China holds three high cards in hand to gain bigger say in global economy at G20 summit
Beijing is betting on its key role in a new multilateral bank and in an alternative currency, as well as its pull with the rest of the developing world
The China-led Asian Infrastructure Investment Bank now has every major US ally on board except Japan. The World Bank, at Beijing’s invitation, has sold the first batch of bonds in a non-dollar alternative currency on China’s onshore market. And China has cemented its role as a leader among developing countries by inviting a record number to join its big party in Hangzhou.
All three facts point to Beijing’s persistent quest for a bigger say in the global economy.
President Xi Jinping is a strongman at home. But he is expected to try to persuade his counterparts from the other 19 top economies to endorse China’s vision when he rolls out the red carpet and gourmet food for the visiting dignities at the Group of 20 (G20) summit in Hangzhou, which starts on Sunday.
While the event is a global forum for economic policy coordination, it is too good a chance to be missed for China to push its own agenda. Under broad concepts like “international finance governance reform” and “stronger infrastructure investment”, China can promote the use of the yuan and the AIIB.
“China has been actively participating in resetting the world economic and financial agenda in recent years,” said Lu Zhengwei, an economist with Shanghai-based Industrial Securities. “It has been determined to break the balance of [global financial power], to change the game.”
China has never hosted so many world leaders in one meeting, with about 40 heads of nations, governments and international organisations gathering in Hangzhou. And China has leveraged its massive state power to ensure a smooth event – roads are blocked, factories closed, many local residents are out of town and an army of security officers and volunteers is on the streets.
“It’s a test for China,” said Tristram Sainsbury, a research fellow at the G20 Studies Centre at Australia’s Lowy Institute, who is in Hangzhou for the event. For Sainsbury, the summit will reflect whether China has the “soft power” to steer the discussions towards its own agenda.
At the summit, China is likely to call for broader use of Special Drawing Rights (SDR), an accounting unit created by the International Monetary Fund as a form of international currency. In about a month, the yuan will officially become a component currency in the basket calculating the value of the SDR, along with the US dollar, the euro, the British pound and Japanese yen. Making China the fifth SDR currency is a symbolic move, but Beijing is taking it as a matter of national prestige.
The World Bank sold SDR-denominated bonds in China just days ahead of the G20 summit, creating a “strategically important” market for China’s ultimate goal of making the yuan an international currency, said Liang Hong, an economist with the China International Capital Corporation in Beijing.
While the yuan has a long way to go to rival the US dollar, China’s creation of the AIIB been a quick success. Canada applied to join the 57-member bank last week, leaving Japan the sole major US ally still on the outside. If all 30 other potential members on the waiting list were approved, the AIIB would be the biggest multilateral lender after the World Bank, even without the US or Japan.
Meanwhile, China, known as a capable road and bridge builder, will also push for stronger infrastructure investment under the theme of “reviving global trade and investment”, said Yuan Gangming, an economist with Tsinghua University.
While Beijing is keen to promote its One Belt, One Road strategy, it’s far from certain that it will be able to advance the regional infrastructure scheme at the G20 summit. The deadly explosion at the gate of the Chinese embassy in Bishkek, Kyrgyzstan on Tuesday has exposed potential risks to the programme, often referred to as China’s Marshall Plan.
Sainsbury said “it would be very interesting” to see whether Washington would agree to mention One Belt, One Road in the final communique from Hangzhou.