Whilst people in the UK are preoccupied by our election debates, the IMF and World Bank meeting with Finance Ministers is happening in momentous times.
The most significant thing that is happening is the rise of China. China has a plan. They are in transition from relying on exports and investment to grow quickly, to depend more on consumer spending at home. After years of making good value goods to sell to foreigners, to build up a large reserve of foreign exchange, China is now making more to sell to her own citizens. Her economy is also in transition to higher tech and to delivering more service output.
China is liberalising its financial system. It now has more two way investment into and out of mainland China to Hong Kong. It is putting its currency, the renminbi, forward as one of the world’s great trading currencies. It is seeking the entry of the renminbi into the Special Drawing Right basket of the IMF alongside the dollar, yen, sterling and the Euro. It has set up the Asian Investment Bank to extend credit across Asia and the Middle East.
The most dramatic plan is China’s proposal of a new Silk Road and silk maritime road. The idea is new and improved sea and land transport links from China through Central Asia to Russia and Europe. China has in mind a new large economic zone with joint investment projects in transport, communications and energy, with more common trading and co-ordination of economic and development policies.
China is working with the City of London, recognising UK excellence in finance and valuing London’s ability to make markets in the renminbi. We need to make the right diplomatic response to China’s developing wish to play a bigger role in the world, and to use some of her great industrial and financial muscle to extend her influence. The UK government was right to back China’s Investment Bank initiative.