Skip to main content

Ex-WH economist: China’s New Silk Road is a 'threat to the existing system'

Aarthi Swaminathan

Yahoo FinanceMay 23, 2019

China has 'way too much risk' for investors right now

China’s new Silk Road represents a “threat to the existing system” and challenges America’s global financial leadership, according to a former White House economist.

The China’s desire to realign the global financial system to put the Chinese renminbi front and center an intended goal of its Belt and Road Initiative (BRI) or new Silk Road.

“From the U.S. perspective, obviously, we have been both providing the leadership in the global financial system, but we do derive benefits from it,” K.C. Fung, a former White House Council of Economic Advisers Senior International Economist under President George H.W. Bush and President Bill Clinton, told Yahoo Finance.

Since the U.S. dollar is the world's foremost currency, “we also use a system to sanction other economies,” Fung added, “by cutting them off from access to the global dollar liquidity, and so on.”

Fung, now a professor at the University of California Santa Cruz, said China wants to be “at least a co-equal in the next 30 years to the U.S.” Consequently, Beijing is pursuing various means to get its own system up and running — which is financial, technological, and other standards.

Students pose for a photo with a globe during a campaign to mark World Earth Day in a middle school in Dexing, Jiangxi province April 19, 2011. (Photo: REUTERS/China Daily)More

And from the U.S. perspective, that effort is “a threat to the existing system,” Fund said, adding that the existing world order that “we have maintained for several decades is challenged.”

‘Historic golden opportunity’ for the Chinese currency

China’s big Belt and Road Initiative (BRI) — which began in 2013 and hopes to bring Asia, Africa and Europe closer to China — has led to billions of dollars flowing out of China and into capital-hungry countries’ hands from Indonesia to Italy.

One part of the BRI is the Digital Silk Road, which develops communications networks across the developing world. According to D.C.-based consulting firm RWR Advisory Group, China has already spent $79 billion developing various projects from telecom infrastructure to facial recognition.

And investing in digital infrastructure could not just allow surveillance or an evolved form of neocolonialism, it could also serve Beijing’s desire to elevate Chinese renminbi (RMB) as a gold standard in finance.

“[The] Belt and Road Initiative is a great undertaking beneficial to all along the line,” Xinhua news, citing the executive director of China’s International Monetary Institute (IMI), reported in 2015 report. “It also offers a historic golden opportunity for RMB internationalization.”

China's new Silk Road spans Central Asia and Europe. (Graphic: David Foster)

And China’s official stance is that “financial integration is an important underpinning for implementing the Belt and Road Initiative,” according to a Silk Road Vision and Actions document from 2015. “We should deepen financial cooperation, and make more efforts in building a currency stability system, investment and financing system and credit information system in Asia.”

It also hopes to “support the efforts of governments of the countries along the Belt and Road and their companies and financial institutions with good credit-rating to issue Renminbi bonds in China.”

But if China does manage to take over the global financial system — by internationalizing the Chinese RMB — the Digital Silk Road would help China “circumvent external surveillance” and create “both an alternative and parallel to the U.S.-centered SWIFT system,” according to researchers at the UK-based Institute of Development Studies.

In such a scenario, countries affected by U.S. sanctions could potentially bypass those limitations and turn to the Chinese instead to retain their lifeline to the global financial system.

A tourist pays for a zip tour with Alipay in Johannesburg, South Africa, Aug. 30, 2017. (Photo credit: Xinhua via Getty Images)More

‘No evidence to panic’

Another expert said that there is no reason to be imminently worried about the U.S. dollar being dislodged by the renminbi as the global reserve currency.

“They’re a long, long way away from that,” Duff & Phelps Chief Strategist and former U.S. Treasury official Chris Campbell told Yahoo Finance. “The Chinese have a very long view... on economic strategies but I did not see any evidence of that while I was at the Treasury.”

Campbell emphasized that he saw “no evidence to panic [over] the degradation of the U.S. dollar as the common currency. The RMB is far from being in a place where it can displace the USD.”

China is “playing a very long game on this, there’s no question,” added Campbell, who served as the former assistant secretary of the U.S. Treasury for financial institutions. “But the reality is, the one thing that is frustrating them with the Trump administration, compared to previous administrations, is that... the strategy of talking a lot and just not doing a lot of action... is just not working with this President.”

Aarthi is a reporter for Yahoo Finance. Follow her on Twitter @aarthiswami.


Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed.
Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area”
For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number”
Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell you …

The Rise of China-Europe Railways

The Rise of China-Europe RailwaysMarch 6, 2018The Dawn of a New Commercial Era?For over two millennia, technology and politics have shaped trade across the Eurasian supercontinent. The compass and domesticated camels helped the “silk routes” emerge between 200 and 400 CE, and peaceful interactions between the Han and Hellenic empires allowed overland trade to flourish. A major shift occurred in the late fifteenth century, when the invention of large ocean-going vessels and new navigation methods made maritime trade more competitive. Mercantilism and competition among Europe’s colonial powers helped pull commerce to the coastlines. Since then, commerce between Asia and Europe has traveled primarily by sea.1Against this historical backdrop, new railway services between China and Europe have emerged rapidly. Just 10 years ago, regular direct freight services from China to Europe did not exist.2 Today, they connect roughly 35 Chinese…

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میںPlease help the deserving persons...Salary:Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows;Welder: Rs. 1,700 dailyHeavy Duty Driver: Rs. 1,700 dailyMason: Rs. 1,500 dailyHelper: Rs. 850 dailyElectrician: Rs. 1,700 dailySurveyor: Rs. 2,500 dailySecurity Guard: Rs. 1,600 dailyBulldozer operator: Rs. 2,200 dailyConcrete mixer machine operator: Rs. 2,000 dailyRoller operator: Rs. 2,000 dailySteel fixer: Rs. 2,200 dailyIron Shuttering fixer: Rs. 1,800 dailyAccount clerk: Rs. 2,200 dailyCarpenter: Rs. 1,700 dailyLight duty driver: Rs. 1,700 dailyLabour: Rs. 900 dailyPara Engine mechanic: Rs. 1,700 dailyPipe fitter: Rs. 1,700 dailyStorekeeper: Rs. 1,700 dailyOffice boy: Rs. 1,200 dailyExcavator operator: Rs. 2,200 dailyShovel operator: Rs. 2,200 dailyComputer operator: Rs. 2,200 dailySecurity Supervisor: Rs. 2,200 dailyCook for Chinese food: Rs. 2,000 dailyCook…