An argument that empowering China is good for the rest of the world

The premise of Arvind Subramanian's new book might seem far-fetched, but the author says it has a basis in reality, notes Daniel Bardsley.

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The economist Arvind Subramanian puts forward what might seem a far-fetched scenario at the start of his new book, Eclipse: Living in the Shadow of China's Economic Dominance.

It is the year 2021, and the new US president is, cap in hand, visiting the Chinese managing director of the IMF in search of US$3 trillion (Dh11.02tn) of emergency financing.

And the price the US has to pay for the managing director's giving the green light to this assistance?

"You have to remove your fleet from the western Pacific," Mr Subramanian says, quoting this imaginary future IMF head.

According to Mr Subramanian, China's taking over as the global economic superpower, inheriting the mantle held by the UK in the 19th century and passed on to the US, is not something for the future. It is happening now.

"China's economic dominance is more imminent in time, greater in magnitude and much broader in scope than anyone believes," says Mr Subramanian,a senior fellow at the Peterson Institute of International Economics and the Center for Global Development, both based in Washington, while speaking to a small group of journalists during a recent visit to Beijing.

The Chinese yuan, he predicts, will eclipse the dollar as the world's pre-eminent currency within the next 15 years.

China is already flexing its economic muscles in many ways that, in Mr Subramanian's eyes, demonstrate its global dominance.

By keeping the value of the yuan artificially low, as many have seen it, China has, he says, hurt the US as well as several emerging economies such as India, Brazil and Turkey.

"China's actions affect the entire world, but the world is not able to do anything about it. If that's not dominance, I don't know what is," he says.

The big question many have in relation to China's economic power is, Mr Subramanian says, whether "the current open economic system we have", advanced after the Second World War by the US with Europe's cooperation, will survive China's dominance.

He believes the likelihood is that it will, although he also thinks there is a small probability China will exercise its role in "a non-benign way".

So how to ensure that what is likely to become the world's largest economy does not use its pre-eminence to tear up the established global economic rule book?

The answer is definitely not to try to contain the rise of China, he says. Also, it is "not enough" to engage China. No, his "counter-intuitive" answer is that other nations should "strategically empower" the country.

By giving China a greater say in global institutions such as the IMF, for example by handing Beijing greater voting rights, Mr Subramanian believes China will have "a stake in this multilateralism".

"In the context of the IMF, China should contribute more resources because the world needs a bigger IMF. We need more firepower," he says.

"In return, China should get the power the US and Europe have had in the past. The IMF is basically controlled by the creditors, not the debtors. Europe is a debtor, so it shouldn't have veto power," he says. "It gives China a stake in the multilateral system, which is a way to prevent China doing things against the multilateral system."

Empowering China with respect to institutions such as the IMF and World Bank, will, Mr Subramanian says, help safeguard conditions built into the financial assistance provided to poorer nations, such as in relation to standards of governance.

If China feels it is not being given its due in the IMF or World Bank, its assistance is more likely to be offered independently of these organisations, and therefore without these types of conditions.

"If China was to give money to Africa as part of the IMF, there's more international norms built into it. That's a reason we should bring China into the international system," he says. "Maybe we should have China getting more power and, say, in the World Bank to prevent China's doing more lending on its own and more through the World Bank."