Opinion

Making space for China

When the United Kingdom announced earlier this month that it had agreed to become a founding member of the China-led Asian Infrastructure Investment Bank (AIIB), most of the headlines focused not on the news itself, but on the friction the decision had caused between the UK and the United States. The White House issued a statement urging the British […]

By: Date: March 17, 2015 Topic: Global economy and trade

When the United Kingdom announced earlier this month that it had agreed to become a founding member of the China-led Asian Infrastructure Investment Bank (AIIB), most of the headlines focused not on the news itself, but on the friction the decision had caused between the UK and the United States.

The White House issued a statement urging the British government to “use its voice to push for adoption of high standards." And one senior US administration official was quoted accusing the UK of “constant accommodation of China, which is not the best way to engage a rising power." In fact, it is the US that is advocating the wrong approach.

In the UK, the diplomatic spat served as an occasion for the British press to air criticism from those who believe that the government should adopt a stronger stance on China. For example, they say that the government should have spoken out more forcefully in support of last year’s pro-democracy protests in Hong Kong, and that it should not have distanced itself from the Dalai Lama (as it seems to have done) during Prime Minister David Cameron’s visit to China in 2013.

The UK does need to stand up for itself, but there is no reason for it to become confrontational about internal Chinese matters

The UK does need to stand up for itself, but there is no reason for it to become confrontational about internal Chinese matters – especially in the case of Hong Kong, where it lost its standing when it agreed to return the city to Chinese control in 1997.

The US, too, would be wise to stop resisting the fact that the world is changing. The US Congress has yet to ratify a 2010 agreement providing China and other large emerging economies greater voting power in the World Bank and the International Monetary Fund. In the meantime, the agreement has become obsolete; China’s economy has nearly doubled in size since the deal was struck.

America’s reluctance – and that of France, Germany, and Italy – to give the emerging powers an appropriate voice in the established international financial institutions is counterproductive. It drives the creation of new parallel institutions such as the AIIB and the New Development Bank, founded in 2014 by the BRICS countries (Brazil, Russia, India, China, and South Africa).

In the coming days, I will be visiting China in my role as Chair of the British government’s Review on Antimicrobial Resistance, and also as a participant in the Boao Forum for Asia, an event similar to the annual gathering of the World Economic Forum in Davos. I hope to encourage Chinese policymakers to make the fight against antimicrobial resistance a priority when China chairs the G-20 in 2016. And though I am not the British ambassador, I will be happy to state my belief that the UK government was wise to join the AIIB, and that the US administration, in voicing its opposition, was not.

China’s $10 trillion economy is bigger than those of France, Germany, and Italy combined.

China’s $10 trillion economy is bigger than those of France, Germany, and Italy combined. Even if its annual output growth slows to 7%, the country will add some $700 billion to global GDP this year. Japan would have to grow at something like 14% to have that type of impact on the world.

For anyone who wants to engage in global trade, it is thus vital to identify what China wants. In the case of the UK, this obviously includes finance (as well as sports, music, fashion, and perhaps health care). The UK is simply being smart when it promotes its own interests by cooperating with China.

One of the few positive consequences of the 2008 financial crisis was the elevation of the G-20’s global role; in principle, it is a far more representative forum for international leadership than the G-7 ever was. There is, however, a downside to the G-20’s emergence: the large number of participants can make it difficult to reach agreements and get things done.

More on the same topic: The twenty-first century needs a better G20 and a new G7+

A new G-7 needs to be created within the G-20, thereby providing China with a degree of influence that reflects its economic weight and requires it to assume a commensurate proportion of global responsibility. Space at the table for China could be obtained if the eurozone countries, signaling their commitment to the common currency, agreed to surrender their individual seats in exchange for one representing the entire monetary union. The US, too, would finally have to accept China’s heightened global role.

Later this year, the IMF will recalibrate the weights in its unit of account, the so-called Special Drawing Rights, which comprises a basket of currencies that currently includes the US dollar, the euro, the British pound, and the Japanese yen. According to almost every economic and financial criterion, the SDR basket should now include China’s renminbi. The US would be wise to not oppose such a move. Otherwise, it would risk accelerating the decline of the established international financial institutions.

By founding the AIIB and the New Development Bank, China and other emerging powers have signaled that they will not wait for their voices to be better heard.

Similarly, the US Congress should ratify the agreed changes to the governance of the IMF and the World Bank. By founding the AIIB and the New Development Bank, China and other emerging powers have signaled that they will not wait for their voices to be better heard. And decisions like that of the UK – and France, Germany, and Italy – show that they are not alone.

This was reprinted with permission from Project Syndicate. To secure the rights to this commentary, please contact Project Syndicate here.

This was reprinted with permission from Project Syndicate. To secure the rights to this commentary, please contact Project Syndicate here.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Opinion

In the electric vehicle race, China coming first

China is not only a producer and consumer of EVs, but also of the battery components on which they depend.

By: Alicia García-Herrero Topic: Green economy Date: January 26, 2022
Read article More on this topic More by this author
 

Opinion

How Chinese competition helps western conglomerates

Firms like GE and Siemens may well find that their decision to split their businesses into multiple companies leads to increased profits and higher stock prices. But recent research indicates that this is not the only way conglomerates can boost efficiency.

By: Dalia Marin Topic: Global economy and trade Date: January 17, 2022
Read article More on this topic More by this author
 

Podcast

Podcast

Understanding Japan’s economic relations with China

What can Europe learn?

By: The Sound of Economics Topic: Global economy and trade Date: January 12, 2022
Read article
 

Blog Post

European governanceInclusive growth

12 Charts for 21

A selection of charts from Bruegel’s weekly newsletter, analysis of the year and what it meant for the economy in Europe and the world.

By: Hèctor Badenes, Henry Naylor, Giuseppe Porcaro and Yuyun Zhan Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: December 21, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

What to watch in 2022: China's economic outlook

Our end of 2021 recap of China’s economic activities.

By: The Sound of Economics Topic: Global economy and trade Date: December 8, 2021
Read article More by this author
 

Blog Post

European governance

The Global Gateway: a real step towards a stronger Europe in the world?

Disappointment at the lack of fresh cash from European Union global connectivity strategy is short-sighted: Europe supports global development more than any other country in the world. Using existing funds more strategically is the right priority for now.

By: Simone Tagliapietra Topic: European governance, Global economy and trade Date: December 7, 2021
Read article Download PDF More on this topic More by this author
 

External Publication

Chinese economic statecraft: what to expect in the next five years?

Chapter from 'Storms Ahead: the Future Geoeconomic world order' on the expectations from the next five years of Chinese economic policy, published on 27 October 2021.

By: Alicia García-Herrero Topic: Global economy and trade Date: November 26, 2021
Read article More on this topic
 

Blog Post

Goodbye Glasgow: what’s next for global climate action?

After COP26, and as the debate on whether Glasgow represents a success or a failure dies down, what next for global climate action?

By: Klaas Lenaerts and Simone Tagliapietra Topic: Green economy Date: November 18, 2021
Read about event
 

Past Event

Past Event

How can we create more sustainable value chains?

There is an urgent need for GVCs to become more resilient and inclusive, and meet the net-zero challenge.

Speakers: Erik Berglöf and Alicia García-Herrero Topic: Global economy and trade, Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 10, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Why is China cracking down on big tech?

A look at China’s recent regulatory efforts in the digital space.

By: The Sound of Economics Topic: Global economy and trade Date: November 10, 2021
Read article
 

Opinion

COP26: why carbon pricing is crucial to China’s climate change pledges

China’s emissions trading scheme is a welcome but to reach its full potential, it needs to cover more of China’s emissions, go beyond the electricity sector and let prices reflect the true cost of carbon.

By: Alicia García-Herrero and Junyu Tan Topic: Global economy and trade, Green economy Date: October 22, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Will ‘common prosperity’ address China’s inequality?

Why is China reviving this old mantra?

By: The Sound of Economics Topic: Global economy and trade Date: October 13, 2021
Load more posts