In recent years, China has emerged as a pivotal economic player in the international system. From measures to strengthen the internal system to designing and implementing trade policies, China relies excessively on economic influence in order to maintain its dominance in the international order.
However, another aspect of China’s economic strategies has come to the spotlight, lately. Although, China has been in the ‘lending game’ since the mid-2000s by aiding states in Africa, Latin-America and Asia for purposes of infrastructural development, the strategy has however, shifted towards one that competes with the IMF.
Analysts define this as an act of invocation due to China’s weaker position in the decision making within the IMF. The influence is traditionally divided among the US and its allies and China seldom hold the greater voice. However, with its status as a lending power, China can now achieve an increased ability to sway, along with a strengthened position at the IMF.
The Asian Infrastructure Investment Bank (AIIB) was proposed by China in 2013 and officially launched in 2016. This was seen as China’s response to western-led IMF, by many. Through AIIB, development financing was intended by China, competing precisely with the aims of IMF. AIIB has been utilized in funding Asian countries and those which would much rather not opt for IMF, in order to boost their economies and fund infrastructural initiatives.
The formation of AIIB was heavily discouraged by the US as it was seen as a direct challenge to its influence in the Asian region, specifically China’s neighboring countries that welcomed the AIIB as a golden opportunity. Despite discouragement and criticism at the hands of the US, the AIIB consists of 109 members, including prominent states such as, Australia, India, Indonesia, Iran, Korea, Pakistan, Russia and Saudi-Arabia, all with comparatively higher percentages of subscriptions and more voting power.
Similarly, China’s “Belt and Road Initiative”, brings much economic influence to China and presents it with massive opportunities to expand investments. As of yet, 147 states, accounting to two-thirds of the world population and 40 percent of the Global GDP, have signed up for the BRI. With its main goal to connect East-Asia with Europe, China proposes to crack open the bottle-neck situation of Asian trading routes. The vision includes a vast network of railways, highways, energy pipelines and border crossings through the former soviet republics towards Pakistan and India and further into the Southeast Asia.
The US however, highly discards the concept, terming it as another ‘Debt-Trap’. According to their analysis, China funds projects in heavily indebted countries that may struggle to repay loans, potentially leading to future debt crises. Furthermore, the US puts an emphasis on the self-serving and insensitive nature of the initiative by stating that China's influence extends through imposing its technology standards on BRI recipients and exporting carbon-intensive infrastructure like coal-fired power plants, complicating global efforts to mitigate climate change. As a result, China weakens the standards upheld by traditional lenders, such as the World Bank, in the eyes of the west.
Some see the BRI to be a consequential result of the gaps and shortcomings left by the US, in the region. Although the US, talked about the reimagination of the silk-road and derived plans regarding infrastructural development, it failed impeccably at the implementation, creating a vacuum that was eventually filled by China.
The US find themselves actively opposing and countering the BRI, coming up with a task force designed to strategize and implement ways to revive the world bank and boost the significance of the IMF.
An impediment to traditional multilateral organizations such as the IMF:
The Chinese lending policies are much more flexible in terms of efficiency. The BRI for instance is known for its accessible nature towards recipient states in order for them to achieve funding for infrastructural development as compared to lengthy bureaucratic processes and conditions through IMF. Furthermore, developing states find this prospect significantly attractive as it boosts evolution through aiding roads, ports and energy facilities to encourage connectivity.
Unlike the IMF, which often involves political and social policing, China’s funding doesn’t consider these factors to much extent. This can be seen as respecting recipient countries’ sovereignty and autonomy.
Moreover, Chinese funding proposes an enhancement of connectivity for developing countries, boosting trade and other economic opportunities, stabilizing their internal structures. Some states, prefer a system that is not dominated by western policies and dictation and China’s lending system acts just as that.
It wouldn’t be wrong to say that these easy-going policies do cause a sort of an imbalance and deepen the pit of global debt. The IMF conducts rigorous analyses to determine whether a state would be able to repay the loan or not. These include assessing the socio-political condition of the state, that directly impacts intra-state stability. IMF lending typically comes with conditions aimed at promoting market-oriented reforms, fiscal discipline, and transparency. These conditions aim to improve a country's economic fundamentals and attract private investment. Additionally, in comparison to China’s policies, the IMF makes sure of sustainability goals and adhering to social standards while providing loans.
In conclusion, one must wonder whether China’s willingness to lend is strictly favorable towards global economic reforms or has a higher ulterior motive about leveraging financial diplomacy to wield unprecedented global influence. China has effectively reshaped the landscape of international finance by ignoring traditional policies and hurdles. However, this aggressive pursuit has garnered attention from the international system as some consider its nature to be controversial in terms of debt sustainability and geopolitical coercion.
The world watches in awe or angst, while China deepens its economic influence within the region and beyond, as a result of Beijing’s ambitions.
