Last year, Secretary of State Anthony Blinken correctly defined the US-China relationship as the greatest challenge of the 21st century, observing that: “Our relationship with China will be competitive when it should be, collaborative when it can be, contradictory when it should be”. .’ Treasury Secretary Janet Yellen later echoed the point.
Blinken and Yellen’s statements represented a welcome, intelligent and pragmatic framework. But how is it implemented economically and financially, who should be a poster child for collaboration? To date, it would be difficult to offer a positive assessment.
Obstacles abound, making it hard to talk. Neither Democrats nor Republicans want to be overwhelmed with warmongering over how hostile China is viewed. Those who see China as a “strategic competitor” seem to go out of their way to caricature the engagement as some form of panda hug or a failed effort to promote an open Chinese society. The United States has valid reasons to be deeply concerned about the risks posed by China to the national security of the United States, not only on defense, but also on technology, chips, spyware, minerals rare earth metals and cyberattacks, as well as its economic statism, industrial policies and technology theft.
But it takes two to tango. President Xi Jinping’s China matches Washington’s warmongering and mistrust. China’s tacit acceptance of Russia’s barbaric invasion of Ukraine and the “boundless” friendship with Vladimir Putin rightly engender fierce antagonism in Washington. Interactions are hampered by China’s zero Covid-19 policy and the inability of Chinese officials to leave the country, preventing the US and China from talking quietly on the sidelines of meetings, such as G20 or Monetary Fund meetings. International/World Bank.
There is ample evidence that the telecommunication lines between financial authorities in Beijing and Washington are nearly dead.
Yet the United States and China together account for more than 40% of the world’s gross domestic product. For better or for worse, this relationship is “systemic”. The two must interact intensively on economics and finance to reduce the possibility of bad outcomes for themselves and the world, not to mention help solve global problems wherever possible.
The agenda is daunting and pressing, even accepting that some topics are off limits.
Global recessionary forces are intensifying as major countries, particularly the United States, step up efforts to tighten monetary policy and defeat inflation. China’s growth has been hit this year by Covid-19 lockdowns. Economic policy is constrained by high debt and a weak financial system. Efforts to shift from often inefficient investments to consumers and services are moving hesitantly. Weak economic performance in China and the United States will spill over borders, particularly hurting emerging markets and less-developed countries already reeling from rising oil and commodity prices.
The tightening of US monetary policies pushed the dollar up considerably. Typically, a very strong dollar is followed by a lag with increased protectionist pressure. China’s huge current account surpluses of 15 years ago are gone, as is the accumulation of reserves. But Donald Trump’s tariffs, largely maintained so far by President Joe Biden’s administration, show that there is still a propensity to blame China and others. The United States is right to stop trade in sensitive national security items. But more generally, protectionism would hurt global growth.
The over-indebtedness of low-income countries is acute. China is a huge non-traditional official creditor. The G20 common framework to address LIC over-indebtedness has so far been a failure. China is opposed to write-downs, instead using debt extension and simulation practices in cases of insolvency. Debt data is opaque. America is seen as raising debt issues to castigate China for ‘debt trap diplomacy’. Rather, it should focus on helping LICs overcome unsustainable debt. China is concerned about the identification of debt restructurings with the Paris Club. The United States should call for good results and disregard French concerns about an agency’s name, location, and personnel.
The IMF is a beacon of multilateralism. China should be roped in as much as possible. The People’s Bank of China, which represents Beijing at the IMF, is a major creditor of funds and a favorable interlocutor. Yet China, with well over 15% of global GDP, weighs only 6% in the IMF. Its vote share should be increased, albeit modestly, and second to the IMF. This is highly unlikely in the current environment between the United States and China. But if China fully disclosed its debt data and actively participated in the common framework, the United States should be willing to consider a higher weighting of China’s IMF.
Needless to say, climate change is one of the greatest challenges facing humanity. Health, food security and pandemic preparedness are other acute challenges around the world. Global solutions cannot be found without strong US-China interaction. More generally, without meaningful US-China collaboration, the G20 cannot function effectively.
There is a lot to discuss. Financial authorities in Washington and Beijing owe it to themselves and to the world to launch Zoom.
Mark Sobel is the U.S. President of OMFIF.
Source of images: US State Department