Academic journal article Journal of International Affairs

China as a Creditor: A Rising Financial Power?

Academic journal article Journal of International Affairs

China as a Creditor: A Rising Financial Power?

Article excerpt

To what extent is China emerging as a major power in the international financial system? Despite the increasing concern in western policymaking circles, there has yet to be substantial academic debate over whether China should now be considered a dominant international financial power or whether its power in this realm is still limited. This type of debate became a virtual academic growth industry with Japan's rise in the 1980s, but curiously little attention has been given so far to the rise of China.

This article draws on the earlier debate about Japan in developing several arguments about the nature of Chinese power in the international financial system. We begin by highlighting that China's growing power in this realm stems, as it did for Japan two decades ago, from its emergence as a creditor nation. In addition to boosting China's power in the form of autonomy, its creditor position has generated a new potential for power in the form of influence in the international arena--a potential that is in fact greater than that of the Japanese state in the late 1980s. At the same time, in the second section of the article, we explore how China has also found itself constrained by the enduring structural power of the United States in the international financial system, although its vulnerability in this respect has been somewhat less than that exhibited by Japan during the 1980s. (1) In the third section of the article, we highlight how a number of current developments are encouraging Chinese authorities to cultivate greater financial independence from the United States. However, China faces more serious obstacles than those encountered by Japan in cultivating its own structural power in the international financial system. We thus conclude that China's power in the international financial system, although certainly growing, should not be overestimated.

CREDITOR STATUS AND POWER

The debates of the 1980s over Japan's growing clout in the international financial system were provoked by the country's sudden emergence as a major creditor. By the late 1980s, the country was exporting close to US$100 billion per year in long-term capital, soon assuming the title of the world's largest creditor nation. Analysts were encouraged to see this development as marking a dramatic power shift since it coincided with a moment when the United States became a debtor country for the first time since the Second World War. (2) Japan's newfound creditor status certainly boosted its ability to resist the kinds of external financial pressures to which debtor countries are often subject. In addition to this greater autonomy; did Japan's creditor position also translate into a more active version of power as influence in the international arena?

At the time, skeptics highlighted that creditor status would generate this kind of influence for the Japanese state only if the length of time during which Japan was a creditor and the size of its assets were sufficient to allow it to establish new institutional arrangements that translated creditor status into direct power over the medium term. They also highlighted the economic and military dependence of Japan on its major debtor, the United States. In addition, they noted that creditor status would translate into state power only if Japanese authorities were able to influence the direction of outflows of capital from the country's territory. While some outflows of capital--such as Japanese aid flows--were completely under the control of the Japanese state, the vast bulk of the country's capital exports was sent abroad by private financial institutions. Whether Japanese policymakers were capable of swaying the investment choices of these firms became the subject of heated scholarly debate. (3)

These issues are relevant to China's position today. Like that of Japan in the 1980s, China's new prominence in the international monetary and financial system is linked to its sudden emergence as a major creditor country. …

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