Americas Quarterly - Winter 2012

China’s Global Rise LOWELL DITTMER

INTERNATIONAL DEMANDS

On behalf of Chinese national interests, Beijing has made radical but timely proposals to reform the international financial system. First, China wants, and has received, more power for the Third World (particularly itself) on the International Monetary Fund (IMF) governing board. Its voting share within the IMF increased from 2. 9 percent to 3. 6 percent in 2006, and to 3. 8 percent in 2010. Second, in 2009 Zhou Xiaoquan, governor of the People’s Bank of China, proposed that the dollar be replaced by a currency representing the value of the special drawing rights (SDRs) used within the IMF (made up of a basket of currencies). China has long resented the advantageous financial position of the U.S. as holder of the most widely accepted reserve currency, which makes Chinese trade dependent on values it cannot control. Current efforts by the Federal Reserve to stimulate U.S. recovery are thought to contribute to Chinese inflation.

The response of the U. S. and other IMF members has
been skeptical. In any case, if China were to shift from
the dollar to the SDR (or to some other currency) the
capital account would have to be convertible, meaning
that currency could much more easily enter and leave
the country and the value of the renminbi would float.
This would make it more difficult to control the prices
of exports and would jeopardize China’s export sector,
which is now the major GDP growth engine. And for
China to make the renminbi a global reserve currency,
it would have to run a deficit, meaning somehow dis-
posing of the more than $3 trillion in foreign exchange
reserves it has amassed over the past decade. It would
eventually be to China’s advantage—if it would like to
become a major financial actor—to make its currency
freely exchangeable. The Chinese have pledged to so in
the near future, but for now their efforts remain rela-
tively modest. In part the proposal may be simply a rhe-
torical foil to U.S. complaints that it should revalue its
currency and thus contribute to rebalancing the world’s
economy (but adversely affecting China’s).

Tapping its neighbors: When at full capacity, this 4,350-mile gas pipeline running from Turkmenistan to China will deliver 40 billion cubic meters of natural gas annually.