Sunday, 7 June 2009

China Hugs The IMF

(Some good news about China's strategic choices in the global arena)

China's role on the global scene has gone through a spectacular metamorphosis in the past ten years. In the early 1990's China was still very much in the developing economy category. Although it was very large, its international behaviour resembled that of poor countries. Then, around a decade ago, its global action-set started to look more like a powerful emerging market. These were the BRIC years (an term that never reflected any real group of any cohesion, apart from encapsulating a somewhat similarish policy problem). By the mid 2000's China grew out of this category; running short on raw materials it needed to step up the power of its actions. China's search for reliable, long - and short - term sources of ores, hydrocarbon, and food led to a strategic change in the way the country approached its international relations, in particular vis-à-vis developing countries. Hence the new-found Chinese interest in African, South American, South East Asian countries.

As the current crisis intensified, China saw a strategic opportunity to forge closer, long term relationships with a host of weakened emerging markets that found themselves in desperate need of short-term funds. By doing so, China emerged as an alternative to the path offered by the international organisations, the IMF in particular. This reinforced a pre-existing battle between Chinese companies and international aid and development agencies. (I happened to see one of these local battles from close proximity, and can report that (a) it is a very real competition, and (b) all that is said about difference in post-material values is true. The international community's regard for environmental and cultural diversity, and procedural transparency - even if I sometimes feel that its by far not enough -, seems almost entirely lacking on the side of resource extraction focused Chinese approach.)

And thus the news that China committed a large sum (even if only 2.5% of its total reserves) to purchase IMF bonds is so good. Perhaps it has something to do with the country finding itself being less isolated from the global crisis, and thus weaker than it expected. Certainly, the strategic aspirations to take a global role reflecting its perceived self image are also at play here. It almost does not matter. The fact China wants to take stronger role in the global governing institutions as opposed to building its own is the best possible news.

Now the only task is to find out what these global governing institutions will do.

4 comments:

  1. Interesting point. Yet, I am not sure if this commitment to the 50 billion is really such a shift in policy. It is quite possible that it's just a one off decision, no? And in any case whatever the head decides might not have much impact on the smaller companies that do the extraction you are worried about. Perhaps you should put it a bit differently: this COULD be the sign of changing times.

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  2. There might be one other reason for China to be globally active: the strategic realisation that it is becoming too large to cheat the system. When you own so much of it, you probably want to stop taking away from it.

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  3. Oh common, Tamas. Give up this dream of global government. The Chinese do not want it any more than anyone else. They are just buying a seat at the table.

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  4. @dragon_tamer:

    have you seen that the Chinese government is actually delivering on their promise of the 50 billion. It seems that their move triggered a host of other emerging markets, at least those who can afford it, to chip in as well, and thus by their place at the table. The new IMF that we have been wishing for could actually emerge. Well, or at least something different.

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