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Enhancing China’s Influence in the International Financial System
2016-09-07
By Zhang Liping, DRC
Finance is the core of modern economy. As China has become the world’s second largest economy and a net capital exporter with the largest trading volume, it is an inevitable option to enhance and bolster China’s influence in the international financial system. The relevant issues to be noted and addressed are as follows.
First, the current performance of RMB internationalization. Both the pilot practice of RMB settlement for cross-border trade transactions in Shanghai and Guangdong Province and the official inclusion of RMB in the International Monetary Fund’s special drawing rights (SDR) basket have proved that RMB has become an important international currency second only to US dollar and the Euro. Nevertheless, many obstacles and uncertainties still exist during the process of the internationalization of RMB.
Second, China has actively participated in the global financial governance as a member of G20 and taken steps to follow IMF reform measures and the regulatory guidelines of Basel III. China’s role in the global financial governance system has been further enhanced. Although China has gained the voting power and a bigger say as the world’s second largest economy, the pattern in which developed economies like the United States and Europe take a leading position in global financial governance has not changed. The monopoly of powers by some countries in the financial field is still evident.
Third, The current national capital operation relating to the launch and operation of the BRICS Development Bank and the Asian Infrastructure Investment Bank (AIIB). 1. The member countries of the BRICS Development Bank may enjoy sustainable development whereas they will also face competitions and conflicts in economic and political sectors. The future operations of AIIB will face three main challenges: a stable source of operating capitals, a reliable profit model, and a sound internal management mechanism. 2. The operation of China’s Investment Corporation (CIC). CIC has, through its overseas subsidiary companies, conducted portfolio investment in overseas financial assets and injected capital in commercial banks of China. It will also found an overseas direct investment company, which is an important measure based on sovereign wealth funds (SWFs) to strengthened China’s financial influence abroad. However, China is still facing improper capital efficiency evaluation, the lack of information transparency, and the growing binding force imposed on sovereign wealth funds in making overseas investments. 3. Some policy-backed and development-oriented banks and financial institutions such as China Development Bank, Export-Import Bank of China, Agricultural Development Bank of China, and the Silk Road Fund have actively expanded overseas business and implemented the national “Go Global” strategy and “One Belt, One Road” initiative.
Fourth, it is suggested that China’s development goals in the international financial system should be set clearly in terms of world rankings by related indicators, the reform of the international financial governance system, and the capital operation system of international development agencies.
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