China fired a salvo at the U.S. during a recent gathering of Asia’s top leaders and corporate chieftains: The U.S. needs to guarantee the security of China’s $1.4 trillion in Treasury notes and other dollar assets if it wants China’s help pulling the world out of a global economic recession.
“The U.S. is printing money right now, and it’s going to lead to a devaluation of our assets — we will demand protection,” Zheng Xinli, executive vice chairman of the China Center for International Economic Exchanges, said at last month’s summit at Boao, a resort in Hainan province that hosted Asia’s version of the World Economic Forum. “We will be talking to other Asian nations, and together we will ask the U.S. government to link Treasury coupon rates to inflation.”
It’s becoming a familiar theme among Asian leaders. At the Group of 20 summit in London last month, Chinese President Hu Jintao told U.S. President Barack Obama that he is willing to help finance the U.S. rescue package by buying more Treasuries. He also pledged to contribute $40 billion to a $500 billion recapitalization of the International Monetary Fund. But Chinese aid won’t come for free. “We don’t want to tell others what to do, but we do have a right to give our opinion,” Wang Boming, the chairman of China’s Stock Exchange Executive Council, an agency that oversees China’s Shanghai and Shenzhen stock exchanges, told Institutional Investor during the Boao summit. The U.S. “has the responsibility to make sure investing nations are taken into consideration when it decides to increase money supply,” he says. “It is spreading contagion by virtue of the fact that it has the global reserve currency.”
As well as pushing for the guarantee, China used the forum to rally neighbors to pressure the G-20 to make sure that emerging markets gain a louder voice in the new world economic order — and their efforts are gaining traction. “If Japan already has a big role globally, then why not China?” former Philippines president Fidel Ramos asks, adding that the same argument could be made by India. “We have the two biggest emerging markets in the world here. They have ignored us for too long.”
China is also pushing for greater influence at the Asian Development Bank and the Africa Development Bank Group, which it believes should play a larger role in providing financial aid to regional economies, and it wants increased clout at the IMF commensurate with its economic power. China has 3.7 percent of voting rights at the IMF and about 2 percent at the World Bank — about the same as Canada, an economy roughly one third the size of China’s $4.2 trillion 2008 GDP.
“It is the regional multilateral banks that know their respective regions the best and can do a better job in resolving regional financial problems,” China’s central bank governor, Zhou Xiaochuan, said during a panel discussion that included Lou Jiwei, the chairman of China’s $200 billion sovereign wealth fund, China Investment Corp.
China wants to raise its stake in both the IMF and the World Bank to at least 8 percent, notes Guan Anping, a former legal aide to Vice Premier Wu Yi. That would still be far less than the U.S.’s interests of about a 17 percent in each, the largest among the 187 member nations. Since the Bretton Woods Agreement was signed at the end of World War II, the World Bank and the IMF have been controlled primarily by the U.S. and its allies in Western Europe and Japan, which has a 6 percent stake in the bank.
But in recent years global dominance has shifted. “We have the money, the increasing clout, and we want to buy a much bigger stake in both organizations,” Guan says. “We’re going to push our agenda, and we know we have emerging markets behind us.” Even former U.S. president George W. Bush acknowledged the rise of China at the Boao forum. “The G-7 no longer represents a significant percentage of the world economy,” he told a dinner crowd. “Not having China makes no sense, or South Korea or Indonesia.”
A key question remains: Is the U.S. ready to loosen its grip? China’s former vice premier Zeng Peiyan offers a blunt response: “If the West doesn’t listen to what we have to say, we’re not going to invest in it.”
But New York University economist Nouriel Roubini, known as Dr. Doom for predicting the U.S. subprime crisis in early 2007, thinks China may want to deal with domestic worries before demanding change on a global scale. Its $585 billion stimulus package won’t be enough to meet its immediate goal of increasing consumer spending, he says. “What they need to do is invest massively in building a social safety net to allow the Chinese consumer to be comfortable, have less precautionary savings and consume more,” Roubini tells II . “The lifetime social security benefit for an average Chinese totals just $60, so after you retire you receive $3 a year. No wonder they save like crazy.”
