China/IMF: China isn’t ready yet to put forward its own candidate for the International Monetary Fund’s top job. It may also feel a director from another emerging country will be less effective than a European in pushing the reforms it advocates. China wants others’ support in promoting its top IMF representative. For now, keeping a low profile appears to be in Beijing’s interest.
China could be a big swinging vote in the election of the new IMF managing director. Hours after Paris said it had secured Beijing’s support for French Finance Minister Christine Lagarde, China joined Brazil, Russia, India and South Africa in decrying the IMF’s long-standing tradition of appointing a European to head the institution. That contradiction reflects Beijing's dilemma. It does want more representation on the IMF’s governing bodies. But to get there, it needs Europe’s help.
Beijing first and foremost wants to end the veto power of the United States. IMF reforms in November allowed it to double its share quota to 6.19 per cent to become the IMF’s third most powerful country. Yet, that still doesn’t fully reflect its status as the world’s second-largest economy. The United States remains the IMF's most powerful member with 17.7 per cent of the overall votes. Major decisions require an 85 per cent majority.
Keeping French leadership can ensure continuity in reforming the IMF board. In exchange for supporting Lagarde, China might be able to press for faster changes, and a firmer commitment to elevate Zhu Min, whom Dominique Strauss-Kahn appointed as a special adviser, to a new deputy managing director position.
An emerging market candidate could be less predictable. Mexican central bank governor Agustin Carstens, who taught at the University of Chicago, is little known to the Chinese, who see Mexico as being too close to America. India has old border disputes with China and Brazil is now getting louder about China dumping cheap manufactured goods. The emerging economies are unlikely to unify around one candidate.
China and other emerging markets do want to flex their muscles on the international stage. But for now, rocking the boat may delay them getting there.