In January 1907, The New York Times published “Defects and Needs of Our Banking System,” an essay that would have a significant impact on the financial world. Within the extended article, a German immigrant named Paul Warburg railed against the inherent vulnerability of a financial status quo that had forced Americans to rely heavily upon European banking systems, particularly that of England, to “take measures for the regulation of our own household.” Warburg also believed that “so long as it [the U.S. financial system] is not thoroughly reformed, it will prevent us from ever becoming the financial centre of the world.” Thus, for the sake of financial health and the future goals of the U.S., a rising power during the early twentieth century, Warburg argued for an entirely new banking institution. After the Panic of 1907, the Senate brought Warburg on as an economic reform consultant. Within fifteen years, the ideas expressed in his article turned into a concrete reality through the creation of the Federal Reserve.
More than a century later, in a year when periodicals are full of comparisons to the period before World War I, surprisingly few mentions are made of Paul Warburg, whose attitude towards global institutions is very much alive in today’s rising power, the People’s Republic of China.
Similar to how Warburg felt about the U.S. and its relationship with the global financial community at the turn of the century, Chinese President Xi Jinping and his colleagues seem to believe that current institutional arrangements are not ideal for China’s ambition to achieve superpower status. In response, over the past few years, Beijing has created and updated international organizations, bodies and forums with a fervor not seen since the Allies redesigned the global community in the mid-1940s.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
The most recent, prominent, and coincidentally most Warburg-esque example of this phenomenon was last week’s announcement of the New Development Bank (NDB), established by China in conjunction with its BRICS partners: Brazil, Russia, India and South Africa. The NDB, created “with the purpose of mobilizing resources for infrastructure and sustainable development in BRICS and other emerging and developing economies,” conveniently serves as an alternative to the Western-dominated World Bank and International Monetary Fund, institutions which China has argued possess “increasingly evident signs of losing legitimacy and effectiveness” and, more relevant for the potential superpower, limits on the voting rights and input of the Chinese delegation. Although the NDB is supposed to be egalitarian, with participation on the basis of equal shares of $10 billion and equal voting rights, the fact that the bank will be headquartered in Shanghai and contains a Contingent Reserve Arrangement whereby China will provide the largest share of a $100 billion fund means that it is not unrealistic to assume that China can and will become the NDB’s senior partner. Now, rather than watching the Western countries that dominate the World Bank or IMF take credit for development projects in Africa, or Japan leading the Asian Development Bank in East Asia, China will be able to play a more significant role in global development through the NBD. The benefits to Chinese global influence are obvious.
Beijing’s work towards crafting institutions friendlier towards Chinese goals goes far beyond finance. Earlier this year, China decided to elevate an unknown security dialogue, the Conference on Interaction and Confidence Building in Asia (CICA), to a level of importance similar to APEC, the premier outlet for promoting economic ties across the Pacific. Why? Because even though CICA is not formally organized and still possesses a nascent mission statement, it offers facilitative potential for Chinese power in two ways, both of which have been acknowledged in some capacity. First, CICA’s role as a security forum, and the absence of Japan or the U.S. as members could ensure that Asian problems are, in Xi Jinping’s words, “solved by Asians themselves.” As the preeminent power within CICA, China would have a much stronger voice on security issues. The second potential gain is that CICA could serve as a nexus between China and Southeast Asia with an agenda much easier for Beijing to influence than the existing ASEAN-sponsored forums. These are likely the reasons behind Xi’s argument for an aggressive expansion of CICA last May. The Chinese President spent the bulk of his keynote speech before the 4th CICA Summit outlining plans to strengthen the group’s jurisdiction and abilities under Chinese chairmanship.
The modification of CICA and the announcement of the NDB are merely the most recent developments in a much longer trend of adapting international arrangements to suit Chinese goals. Beijing continues to tout the importance of the Shanghai Cooperation Organization (SCO), a twelve-year-old political, economic and military group unquestionably controlled by China and used to set the agenda and even shape the domestic policy of several Central Asian member states. At last year’s SCO summit, Xi even stated that “China presents a model of development” for all members. Simultaneously, the creation of an annual BRICS summit has allowed China to have an even greater voice in international affairs, especially regarding global finance (i.e., the NDB). BRICS summits have the opportunity to rival G7 meetings in the international press, and by claiming to be “the voice and representation of emerging economies,” they provide far greater advocacy than previous institutions toward policies that are inevitably friendly to Chinese interests.
Whether these developments will lead to the successes China has envisioned is yet to be seen. There are still at least two significant questions that must be answered. First, how will China reconcile a demonstrated reluctance to embrace multilateralism (see the South China Sea issue) with a desire to strengthen and legitimize multilateral institutions beneficial to Chinese goals? Second, does China have the clout required to make international organs like the NDB truly rival the two created at Bretton Woods in 1944? The World Bank and IMF were readily accepted partly because of the unprecedented goodwill towards the powers that designed them. While Beijing is favorably viewed across the developing world, tensions over territorial disputes and disruptive “great power” rivalries remain just beneath the surface.
These issues aside, what China has been doing is novel. Much like Washington more than a century ago (thanks to men like Paul Warburg), Beijing has recognized that the future it desires cannot be achieved within the current status quo, and has taken significant steps to alter the current circumstances. There is a common saying that China seems to have reversed, “if you can’t beat them, join them.” Having tried the latter for many decades, China has now finally embraced that former. If history can repeat itself, Xi and his successors have much to look forward to.
Steven Keithley is a graduate of the Asian Studies Program at Georgetown University.