China, the number two economy in the world, held an international forum in Beijing last weekend. The event was called “The Belt and Road Forum for International Cooperation” and it was attended by 28 heads of state, including Russia.
The event was part of China's “One Belt, One Road” initiative. It pledges billions in infrastructure funding and loans to developing countries to promote economic integration and free global trade and has been called “The New Silk Road.”
Geographically, the initiative links China to Europe through Asia, the Middle East and Africa. So far nearly 70 countries have signed agreements with China to participate.
The United States and Japan are not members, but the UK has joined, as it wants to expand its trading territory ahead of its upcoming exit from the European Union. The U.S.'s decision to withdraw from the Trans-Pacific Partnership (TPP), of which China was not a member, has helped clear a path for further Chinese territorial expansion.
This is President Xi Jinping's signature foreign policy, in which China is striving to take up a global leadership role. He has espoused a free-trade mantra, saying in his keynote speech at the forum: “Civilization thrives with openness and nations prosper through exchange.”
China is claiming to be a force of stability in global markets, countering terrorist activities in coordinating with member nations. But there are major questions about its initiative:
- How will China pay for it when its domestic economy is still struggling?
- Will the loans it plans to make be in U.S. dollars, or can China accelerate the internationalization of the Chinese Yuan and make its loans in that currency?
- Would borrowing countries be creditworthy enough to compensate for their low credit ratings?
My View: The timing of last weekend's forum coincided with a decline in confidence in the U.S. Administration, with stocks, the U.S. dollar and interest rates all losing ground this week. Furthermore, China's goals appear in stark contrast to President Donald Trump's protectionist trade and “America-first” rhetoric. All this raises some concern over whether China aims to put itself at the center of a new international order.
There are still many financial loose ends in China that have not been resolved - or even addressed. However, it is important for the U.S. to be aware of where the rest of the world is heading if we are to maintain our position of global leadership.
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