Transcript Reshaping Global Economic Governance:

The Global Distribution of Power,
Growth and Development
Gregory Chin
Political Science, York University, Canada & SPERI
Visiting Fellow
SPERI 2014
 “The conference seeks to take discussion
of the political economy of the crisis
beyond its British and European contexts
to focus centrally on the dynamics and
patterns of the distribution of growth
and development across the entire
global political economy.”
Main points
 1. The proposed BRICS Bank sheds light on China’s
structural location, and strategic positioning amid
the emerging contours of global power, and
global distribution of growth and development
 2. What has been the impact of the 2008-09 GFC
on the cooperative/collective action of China and
the rising states (the “BRICS”)
Shared Structural Dynamics
 BRICS Bank as institutional microcosm for
analyzing key patterns of power, growth and
development in the world economy:
 (1) a shift in the balance of power in the world
economy
 (2) the emergence of not only China as a rising
power, but also a broader group of rising states (the
“BRICS”)
 (3) the systemic need for medium to long-term
development finance, especially in the area of
infrastructure finance – needed to sustain the rise of
the BRICS, and growth in other developing countries
Shared Structural Dynamics
 (4) the financial deficit in the established
sources of development finance & failure of
the existing “premier” global summitry
mechanism to deliver on infrastructure
finance
 (5) the differing but complementary
interests of the respective BRICS states, in a
BRICS bank
Infrastructure finance needs
 ‘Return to fundamentals’ that has
come in the wake of the 2008-09
GFC
 Growing appreciation of the huge
deficit in infrastructure
investment in the developing
world
 Heavy investment in infrastructure
was key factor in driving sustained
growth and modernization for all
of the traditional economic
powers, as well as for recent risers
in Northeast Asia
 Yet major shortfalls in
infrastructure financing for
current developing countries.
Infrastructure finance needs
 AfDB: only a third of the continent’s rural population has
access to roads, less than 40% of Africans have access to
electricity, only 5% of agriculture is under irrigation, only
34% of the population has access to improved sanitation,
and about 65% to clean water (Kaberuka, 2011)
 AfDB President Donald Kaberuka estimates it will cost at
least $93 billion per year until 2020 to bring infrastructure
in Africa on par with low- and middle-income countries in
other regions
Infrastructure finance needs
 G-24 Secretariat: around US$1-1.5 trillion in
infrastructure investment per year will be needed to
sustain the current growth trajectory in the developing
world, while the total amount actually invested is about
US$800 billion (Battacharya and Romani, 2013)
 Currently, the bulk is provided via public (state) budgets
 The amount contributed per year from private sources of
finance and development institutions is about US$250
billion
 G-24 estimates that the BRICS economies provide about
US$70-80 billion per year (may be overestimate)
Impact of GFC
 Private finance for infrastructure has fallen sharply since
the 2008-09 GFC
 European banks have undergone major deleveraging; has
reduced their lending capacity
 New Basel III capital requirements for banks will likely cut
further into financing for infrastructure
 Private bank financing is reportedly at one-third of the
amount before the GFC - traditional debt financing is no
longer as viable
Infrastructure finance needs
 Newer sources of finance, e.g. sovereign wealth funds,
and pension funds, with around $75 trillion in pension
fund assets, but almost none goes to infrastructure
 Exceedingly difficult to get these fund managers to invest
in infrastructure in the South.
 Bilateral official development assistance (ODA) and the
multilateral development banks (MDBs) are now
providing very limited infrastructure financing, especially
for greenfield projects
Failure of G20 process – GFC and
After
 The Leaders of the G20 countries agree to address
infrastructure needs at the Seoul G20 Summit in
November 2010
 But no follow through at Cannes Summit in 2011 or Los
Cabos Summit in 2012
 What happens when African officials try to approach the
World Bank for support on infrastructure development in
the spirit of the G20 instruction
Patterns of Contestation and
Conflict
 Contestation within the collective action
 Bilateral trade tensions, and industrial and
manufacturing competition
 Strategic positioning on environmental protection &
climate change (Brazil vs. India & China)
 Intra-regional competition (Russia, China over Central
Asia; India and China over SE and South Asia)
 Bilateral contestation – interstate rivalry in Africa
between Brazil, India, China, South Africa and even
Russia (also in Latin & Central America?)
Contestation
 Inside the BRICS Bank over:
 1) the main sources of funding for the new financial institution
 2) a shared definition on the ideal and target borrower
(sovereigns only, or also private sector actors
 3) geographical scope of lending)
 4) the bank’s headquarters
 5) the balance and source of staffing
 6) the structure and source of the senior management for the
new bank
 7) what currencies the new bank would use to issue its loans.
 Tangible practical as well as important symbolic decisions to be
made
China’s Interests
 Material Needs - Open new avenues for its engineering
and construction companies, stimulate job creation, and
redirect a portion of its massive foreign currency reserves
to productive purposes
 Strategic - Chinese take long view on the BDB, seeing the
bank as useful for driving sustained and stable growth in
the developing world
 thereby helping to provide the alternative markets and
trading partners that China wishes to cultivate, to allow for
diversification beyond the traditional consumers of last
resort
China’s interests
 Diplomatic - BRICS Bank as a way to redistribute some of
China’s massive surpluses, to reduce the heat from the
major deficit countries, and to build stronger ties with
other developing countries, and to secure resources
 Offset the influence of the World Bank, and some other
MDBs & help induce reform of global institutions
China’s Interests – Convergence of
Financial and Monetary Influence
 Over the last decade, the China Development Bank (CDB)
and China Eximbank have funded infrastructure
development in other parts of the developing world
(Chin, also Brautigam and Gallagher 2014)
 Bank as potential platform for the BRICS nations to
experiment with using their own currencies to settle
trade and investment among themselves, and with other
developing countries
Currency Cooperation
 Chen Yuan, chairman of CDB
(and a former central bank
vice governor), at the Sanya
BRICs Summit in 2011 that: “It
is in the interest of all to
practice lending and
settlement in local [their own
national] currencies”
 Chen urged the BRICS nations
to increase multicurrency
trade settlement and lending
in a “practical and efficient
way”
 Pledged that CDB would lend
around RMB10 billion
(US$1.53 billion) to the other 4
BRICS members by end of
2011
Challenges for China - Balancing
 Reality is that a US$10 billion contribution
amounts to 2.5% of GDP for South Africa
(2012), while it amounts to a meager
0.12% of GDP for China (2012)
 Thus creating disproportionate pressure
on the BRICS member states.
 The unavoidable reality is that China’s
economy (2012) is about 25% larger than
the other four BRICS economies combined,
and 22 times larger than the South African
 China is an economic giant among the
BRICS
 Reality is that China is a superpower
already – part of a de facto “G2”
 If China moves rapidly in any direction,
raises the concern and suspicion of other
states in the BRICS – India is getting “wet
feet” about the BRICS bank
China’s Other Options
 Promoting reform and realignment of the World Bank
 Working more through regional development banks,
especially the African Development Bank, Inter-American
Development Bank and Caribbean Development Bank
 also sub-regional development banks
 New Asian Infrastructure Investment Bank (Wang & Chin
SPERI Commentary forthcoming)
 China as a bilateral actor in providing credit and
assistance
Unique contribution of the BRICS
Bank – Global Power
 China can achieve its aims and advance its interests
through the other international institutional mechanisms
. . .but
 a BRICS Bank is particularly useful for counter-balancing
the United States, collectively, in a world of power
balancing
 For achieving collective action between the BRICS nations,
and with the developing world, for power balancing
 Useful mechanism for facilitating rising power collective
action, in an extended transition, toward a more
decentralized, multi-layered and negotiated world order
Thank you