund. With China now emerging as an alternative banker to the World, IMF
and World Bank might consider charting new reforms.
Financial pundits opine that China’s largesse is purely
mercantilism. Its long term plan is to internationalise Yuan similar to Bank of
England’s role as lender in 1866 to establish Sterling as international currency.
China in its effort to prevail as a champion is doomed to entail financial
losses as the countries (Argentina and Venezuela) which received support hardly
show any signs of revival. But as the unexplained steadily increased outflows
touching new peaks China must be cautious. Having quickly realised its folly,
China is now trying to finance specific projects.
China has logged into business of development finance to make
better use of its resources and not to fritter away in corrupt nations.
Moreover by investing in multilateral institutions it has implicitly admitted
that unilateral approach was not working. Evidently the West seasoned to downplay
the role of developing countries is rattled by the growing global clout of
China. Together, China’s desideratum suggests that it has no intention to
overpower the existing financial institutions instead it aspires for a greater
global role and recognition for its illustrious economic stature.
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