Zhang Monan

Whither financial reform

By Zhang Monan (China Daily)
Updated: 2010-06-19 07:16

Some influential US media outlets have carried opinion pieces saying China is the biggest beneficiary of the global financial crisis. China's fast economic growth, the greater say it enjoys in international financial agencies and its overseas acquisitions have been cited as evidence to prove their claim.

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China's economic achievements are indeed noteworthy. It contributed 50 percent to the growth of the world economy in the past year. But the global economic recovery, spearheaded by China and other emerging countries, has not changed the decades-old imbalanced distribution of global wealth.

The dollar-dominated international financial system and the unchallenged financial hegemony of the US have been the main causes of this imbalance. China's vote in the International Monetary Fund (IMF) does carry more weight, but that has not made the long-hoped reconstruction of the international financial system any easy.

With so many countries continuing to assert their presence on the international stage, the US should have passed on to them some of its firmly controlled power in the international financial order. But the elevated status of countries such as China, Russia and India, along with the rise of the eurozone, has not weakened the US hold on the international financial system.

What the US can accept are only some minor changes in international financial institutions, such as moderate tightening of financial oversight and symbolic increase in developing countries' voting power in the IMF and the World Bank. But a thorough reform of the financial system is far from its agenda.

The US has set two bottom lines on the issue: No country should be allowed to weaken its dominance over the international financial system and no reform should alter the dollar's status as the world's leading currency. This attitude of the US has made any correction in the global economic imbalance impossible.

The accelerated change in global economic and labor division patterns since the beginning of this century has aggravated the international economic imbalance, especially the one between China and the US. The growing economic imbalance between the two countries reflects in the yawning gap in their current accounts and represents the difference between the world's financial and manufacturing centers in the era of globalization.

With global division of labor and industrial production experiencing a major change, a new economic landscape has taken shape. Developing countries mainly depend on booming industrial production and trade, and developed countries depend on virtual financial transactions. This economic configuration has made global production more efficient and contributed much to the 20-year prosperity of the global economy.