China/IMF: China has come of age. It will formally become the third-largest power at the International Monetary Fund, after reforms green-lighted over the week-end by G20 finance ministers. But if Beijing is serious about becoming a new global power, it must speed up the changes needed to reduce global financial imbalances.
The long overdue IMF reform simply reflects emerging powers’ growing economic strength. China is the world's second-largest economy, but was up to now just the IMF’s sixth-largest shareholder. The IMF had to reform, or would have become irrelevant. China could surpass the United States as the world’s largest economy as early as 2020, according to PriceWaterhouseCoopers.
Western powers will be disappointed if they expect short-term concessions from Beijing. China isn’t likely to revalue its currency just because it got a greater say at the IMF. Worse, there is even the possibility that China’s increased influence could lower the intensity of the institution’s calls for tough global reforms.
Yet, great power calls for greater responsibilities. China agrees that the G20 summit next month should work on a way to reduce global imbalances – for which it is largely responsible. China’s GDP per capita is less than one-tenth of that of America’s, but it owns the world’s largest chunk of foreign reserves.
The IMF estimates China’s current account surplus to be 4.7 per cent of GDP in 2010, higher than that of Japan’s.
China needs to boost domestic demand, and align its currency with market fundamentals. Beijing isn’t adverse to the idea of cutting its surplus to below four per cent of GDP - a formal goal that G20 finance ministers shied away from. The deputy governor of the Chinese central bank, Yi Gang, suggested recently this could be achieved within three to five years. But China should consider speeding that process up. With the economy growing at 10 per cent annually, just aiming at a relative target in a few years’ time will not address the problem.
Only bolder reforms can help China win more real influence on the global stage. Even though Beijing seems to be headed that way, it needs to accelerate the process to win the confidence of its partners.