Currencies, Emerging Markets

Yuan’s Accession Marks End To Any Containment Of China

By Robert Shines

China YuanWith the recent IMF decision to grant China’s currency the status of reserve currency, any attempts to “contain” China are over.

China has taken a major step in confirming its international economic importance and its reemergence on the world stage with the accession of the yuan as a reserve currency.

The move comes on the heels of China’s formation of its Asian Infrastructure Investment Bank, formed in part because of U.S. Congressional failure to ratify IMF reforms previously agreed to, which would have given China increased economic stature within the body.  Additionally, the decision is a nail in the coffin, if not the final nail, of those who still desperately cling to the notion of “containing” China.

Only Nixon Can Go To China

In the days when China underwent skirmishes along its northern border with the Former Soviet Union and even endured nuclear threats from its erstwhile ally, the U.S. saw an opportunity.  The chance to come to an agreement with China where it would establish better relations with the U.S. in order to contain the larger Soviet threat proved irresistible to both U.S. and Chinese officials.

In essence, engagement with one Communist state was utilized to strengthen containment of the other. Pragmatism trumped ideology.

The core of this U.S.-China rapprochement was economic in nature and continues to this day.  The U.S. helped with Chinese ascension to the WTO, as well as the remaining two Bretton Woods bodies, the World Bank and the IMF.

U.S. consumers have benefited immensely as companies like Wal-Mart, whose existence without access to Chinese-made goods is unimaginable, have enabled them to purchase a lot more items for a lot less money, important considerations around Christmas time.

The Genie Wouldn’t Even Fit In The Bottle Now

Since the early days of warming U.S.-China relations, China’s economic importance to the world has only exponentially increased.  With its participation in the Regional Comprehensive Economic Partnership (RCEP) agreement as well as initiatives such as the BRICS Development Bank, it is not possible to marginalize China anymore.

Slowing of its own economy has only accelerated its formation of regional initiatives explicitly designed to take advantage of proximate lower labor costs and abundant natural resources.  These include the aforementioned AIIB, the “One Belt, One Road” Initiative, comprising China’s Maritime Silk Route and Silk Economic Road, as well as China’s interest in the Arctic.

The American pivot to Asia is also a factor in China vigorously pursuing more regional initiatives.  If its military power is to be proscribed on a maritime basis, then its economic power most assuredly will not be, on an inland basis.

Additionally, exclusion of China from the Trans-Pacific Partnership (TPP) and attempts to convince states not to sign up to be founding members of the AIIB look even more anachronistic now in the wake of the IMF decision.  Lastly, it is not possible for the U.S. to marginalize, much less “contain”, the largest foreign holder of its public debt.

Contain the “Containment”

The only way “containment” could ever work is if China was not the foundation of the global economy it is today and if it could be checked by strong local powers such as Russia, India, and Japan.  However, this kind of thinking is a relic of the Cold War and fails to take into account the foundation of legitimacy in the 21st century:  economic power.

The aforementioned local powers and ASEAN may hedge against China’s military rise, but without exception they all realize the importance of China’s economy to their own.  Economic prosperity for their respective constituencies is the foundation upon which all leaders’ platforms, democratic or otherwise, rest nowadays, especially in the post-Recession world, and will increasingly form the basis for economic pragmatism over ideological fear mongering.


Courtesy of Global Risk Insights, © 2015 Global Risk Insights
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Global Risk Insights (GRI) provides expert analysis on political events impacting business, investment, and economic climates worldwide.

Discussion

One thought on “Yuan’s Accession Marks End To Any Containment Of China

  1. Reblogged this on World Peace Forum.

    Like

    Posted by daveyone1 | December 22, 2015, 10:31 pm

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