I don’t want to beat a dead horse here, but the Chinese have been making a lot of muscular moves diplomatically. While shifts in balance of power often take decades, it is increasingly apparent that China is making a strategic move in that direction right now.
We have been chronicling these moves here in a series of posts at Credit Writedowns:
- China’s Premier concern about U.S. Treasuries not good news (March 13)
- A few thoughts about China and their bluff on treasuries (March 14)
- China wants to get rid of the dollar (March 23)
- More thoughts on the switch from dollars as reserve currency (March 24)
- Is China avoiding using US dollars? (March 31)
It is hard not to get the impression from this lead-in to the G20 conference that China is making a strategic move of huge consequence here.
Let’s be clear: the U.S. has overspent. It is a debtor nation, dependent on the kindness of foreigners. Somehow it believes it can still lead the world and is trying to strong-arm the rest of the G-20 into believing that stimulus must be the order of the day when the Europeans clearly want regulation.
Yes, stimulus is important, but outside of the United States and the U.K., most see this depression as one caused by Anglo-American-style laissez-faire capitalism and the need now is for more regulation. French President Nicolas Sarkozy has threatened to walk out of part of the summit unless the U.S. abandons its calls for reflating the unbalanced old world order.
China on the other hand wants a new world order. The latest story leads me to believe that China is not bluffing. They are deadly serious about knocking the U.S. down a peg. This comes from the French daily Figaro:
Beijing wants to challenge U.S. leadership
A few days before the G20, China has mounted an offensive on the role of the dollar and the reform of the IMF.
Even if they like subtle strategic concepts, the Chinese also know that sometimes the best defense is offense. Tired of constantly being attacked on the yuan and trade policy, Beijing has mounted a frontal assault by attacking the power of the dollar a few days before the G20. The offensive comes in the form of a proposal to establish a new international reserve currency which could be organized around the “special drawing rights” of the IMF.
The Governor of the Central Bank of China, Zhou Xiaochuan, called twice in one week, for a necessary reform of the world monetary system, without which “fiscal and monetary measures are useless.” In just a few months, the change in posture is spectacular. “In November, the Chinese went to the G20 in Washington with a rather low profile, using passive cooperation, playing their role as one of many,” points out a Pekingese observer. And what’s more, all this despite a natural role as challenger to U.S. leadership.
Obama meeting Hu Jintao
The proposal, moreover, seems to have been long prepared and coordinated with a number of other countries, including Russia. That said, even if it is legitimate, Beijing is under no illusions about its feasibility in the short term. The monetary issue is not at the heart of the G20. Regardless, China has made it an item of interest. And the presidents Hu Jintao and Barack Obama are to speak at their first meeting tomorrow on the sidelines of the summit.On the issue of reform for voting rights in the IMF, Beijing is once again strong enough. In a long article published in the Times of London Friday, the Vice-Premier Wang Qishan has clearly explained the situation. China wants more weight in the IMF, but has no desire to engage its huge reserves in the Fund as it has been invited to do. Again, officially, the discreet Chinese have still not confirmed their position. Beijing would require profound reforms before making any further efforts. Meanwhile, the contribution would continue to be “defined by the present allotment.” China will not become a bilateral creditor of the IMF. It will not be the “banker of the world” as some hoped.
These things don’t happen overnight, but we are certainly now witnessing the end of American hegemony.
Source
Pékin veut contester le leadership américain – Figaro
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Les ambitions de Nicolas Sarkozy pour le G20 – Le Monde
La France met la pression avant le G20 à Londres – Figaro