Spearhead Analysis – 06.08.2014
By Enum Naseer
Senior Research Analyst,
The world may be witnessing the development of a new international monetary framework, exactly seven decades after the Bretton Woods conference. Aspirations formerly dubbed dreamy and impractical given the uneven growth experienced by the five emerging economies seem to finally be taking on real shape. The New Development Bank (NDB) perhaps qualifies as the first step towards cementing and positioning the bloc as a force to be reckoned with in the international economic arena.
Having said that, there is a lot of speculation surrounding the sustainability of such an arrangement—that it has brought traditional adversaries such as China and India together has sparked a debate in the economic circles. The NDB aims to bring stability to the international financial system and fund infrastructure projects in developing nations and will be based in Shanghai, China with India presiding over its operations for the first six years, followed by five-year terms for Brazil and then Russia. Though the bank will be governed by equal-share voting, to think that China will not use this platform to further the ambitions of increasing its political clout would be a simplistic assumption.
While it may be in China’s best interests at the moment to avoid giving the impression that it wants to dominate the bank, the natural order of things from the composition of the NDB to the fact that the rest of the founding members are dwarfed by China’s economic might will inevitably put the world no.2 at an inherent advantage. It should also be noted that for the past few years, China has been investing in military expansion to foster its ‘imperialistic’ goals which speaks volumes on what kind of future it is aspiring towards. The mainstream anti-China xenophobia in the recent past thus, should be understood in context.
Though the Chinese seem to have mastered the art of self-disclosure (something the US is still struggling with), the assertion that global hegemony is not on the former’s agenda should be taken with a pinch of salt. China has the largest foreign reserves in the world (nearly $4 trillion in the first quarter of 2014)—faced with no liquidity problems at all, the Chinese would have little to gain from paving way for a new financial bureaucracy if they are not looking to expand their political clout. Through the NDB, China may find it easier to make geopolitical gains (staying true to its doctrine of economic diplomacy while escaping international scrutiny): conditionalities (whether minimum or otherwise) associated with the aid will also allow the BRICS nations to interfere in the domestic affairs of the nations that the bank extends loans to despite the shared ‘anti-interventionist’ stance.
It is obvious that China’s allies will be applying for membership in the NDB to receive aid which includes countries like Pakistan as well. Hence, it will be interesting to watch how the power-play will affect ties between China, India and Pakistan as the founding members try to figure out shared goals amidst conflicting interests. For now, Pakistan is eying investment of about $40 billion over the next decade in the country’s energy, water, coal, roads and other infrastructure projects from China. Indo-Pak relations might be particularly important in this case in terms of the viability of lending to Pakistan and later on asserting influence in the country’s internal affairs. According to George Yin, “India is acutely wary of China’s rise, but it is only likely to oppose Chinese initiatives in the NDB when it involves Pakistan and Nepal.”
This is where it is hoped—that conflicting interests will help keep judgement objective and clinical— based more on facts and urgency with which economic support is required rather than preferences and prejudices. It is yet to be seen how not only heavy-weights like China but the rest of the BRICS strike the balance between the pursuit of national interests and the promotion of equality within the bank. The existing world order has been challenged—that is for sure, but whether this will pave way for the establishment of a healthy model of sustainable economic development or stifle real progress will become more obvious with time.