China to be pioneer in building new global financial system: scholars

 

A view of Shanghai Photo: VCG

China will be a pioneer leading the world into a new and innovative financial and monetary system, as global calls for an overhaul of the Bretton Woods system - which has been in place for 80 years - gain traction due to the US abuse of the dollar's hegemony and its irresponsible policy, as well as a fragmenting global economy, Chinese and foreign scholars said.

The new financial system is envisioned to be one based on a diversified set of currencies rather than a single currency, they noted. It will be an open, inclusive system where the voices of emerging market economies would be better represented, and it will enable countries to join hands to promote global economic growth and financial stability. 

The comments were made at the 2024 Tsinghua PBCSF Global Finance Forum in Hangzhou city in East China's Zhejiang Province. The two-day event concluded on Tuesday. This year, the forum was themed "80 Years after Bretton Woods: Building an International Monetary and Financial System For All."

"A system as old as Bretton Woods built after a world war is not the right proxy for the future forever and needs to be adapted… The world is undergoing geopolitical tensions, wars, demographic challenges and a climate crisis. We need to have one system going forward that includes everybody," Andreas Dombret, a global senior advisor at Oliver Wyman and former board member of the Deutsche Bundesbank, told the Global Times on the sidelines of the forum. 

Dynamic emerging market economies such as China and India have grown in importance in the past decades, which needs to be reflected in their quotas in the IMF, he said.

Taking account of how the US has been weaponizing and abusing its dollar hegemony by imposing unilateral sanctions on other countries, attendees of the forum expressed hopes that a less dollar-centric system could be created from both a theoretical and pragmatic point of view. 

The Federal Reserve's policies to deal with US inflation and a recession, which have had negative spillover effects on the world, have raised widespread concerns over an excessive reliance on a single currency.  

"The Americans changed the Bretton Woods System in favor of the American economy [during the 80 years of development]. But we cannot sustain a global financial system based only on the one national currency, which is unsustainable," György Matolcsy, governor of the Central Bank of Hungary, told the Global Times in an exclusive interview on Monday. 

A view of the 2024 Tsinghua PBCSF Global Finance Forum in Hangzhou, East China's Zhejiang Province, on May 28, 2024. The two-day forum ended on Tuesday. Photo: Li Xuanmin/GT

 

Massimiliano Castelli, managing director and head of strategy at UBS, said at a panel discussion on Monday that he has heard the view that although the US has mature financial markets and institutional credit, it is not a safe haven given its hegemonic positioning and reckless weaponization of its currency. If the world is subject to more geopolitical fluctuations, other countries may opt to reduce their reliance on the US dollar. 

While the US dollar remains the world's most frequently used currency, de-dollarization has been gaining momentum, especially in emerging markets.

For example, China and Brazil agreed last year to trade in their currencies. In addition, a number of other countries including Russia, Malaysia, India, Saudi Arabia, Ghana and the United Arab Emirates have moved to settle trade in their local currencies.

As the global financial governance system is at a crossroads of adjustment and transformation, the scholars expect China -  an active participant in global financial governance and policy coordination - to play a prominent role in making globalization more open, inclusive, balanced and mutually beneficial.

Although the yuan has a limited role in the international monetary system, it is expected to compete with the US dollar and become a substitute in the long run, they said. 

"If the internalization of the yuan moves forward smoothly, the new system will be based on not only the US dollar but also on the euro and the yuan," Ju Jiandong, chair professor at the PBC School of Finance in Tsinghua University, told the Global Times. 

The yuan accounts for a growing share of international payments. In March, the figure hit a record of 4.69 percent, up from 4 percent a month earlier, remaining the world's fourth most active currency ahead of the yen, data from global payment services provider Society for Worldwide Interbank Financial Telecommunication showed. 

"I hope that we have a joint effort so that the global economy would not fall into two parts where one is competing with the other and making the global economy less effective. It would be best to have a global system that is deemed to be fair by everybody rather than having competing systems, which means a loss of competitiveness and a lot of loss of effectiveness," Dombret said.  

Germany's central bank added the yuan to its currency reserves in 2018, a decision that Dombret said was significant, and he is confident that the share of the yuan in the mix of currency reserves will "grow."

Matolcsy suggested that Asian economies such as China, Japan, South Korea, India and Indonesia could create an Asian basket for central banks' digital currencies, offering the world a new border financial transaction system.

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Xi's China EV dream is coming true

 

 

In pole position: Sales staff stand near the Seagull electric vehicle from BYD at a showroom in Beijing. The car, launched last year, sells for around US$12,000 in China and rivals US-made EVs that cost three times as much. — AP

HONG KONG: Ten years ago almost to the day, while checking out a handful of luxury sedans from one of China’s largest automakers SAIC Motor Corp, President Xi Jinping gave a pivotal speech that would set China on the course to dominate the electric vehicle (EV) industry.

The path to becoming a strong automaking nation lies in developing new-energy vehicles, Xi said, according to a 2014 Xinhua report.

Claiming a head start, or “high ground,” in this sector is key to the competition globally, Xi said.

In 2014, China sold around 75,000 EVs and hybrids, and exported about 533,000 cars.

The domestic market was dominated by international manufacturers such as Volkswagen AG and General Motors Co, which were allowed to enter by forming joint ventures with local players in the 1980s and 1990s.

This helped China transform from a bike-riding nation to a car-driving one.

Homegrown carmakers and brands that didn’t work with foreign partners were seen as inferior and lagging behind in engine and other automotive technology.

To get ahead and tackle environmental challenges, Beijing bet on fuel efficient and alternative energy vehicles.

The state had published a guideline in 2012 that established ways to develop the industry by setting sales goals, providing subsidies and allocating resources for building charging infrastructure, among other things.

Xi’s speech two years later signalled China’s determination to use this as a way leapfrog traditional Western and Asian auto powerhouses, in particular Japan, home to Toyota Motor Corp.

With the stage set, China needed a catalyst to spur consumer interest in EVs, which in the early 2010s were mostly cheap cars with short ranges.

That ended up being Tesla Inc, which became the first foreign automaker to set up a wholly owned operation in China.

With that special permission, Tesla completed its Shanghai factory in 2019. Its entry into the market motivated local players to come up with better EVs with longer ranges.

Fast forward to 2024, and China has become the world’s largest auto market and sells more electrified vehicles than any other country, with 9.5 million cars delivered last year.

It also controls the majority of the battery supply chain. Homegrown champion BYD Co dethroned Volkswagen to become the best-selling brand in China and in the last quarter of 2023, surpassed Tesla as the world’s largest producer of EVs.

China also overtook Japan as the largest auto exporter, sending 4.14 million units abroad with 1.55 million of them being EVs or plug-in hybrids.

The achievements proved that Beijing’s industrial policy and investments paid off. But they’re also adding to tensions with the West.

China’s success in EVs, which could disrupt traditional auto supply chains that employ millions of people, has become a key source of discomfort in Washington and Brussels.

As a price war at home and slowing growth drives Chinese automakers to search for buyers for its affordable and tech-laden EVs elsewhere, they’re running into trade barriers, especially in the European Union (EU) and the United States, which are meanwhile trying to develop their own EV supply chains.

Both have accused China of exporting its excess capacity.

The United States has quadrupled import tariffs on Chinese cars to more than 100%, while the EU is investigating Chinese EVs to see if there has been an unfair advantage from government subsidies.

Brazil recently removed a tax break on imported EVs and even Russia, arguably Beijing’s strongest ally and the largest destination for Chinese auto exports since the war with Ukraine, has asked Chinese carmakers to consider localising production.

Beijing has threatened to hit back, with the China Chamber of Commerce to the EU on May 22 saying that the import tariffs on cars with large engines may be raised to 25% from 15%.

There’s a June 5 deadline for the EU to inform Chinese EV exporters of preliminary findings and whether tariffs will be imposed.

SAIC, the state-owned manufacturer whose facility Xi visited 10 years ago, happens to be one of the three Chinese automakers, along with BYD and Zhejiang Geely Holding Group Co, selected for further scrutiny by the EU in its anti-subsidy investigation.

SAIC owns the British-origin MG brand, which is one of the top selling EVs in Europe.

At an event marking the 10th anniversary of Xi’s speech last Friday, SAIC officials including chief engineer Zu Sijie said they’ve remembered the president’s instructions well, and the company has consistently innovated around technologies like smart driving and connected cars.

Li Zheng, the co-founder of SAIC Qingtao New Energy Technology Co, a battery startup backed by SAIC, took the opportunity to promise executives won’t be complacent as EV competition rises, noting that progress in solid-state batteries, which have a higher energy density and reduced fire risk, will be one way for China to maintain its edge.

“New-energy vehicles have become a strategic industry, fiercely contested by countries around world,” Li said. “They’re a key supporting force to our country’s revitalisation of green sectors.”

A lot can happen in 10 years, but with SAIC having invested about 150 billion yuan (US$21bil) into research and development over the past decade alone, even despite trade wars, 2034 looks bright. — Bloomberg

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America as a third world country

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Capitol Police and the Nation al Guard on alert at Capitol Hill a day after a pro-Trump mob broke into the US Capitol, Washington DC , on Jan 7, 2021. —AFP

FROM time to time, when something goes wrong in America, its politicians and media commentators would sometimes say the following lines or a variation thereof: “This is something you’d expect in a third world country.”

Having stayed in the United States for a big chunk of the past year, there are times when that line comes to mind. To be fair, I have also gained much more appreciation for this nation, including the cultural diversity fuelled by immigrants from every corner of the world; the Americans’ entrepreneurial spirit and resourcefulness; and the sheer loftiness of its democratic ideals, even if the country has struggled to live up to them. On a more personal note, I’ve also come to embrace its great outdoors, and the New Hampshire’s White Mountains have become a sanctuary.

But there are also moments of frustration and disappointment, during which I am tempted to invoke the “third world” trope. 

Coming from a country that is actually part of the so-called “third world,” I am acutely aware of how problematic and inaccurate the term is, in terms of how it reinforces a divide between the “first world” and the rest of the planet; how it perpetuates how “backward” (another problematic term) other countries are in relation to those that are “advanced”; and how the ability to even conceptualise the world in those simplistic terms comes from a position of unacknowledged privilege.

“From almost the beginning, New Orleans looked more like a Third World country than part of the US,” a news report on Hurricane Katrina back in 2005 went, as though the sight of devastated communities were a natural feature of countries like the Philippines, when it is the colonial condition that actually produced the conditions of such disasters; when it just so happened that America has been relatively spared from powerful storms until recently.

“There is nothing patriotic about what is occurring on Capitol Hill. This is 3rd world style anti-American anarchy,” US Senator Marco Rubio tweeted in the aftermath of the infamous Capitol attacks on Jan 6, 2021, as though America were immune to demagoguery, populism, and (gun) violence; as though America had no hand in anarchies and insurrections the world over.

As we can see, in these instances, the rhetorical uses of the US as a “third world country” are premised an even more problematic idea of American exceptionalism.

In some ways, though, America is indeed “third world,” just as in some ways, the Philippines is “first world” (and we can also just as easily replace those terms with whatever is preferable or acceptable: Global North and Global South; “developing” and “developed”; “high income” and “low and middle income”). These terms may have some utility in certain contexts, but in characterising countries and categorising the world they are essentially meaningless due to the inequality that has intensified both wealth and poverty within each nation.

In the Philippines, for instance, we see how commercial centres like Bonifacio Global City and Makati, even parts of Davao or Cebu, can rival the ritziest parts of America in terms of their restaurants and cafés, luxury apartments, and all the amenities that can be enjoyed by people who can afford them. We have “first world” schools and hospitals, too, completed with the necessary global credentials, readily available for those who have the ability to pay.

Conversely, America’s “third-worldness” is experienced mostly by the millions living from paycheck to paycheck; dispossessed Black, indigenous, and rural communities, in what the Massachusetts Institute of Technology economist Peter Temin calls the decline of middle America. Alongside the homelessness crisis in the Bay Area and in growing number of cities, public infrastructure is perhaps its most visible manifestation: While the uber-rich can fly on private jets, many Americans have to contend with ageing subways, trains, and airports.

More deeply, while billionaires are building ultra-high-tech “bunkers” as status symbols, many Americans face existential risks, from disasters like the wildfires in California and floods in Texas to the everyday violence from guns, criminality, and poverty. And while billions of dollars are spent in military spending and assistance – education and health care are under-prioritised and underfunded, with many African and Asian countries faring better than many US states in their Covid-19 responses and outcomes. Surely, America has much to learn from the rest of the world, in the same way that we also have much to learn from it.

The late medical anthropologist Paul Farmer referred to those on the receiving end of these conditions, in America and the rest of the “first world,” as constituting a “fourth world,” to underscore how vastly different their lived experiences are from their much wealthier counterparts.

But I don’t think we need more than one world to articulate our shared predicaments and the need for global solidarity – including toward the people of this beautiful land who deserve better public transport, health care, education, and quality of life. — Philippine Daily Inquirer/Asia News Network

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