Chinese manufactured goods have long held a leading position in the international market. The same cannot be said though for the country's financial institutions. A web of mechanisms and policies has long kept China at a distance from certain aspects of the world financial system. Yet, Chinese planners and policymakers are finding clever ways around the barriers which have slowed the country's path toward further integration into the global financial order.
At the Asia-Pacific Economic Cooperation (APEC) forum held last week in Bali, Chinese President Xi Jinpingproposed the establishment of an Asian infrastructure investment bank to support development projects in developing countries across the region. This proposal is the latest step by top leaders to build up China's profile as one of the world's leading credit suppliers.
As President Xi remarked, the spread of urbanization across Asia's emerging economies will create a huge demand for infrastructure investment and a steady stream of funding is needed to ensure stable, consistent growth across the region. Indeed, the demand is already enormous and continues to grow apace. The Asian Development Bank (ADB) estimates that Asia will need to invest $8 trillion into transportation, communications and energy systems between now and 2020 in order to maintain economic growth.
If this proposal comes to fruition, China will deserve credit for spearheading this effort to promote connectivity within Asia - particularly when it comes to forging financial partnerships between regional governments and international organizations. Of course, the Chinese government has consistently expressed a willingness to explore investment and financing channels aimed at supporting development.
For years, China has also been an active participant in multilateral trade and investment in order to engage more thoroughly with the world community. This enthusiasm was particularly apparent after the outbreak of the global financial crisis, when China substantially increased its funding contributions to international financial organizations. Such largesse was vital in getting global economic growth back on track. And within the Asia-Pacific region, China has also risen to become the biggest trading partner, the largest export market and the leading foreign investor in the region.
Despite all of this though, China still lacks prominence in many of the world's leading financial organizations, such as the World Bank, the International Monetary Fund (IMF) and the ADB. And though China is the US government's largest creditor, China has been barred from joining several global trade pacts, including the Trans-Pacific Partnership, the Trade in Services Agreement and the Wassenaar Arrangement.
But by limiting China's participation in international finance, many countries have lost opportunities to receive funding support from the world's second-largest economy.
China's mammoth foreign currency reserve holdings give it the capability to participate in international finance. The country should continue with its current strategy of championing new global financial platforms and market mechanisms.
The time is right to press for such proposals, since innovative platforms are needed to supplement shortfalls in the world's current financial system. From China's point of view as well, moves along these lines could also help its financial institutions carve out wider footholds in the world market.
Early in 2009, the Association of Southeast Asian Nations (ASEAN) plus China, Japan and South Korea agreed to the creation of a $120 billion fund in 2010 in order to provide emergency liquidity to economies in the region during periods of financial crisis. The fund was created to solve short-term liquidity difficulties and to supplement existing financial organizations, such as the IMF.
In March, 2013, Brazil, Russia, India, China and South Africa announced they had agreed to set up a development bank which is expected to provide loans for infrastructure development in developing countries. This initiative was seen by many as a step toward reshaping the structure of the world financial system and an affirmation of the importance of emerging nations.
In 2010, China also proposed the creation of a development bank for the Shanghai Cooperation Organisation (SCO), with a mandate to support the development of Central Asian economies.
The creation of these international financial platforms and organizations marks clear progress for China.
These steps will not only enhance China's political and financial positions, but also give the country more clout within the international financial market.
(This Article is written by Anbound research team and translated by the Global Times, original publication please visit:
http://www.globaltimes.cn/content/817960.shtml#.UnNC6LKcFkk )
