Time to accommodate China to benefit all
- By Zhang Jun
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E-mail China Daily, June 15, 2015
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[By Zhai Haijun/China.org.cn] |
Economists are divided over China's economic future. Optimists emphasize its capacity for learning and rapid accumulation of human capital. Pessimists focus on the rapid decline of its demographic dividend, its high debt-to-GDP ratio, the contraction of its export markets, and its industrial overcapacity. But both groups neglect a more fundamental determinant of China's economic prospects: the world order.
So can China sustain rapid GDP growth within the confines of the current global order, including its trade rules? Or must the current US-dominated order change drastically to accommodate China's continued economic rise? The answer remains unclear.
One way that China is attempting to find out is by pushing to have the renminbi added to the basket of currencies that determine the value of the International Monetary Fund's reserve asset, the Special Drawing Right. That basket now comprises the US dollar, the euro, the British pound and the Japanese yen.
The SDR issue was the audience's main concern when IMF Managing Director Christine Lagarde spoke in Shanghai in April. Her stance - that it is just a matter of time before the renminbi is added to the basket - drew considerable media attention. (Regrettably, though, the media read too much into her statement.)
The IMF is expected to vote on the renminbi's inclusion in the SDR at its regular five-year review of the SDR basket's composition this October. But even if, unlike in 2010, a majority votes to add the renminbi to the basket, the United States may use its veto power. Such an outcome would not be surprising, given that US opposition (though in Congress, not within the Barack Obama administration) blocked the reforms, agreed in 2010, to increase China's voting power in the IMF.
Limited use of the SDR implies that adding the renminbi would be a largely symbolic move; but it would be a powerful symbol to the extent that it would serve as a kind of endorsement of the currency for global use. Such an outcome would not only advance the renminbi's internationalization; it would also provide insight into just how much room there is for China within the existing global economic order.
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