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Learning geoeconomics: China’s experimental financial and monetary initiatives

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Abstract

China’s rise is increasingly impacting on the global financial and monetary order. To manage its growing centrality in global financial flows and its new relevance for patterns of currency usage, Beijing has been creating a set of new institutional arrangements in three crucial fields: the provision of crisis liquidity, development financing, and a global infrastructure to internationalize its currency. In contrast to the dominant power political interpretation of such developments, this article highlights the strong linkages of Beijing’s new initiatives with the changes in China’s capitalist development path and stresses their experimental character that serves to manage the economic and political risks of China’s accelerating financial internationalization. With a distinct learning attitude regarding its rising geoeconomic prominence and engagement, Beijing’s risk-averse strategy involves a very careful linking, layering, and nesting of new arrangements.

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Notes

  1. According to the Bank for International Settlements (BIS), China has become the largest emerging economy borrower for BIS reporting banks (BIS 2014: 16). See also Hanemann and Huotari (2015).

  2. Garcia-Herrero and Xia (2013) explain the choice of countries for these arrangements.

  3. For instance, Indonesian and Philippine officials in 2008 and 2009 pictured these swap agreement as substantial contributions to their financial security nets, not just symbolism. See Huotari (2015).

  4. In the case of the CMIM, surveillance is conducted by the ASEAN Plus Three Macroeconomic Research Office (AMRO).

  5. It is important to note that, in contrast to most international observers, the Chinese policy-making circles depicted RMB internationalization not as a mere “post-GFC” phenomenon but established a longer genealogy. While Jin Zhongxia, head of the PBOC Research Institute, for instance, called the GFC a “wake-up call” (Jin 2012), he also referred to the use of the RMB as a settlement currency in bordering countries (since the 1980s) and emerging RMB offshore business in Hong Kong since 2004 (for personal purposes) and 2007 (RMB bonds). Chinese experts, as well as the leadership, had also already noted their dissatisfaction with global and regional monetary affairs in 2003/2004 (Ren 2012).

  6. Interview at CASS/IWEP in January 2013.

  7. In fact, the ADB-led initiative of creating an ACU index (proposed by Kuroda at ADB) had already been suspended in 2006 “due to the Plus-3 position that currency weights in ACU should not be decided by the ADB” (Rana, Chia, and Jinjarak 2012). In 2010, further cooperation in this field was described as an “open-end objective” and the ACU’s failure was explained by “disagreement on some technical details among participating countries”.

  8. At that time, Xia Bin was director-general of the Financial Research Institute at the DRC of the State Council.

  9. The notion of RMB internationalization (人民币国际化) was also already mentioned in passing in 2008 in an official document in which the State Council advised the PBOC to establish a new “Exchange Rate Department” (汇率司); see State Council (2008).

  10. China Daily, “Banks Debate RMB Internationalization” (6 September 2010). One of the so-called key programs of the National Planning Office of Philosophy and Social Science on how to deal with global financial risk (妥善应对国际金融风险对策研究) that was established in 2008 had a research project precisely on the theme of “RMB Regionalization.” For the emerging expert consensus, see Yu (2012, 23).

  11. As of mid-2013, there were 30 RQFIIs with approved quotas of 104.9bn CNY (Eichengreen and Kawai 2014).

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Correspondence to Mikko Huotari.

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Huotari, M., Heep, S. Learning geoeconomics: China’s experimental financial and monetary initiatives. Asia Eur J 14, 153–171 (2016). https://doi.org/10.1007/s10308-015-0444-8

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  • DOI: https://doi.org/10.1007/s10308-015-0444-8

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