Trade Wars by Nils Ole Oermann

Author:Nils Ole Oermann [Nils Ole Oermann and Hans-Jürgen Wolff]
Language: eng
Format: epub
ISBN: 9780192665331
Publisher: OUP Oxford
Published: 2022-07-12T11:26:22+00:00

China’s financial influence is growing

The third element of structural power as defined by Susan Strange is control over finances and lending. We have already mentioned that the BRI project is partly financed by new financial institutions and that China is developing the renminbi into a leading and reserve currency through trade and clearing agreements. In the area of money and finance, the question of whether China is striving for decisive structural power in international relations can easily be answered in the affirmative, as the picture is relatively clear. China has created partly complementary, partly competing parallel structures to most of the important institutions of world finance. Where China is a member in ‘old’ institutions, it continues to cooperate constructively, but it is becoming more independent through the ‘new’ ones and is constantly expanding its influence in the global finance and credit system. This is probably to some extent the result of dissatisfaction with American-style financial capitalism, which led to the global financial crisis, and the previous behaviour of institutions such as the IMF, against which even Japan has already tried to build up a counterweight.96 The BRICS New Development Bank, the Asian Infrastructure Investment Bank, the BRICS Contingency Reserve Arrangement, a regional liquidity support facility called the Chiang Mai Initiative, the ASEAN+3 Macroeconomic Research Office, the China International Payment System, the Universal Credit Rating Group, and the debit and credit card provider China Union Pay now stand alongside the World Bank and the IMF, SWIFT and the United States rating agencies, credit card providers such as VISA and MasterCard, and the Bank for International Settlements.97 In the digitalization of everyday financial services, China is already far ahead of the rest of the world.98 A study conducted at the end of 2014 states: ‘Novel funding and currency mechanisms have developed a significant attraction in Asia, Africa, and Latin America within a short period of time … Already today, China’s international currency and financial initiatives are contributing to striking changes in the global financial and monetary order. In this realm, competition from China-centred parallel mechanisms is already palpable and weakens the once dominant position of Western currencies and Western-led international organizations.’99 At the same time, the study shows that the establishment of such parallel structures is by no means limited to the area of money and credit.

Some Chinese lending is criticized for allegedly luring recipient states into a ‘debt trap’. We have already touched on Montenegro and Sri Lanka, which seem to have overstretched themselves financially. But loans leading to unsustainable debt always involve two parties, and anyone who believes that China is intent on subjecting others to a kind of ‘interest slavery’ carries a considerable burden of proof.100 Others believe that the Middle Kingdom is more likely the one sitting in the debt trap. The Chinese banking and credit system is seen as having inflated a real estate bubble at home and being on the verge of a homemade financial crisis, which would then also clip the wings of China’s foreign financial policy.

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