China’s progress on the path to financial power and world power
(Abridged and revised)
In the spring of last year, the professional observers of world affairs reported bad news from the Far East: “China’s new development bank divides the West” (Die Zeit, Hamburg, March 17, 2015); “US isolates itself: China stirs up the world order” (Die Presse, Vienna, March 30, 2015); “The latest in de-dollarization: US forfeits credit” (telebörse.de, March 25, 2015); “The past month will be remembered as that moment when the United States lost its role as guarantor of the global economic system” (Die Zeit, April 15, 2015). The dollar’s dominance at an end, American power losing its allure as guarantor for the global economy, the unity of the West destroyed by China — all because of the founding of a bank. How come?
“A New Silk Road”
In 2013, the second largest global economic power announced an ambitious project for the development of the Asian continent. The Silk Road Economic Belt and the 21st Century Maritime Silk Road, the “two Silk Roads” named in memory of China’s own glorious trade history, are supposed to connect more than sixty nations of various sorts: mere energy-transit countries such as Kyrgyzstan; oil and gas producing countries such as the United Arab Emirates and Kazakhstan; countries bordering the South China Sea that control maritime shipping routes, such as Indonesia; all the way up to emerging economies and BRICS[*] partners Russia and India. With this giant project, China is pushing ahead with extending its economic zone to the borders of Europe and Africa. New transport routes for oil, gas, and electricity are to satisfy the Chinese economy’s appetite for energy, diversify and secure its supply; the expansion of existing connections and the creation of new ones (roads, railways, ports, and fiber-optic cables for telecommunication) are to promote the import and export of commodities by the world-champion exporter. Of course, money is also to be made out of this by Chinese construction, concrete, and steel firms, which have accumulated considerable overcapacity in their domestic market.
Along the two Silk Roads, new markets for Chinese commodities are to be opened up and new industrial parks created for businessmen and investors from the People’s Republic, but China’s own backward border regions in the northwest are also to be capitalistically developed. In addition to the physical infrastructure for expanding cross-border business, the project aims to eliminate existing barriers to trade and investment on the continent and to create an increasingly unified market. By standardizing industrial norms, reducing tariffs and other barriers, China is working to build a trade framework of its own in addition to and at the same time in competition with the global standards of global business. Cross-border transactions are to be freed from the hitherto dominant US dollar and settled in the currencies of the participating states, thus increasingly in its own.
In September 2013, China’s head of state and party leader Xi Jinping explained in Kazakhstan: “We need to enhance monetary circulation. China and Russia have already had sound cooperation on settling trade in local currencies, and have gained gratifying results and rich experience. There is no reason not to share this good practice with others in the region. If our region can realize local currency convertibility and settlement under current and capital accounts, it will significantly lower circulation cost, increase our ability to fend off financial risks and make our region more competitive economically in the world.” (Speech at Nazarbayev University, Astana, September 7, 2013)
For years, Chinese companies have been building infrastructure in quite a number of Asian, African, and Latin American countries and exporting capital and know-how. In Europe, they own German shipyards, are invested in Swedish auto companies, and will soon be building nuclear power plants on the British Isles. But now the “going global” of Chinese capitalism is to be raised to a higher level, first of all on its own continent. The “One Belt, One Road” project is far more than the sum of many individual development plans and capital commitments. Its aim is to create a single economic zone, with China as its organizer and the Asian countries fitting in.
The project goes under the characteristic title “Connectivity,” offering states the prospect of tapping into China’s far-reaching capitalism and sharing in its success. Along with the invitation to cooperate, the organizer of this economic zone has delivered to the Asian states a comprehensive list on which the lacking conditions for business are noted.
China is demanding a lot, at the same time it offers itself as a promoter. It has announced that it will not write off any of the Asian countries as “failed states,” but will pitch in with investments to create an infrastructure and mobilize resources and thereby provide all countries with access to the booming Chinese market. Beijing’s leaders are also offering the Asian countries loans from China to free themselves from the speculative decisions of American and European finance capital. They have arranged such accommodating conditions that the addressees can hardly say no. This is how China intends to make itself the engine for the development of the continent’s nations and regions, to “free” them from dependency on other powers, and to expand the international relations useful for this. Beijing is showing Asian countries a path to national advancement and counts on making its politico-economic interests, for which these countries are to be harnessed, a fundamental component of their reason of state.
The project for “two Silk Roads” is certainly “extremely ambitious.” “The proposed ‘economic belt along the Silk Road’ is inhabited by close to 3 billion people and represents the biggest market in the world with unparalleled potential. The potential for trade and investment cooperation between the relevant countries is enormous.” (Xi Jinping, ibid.). The project aims at nothing more and nothing less than the peaceful conquest of an entire continent.
China’s leadership presents the ambition to organize Asia into an economic zone oriented toward the growth needs of its capitalism as an exemplary “win-win” for all concerned: [from cntv.com] “One Belt and One Road are paths leading to mutual benefits and win-win progress. It will make economies more closely integrated, promote infrastructure construction and institutional and systematic innovation, create new growth areas for economy and employment, and strengthen the economies' internal driving force and resilience against risks” (Xi Jinping, speech at the China–Arab States Cooperation Forum, Beijing, June 5, 2014)
In order to make money out of the Asian countries, their natural resources and populations, Xi is selling politico-economic dependence as “aid,” “development,” and “mutual benefit.” The People’s Republic not only wants to help construct transcontinental highways over which mainly goods “Made in China” will then be moved around; it also wants to help finance the debts that must be taken on by countries seeking “connectivity” to the “Middle Kingdom” — through the founding of a development bank.
The internationalization of the renminbi
With the founding of the Asian Infrastructure Investment Bank (AIIB), China aims to realize the “vision” of the “two Silk Roads” by turning the power of its capital outward and mobilizing the credit required for developing the infrastructure in Asian countries. “The purpose of the Bank shall be to: (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors; and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions.” (Article 1 of the Agreement, aiib.org)
China is emerging as a creator of credit on the basis of what it has already achieved in terms of capitalist growth and what it promises in future growth with the enormous business being stimulated by it. The money for the loans awarded by the AIIB is created by issuing bank bonds and trading in securities. At the same time, the Asian countries and companies are encouraged and authorized to procure the capital needed for their infrastructure projects by issuing debt securities on the international financial markets, while the AIIB assumes liability for this creation of credit: “the Bank shall have the powers set out below. 1. The Bank may raise funds, through borrowing or other means, in member countries or elsewhere ... 2. The Bank may buy and sell securities the Bank has issued or guaranteed or in which it has invested. 3. The Bank may guarantee securities in which it has invested in order to facilitate their sale. 4. The Bank may underwrite, or participate in the underwriting of, securities issued by any entity or enterprise for purposes consistent with the purpose of the Bank.” (Article 16 of the Agreement)
The new bank is bringing the credit created under its direction into the world in this manner: on the one hand, for the solvency of the Asian partners who are financing their infrastructure projects with it; on the other, as an investment offer to the international club of financial speculators. The AIIB is outfitted and charged with the power to globally market the loans that it grants and the debts that it creates as money-capital. Politico-economically speaking, what is to be fueled and boosted through credit is accumulation: the mobilization of credit on a massive scale is to produce real business growth in a big way. Conversely, the growth anticipated to take place is supposed to guarantee that these investments of finance capital pay off, thus mobilizing the credit needed to redeem the promise of further economic gains. In so doing, China’s bank-founding fathers are leaving no doubt that in the future the bulk of credit is supposed to be, and will be, created in their currency, the renminbi.
For that’s the goal: the sovereign state, by virtue of its authority over money and by means of its central bank, creates universally recognized credit used as a means of business, acting exclusively on its own responsibility and in line with its own needs. International finance clients, always in search of security and returns on promising investments, are to snap up the securities issued by the new bank; they are to attest to their quality as self-expanding money-capital by investing in the renminbi-denominated debt securities, thereby turning China’s debts for the Asian development program into internationally recognized money-capital. China is building on the interest of a global business community whose investments are already no longer restricted to the Chinese “real economy,” which has to offer a super-low-wage workforce as a guarantee of success, but are increasingly going into the securities that China’s “financial industry” is creating.
In this way, China is resolutely taking the internationalization of its credit-money a step further. Quite some time ago, it established its domestic currency as the primary means of purchase and payment in its trade with more and more countries, making it a benchmark for internationally calculated prices and the means for between-state payments and commercial credit. Swap agreements of the Central Bank concerning the mutual settlement of payment transactions in local currency safeguard this cross-border flow of Chinese credit-money. In more and more countries, it is used directly by Chinese companies and sovereign wealth funds, but also by partner countries themselves and their business communities. The new Infrastructure Investment Bank is giving a new boost to the international use of the Chinese “people’s money,” both quantitatively and qualitatively: for developing and expanding the Asian economic area, the ability to pay in renminbi is being created on a whole new scale across borders. And the marketing of the bank’s debt, which appears from the start as a global offer of securities, now turns the trading currency into an investment currency as well, an alternative object of speculation for the international financial markets. To the extent that these markets buy, commercially use, and take business advantage of the securities with Chinese currency, they attest to China’s creation of credit as money-capital and its credit-money as an international means of business — in principle of equal rank with the dollar and the euro, the currencies which have until now dominated the global credit market.
And that changes the relative strength of the global financial powers. The systematic increase of the internationally traded mass of Chinese money and credit now ensures a new world currency for the future, i.e., an alternative world money whose use leads not only to a reduction in the share of established world moneys, dollar and euro, in global business, but also restricts the freedom of their political guardians to create global financial ability to pay in their own credit money. Furthermore, this has the effect, perhaps even the purpose, of freeing China’s three-trillion-dollar foreign-currency reserve from the function of guaranteeing its own currency. To the extent that the masses of dollar-denominated debt securities held by China’s central bank are no longer needed for underpinning the renminbi, they are left only representing China’s claims vis-à-vis the US. This eliminates the need for China to hoard dollars for the sake of its own ability to pay and thus its ability to do international business, invest these dollars in American government bonds for the purpose of securing and increasing its dollar currency reserve, and thus function — in some sense unwillingly even if in its own interest — as a financier of the American world power and its power requirements. As a creditor, China is gaining a whole new freedom vis-à-vis its debtor, regardless of whether, and how, it intends to use this freedom economically and politically. For the moment, Beijing is using some of its billions of dollars to further the power of its money and capital in order to endow all the multinational funds with which the expansion of China’s capitalism into Asia and beyond is to be financed.
With its project of internationalizing its national money, China is moving on the level of the US and Europe, financial powers whose incurring of debt in domestic currency is the same as creating the world’s money-capital and whose credit tokens embody the internationally recognized substance of wealth; only the success of the project lags behind. And the Chinese state is rising to the level of the established global financial powers in still another respect: the AIIB, founded alongside and in competition with the international global financial institutions dominated by the US, Japan and Europe — the International Monetary Fund, the World Bank, and the Asian Development Bank (ADB) — represents China’s ambition to position itself as a guarantor of the global financial system and thus to act on an equal footing with the established credit managers and allocators. The US, EU, and Japan are supposed to recognize this claim as much by accepting the AIIB’s offer of “close cooperation with other multilateral and bilateral development institutions” as by participating in the bank itself.
The US flat out refuses the offer. It takes the AIIB as the challenge that China intends it to be: an attack on its responsibility for the rules of procedure of global credit. As guarantor power for the institutions of the established global financial system that it dominates — IMF, World Bank, ADB — the US has so far successfully blocked China’s demands for greater influence on their regulatory framework and more control over the financial resources that can be made available there. It has refused China the status of being an essentially co-equal guarantor of the global financial system, a status it is now supposed to acknowledge by participating in the new multinational bank. Accepting China’s invitation and buying into the AIIB as a legally liable member would be politico-economically attesting China’s debt as money-capital of the world and organizationally submitting to the bank regulatory framework established by China.
At least for now, recognizing China as an administrative power responsible for a new pillar of the global financial system is definitely out of the question for the US. With every trick in the diplomatic book, it is clarifying this for the benefit of the overlords of the new bank, accusing them of not giving a damn about the acknowledged principles and high standards practiced in such an exemplary manner by the established guarantor powers of global credit — it is well known that the IMF and the World Bank only finance man- and nature-friendly projects that have earned the seal of approval of being “free of exploitation and environmental destruction”: “Our position on the AIIB remains clear and consistent.… We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks. Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards.” (Statement of the White House National Security Council to The Guardian, March 12, 2015)
The US confronts its close partners in the Asia-Pacific region and Europe with the demand that they follow its example and, if China’s bank project cannot be stopped, at least undermine its success by staying away. Only Japan and Canada are submitting to the American strategy. South Korea and Australia have joined the AIIB as founding members as have the major European countries. The allies do not accept the equation of their alliance with the US, formalized in a variety of economic and military agreements, being identical to their subordination to America’s ambition to monopolize control of the global economic order. If a new center of global capitalism is developing in Asia, then especially Europe feels challenged to do everything it can to conquer its own fields of business there. And if the Americans intend to miss out on the opportunities offered by the AIIB, all the better! The European states, above all the United Kingdom, so proud of its “special relationship” with the world power, do not intend to let the prospect of profits go to waste. They want to use the big Far East growth project and China’s financial power to develop their own wealth and increase their strategic influence in Asia. Only in and with China can capital achieve the growth rates that haven’t been reached in the old centers of the global economy for a long time.
Germany, which, as the second largest export nation, has achieved much of its growth in the Chinese market, intends to profit from “China’s growth engine” as much as does Great Britain, which, with its global financial center badly shaken by the global crisis, is speculating on the role of the renminbi as a future world currency. London is already the largest location outside China for currency trading and marketing China’s debt. In the future, this financial center intends to profit even more on the renminbi’s rise to world money status, which London is supporting in this manner. That which for the US represents total, imperialist negligence in dealing with an aspiring world power, for the European powers goes together perfectly well: supporting China’s rise in order to utilize it for the development and expansion of their own position in international competition, at the same time therefore influencing the goals and work of the newly created credit institution by assisting in its birth.
In any case, China is itself notching up the founding of the AIIB as a success and proof of its growing capacities: it can on its own authority establish a multinational financial institution alongside and in competition with the established global credit institutions, specify the regulatory framework, create the credit base, then invite the world of states to participate — and take for granted that most states, even and especially the European beneficiaries and co-guarantors of the prevailing financial system, can no longer afford to stay away from such a project, nor do they want to, even when the American world power demands that of its allies for defending the Western monopoly over the rules of procedure of global credit. In this way, China’s leaders can chalk up a collateral benefit from founding their bank: driving a wedge between the US and its European, as well as South Pacific, allies.
[*] BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa.
© GegenStandpunkt 2016