OP-ED: Don’t Let China Rewrite the Rules for the Global Economy
WASHINGTON, D.C., September 24, 2021
Don’t Let China Rewrite the Rules for the Global Economy
The World Health Organization’s (WHO) ineptitude in the early days of COVID-19 shed light on China’s growing influence over international institutions. The decline of the WHO should serve as a warning as China seeks to expand its malign reach, particularly in economic governance at the International Monetary Fund (IMF), the World Bank, and the G20.
These are the organizations that shape the world’s financial architecture, providing countries with lifelines during crises, setting conditions when they borrow, and monitoring the overall health of the global economy. China feels entitled to a greater say in how these organizations work. The U.S. must make it clear that they haven’t earned it.
China is now the largest official creditor in the world, with its lending having increased from almost nothing in 1998 to an estimated $1.6 trillion in 2018. Chinese leaders have placed particular emphasis on financing infrastructure across the globe under their Belt and Road Initiative, which now encompasses around 3,000 projects with a value of nearly $4 trillion.
Because Beijing doesn’t comply with international standards for lending terms that the U.S. and other major creditors have agreed to, the details of much of this financing remain murky. This intentional deception poses massive challenges to the work of the IMF and multilateral development banks, where America and its allies have traditionally been the top shareholders.
Without an understanding of countries’ obligations to China, public and private creditors can’t structure their loans effectively, allowing risk to form and metastasize unseen. At the same time, if creditors aren’t aware of Beijing’s own potential liabilities when China’s borrowers’ default, they may be blind to weaknesses in the world’s second largest economy.
The U.S. once believed that encouragement by the U.S. and her allies of the Chinese government would convince it to see the error of its ways. Officials thought if China had arrived as an economic power, then boosting its weight in international bodies must follow, and it just might convince Beijing to behave more responsibly. In 2010, the Obama Administration signed off on a more than 50 percent increase to China’s shareholding at the IMF, a move that the Fund hailed as better reflecting “global realities.” Five years later, the U.S. also allowed China’s renminbi (RMB) to be added to the IMF’s basket of elite currencies. This action handed Beijing a propaganda win even though the RMB still lagged the Canadian dollar and Australian dollar as an international reserve currency.
Whatever good intentions may have led to this three-decades-long strategy, the following years have been one long reality check. In addition to the expansion of Belt and Road, China reapplied capital controls and dismissed the Organization for Economic Co-operation and Development’s (OECD) trade finance standards to subsidize its exporters.
Most egregiously, the Chinese Communist Party defied international norms of behavior by assaulting Hong Kong’s democracy, stonewalling inquiries into the origins of COVID-19, and carrying out genocide in Xinjiang.
It’s masochistic to believe that a genocidal and expansionary Chinese Communist Party that rejects global rules is qualified to hold greater sway over international financial institutions. Having a voice in these institutions isn’t about the size of a country’s economy, it’s about commitment to the values that serve as the foundation of multilateral cooperation.
For its part, the IMF is now considering additional changes to its shareholding, with a decision expected in 2023. China will argue that its voting weight should rise again, this time leapfrogging Japan to take second place behind the U.S. Not only should the U.S. veto this move, but it should also make any future increase for China at the IMF, the World Bank, and other lenders contingent on Beijing first adhering to multilateral credit standards.
There are reasons to be hopeful that the world may have had enough of China’s behavior. In 2018, the U.S. led reforms at the World Bank that would reduce its assistance to China, an economy that now far exceeds the Bank’s eligibility threshold. Last November, the Treasury Department and like-minded members of an international working group suspended negotiations on export credits, fed up after eight years of Beijing dragging its feet on issues like debt transparency. And despite China’s creation of rivals to the IMF and World Bank, they haven’t come close to displacing these U.S.-led institutions. A Chinese-led order will face hurdles as long as global public opinion of Beijing stays at or near historic lows.
Keeping the pressure on China will be vital until it starts playing by the rules. The tarnished reputation of the WHO serves as a warning to guard against China’s reverse Midas touch wherever possible. There will be times when cooperation with China is necessary, but that cooperation is only sustainable if it’s based on shared values. It is up to China to prove it takes them seriously.