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Commentary on Bretton Woods vs. BRI
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Strategic competition between the Bretton Woods Institutions and China’s BRI
Dr Bharti Chhibber and Dr Wing Lok Hung
Two significant international conferences were held in October 2023 to assess a plan for the global economy based on different strategic dimensions. In Beijing, the third Belt and Road Summit concluded that it would aim to boost international cooperation among participating countries. In Morocco, the International Monetary Fund (IMF) and the World Bank held their annual meeting to deliberate what two institutions should do next and some progress was made on increasing their lending resources. There has been concerns over whether the Bretton Woods institutions that were created nearly 80 years ago can deal with the current mounting challenges of global economy, debt, inflation, conflict, poverty and mitigation of climate change. In particular, some perceive that the Belt and Road Initiative is the Chinese plan to build a new world order, replacing the US-led international system.
The United States and China tensions and growing trade protectionism are all making it difficult to reach a consensus to solve global economic challenges. Our global economy at the moment is in a plateau. The world is fragile while dealing with global issues such as fighting against climate change and extreme poverty, not to mention the two ongoing wars- the Israel-Hamas and Russia-Ukraine Wars. In fact, rising powers like India have called for reforms of multilateral institutions to reflect present global realities towards an equitable system of global governance, an issue that also became a significant part of recent G20 summit held in India.
But there are still a number of hopeful signs. First, additional resources will be poured into developing countries. The World Bank has adopted new tools that could provide US$157 billion in additional lending to developing countries. IMF member-states decided to increase quota contributions to ensure adequate lending power. With the urgency to tackle economic, climatic and conflict-related crisis, global financial architecture transformations have to focus on these dynamics. In order to achieve the transition to a low-carbon economy, an annual global climate investment of about $4-6 trillion is required. According to World Bank, about 60 per cent of the poor people will be living in climate change affected and conflict prone zones. To offset this, Ajay Banga, the new World Bank President highlighted the Bank’s vision to “end poverty on a livable planet” to deal with climate change crisis.
In the meantime, the China Development Bank and the Export-Import Bank, two principal lenders for the BRI, will provide an additional $100 billion in loans for BRI countries. Emerging countries have been heavily affected by recent global shocks and their political leaders may welcome these attempts at financial assistance. Of course the countries will have to choose sides, but they may see short term gains in creation of more jobs, more infrastructures and bring monetary stability while these countries face huge economic challenges. It will take some time for an impartial assessment of these measures over the medium-term but low-income countries will at least get immediate financial relief.
At the same time, some countries including India did not join BRI. India has reservations about it owing to the geopolitical implications of BRI in the Indian Ocean as well as on the China-Pakistan Economic Corridor passing through the Pakistan-occupied Kashmir. Recently at the G20 Summit under India’s presidency, an alternative initiative of India-middle East-Economic economic Corridor was announced by the US, European Union, Italy, France, Germany, UAE and the Saudi Arabia. This joint project aims to augment economic ventures through investments, generate employment, decrease carbon footprint, and create resilient global supply chains.
A general climate of peace and continuing security is needed for economic development. Yet the basic environment of security can only spring from the policies of the major world powers. China’s President Xi Jinping will meet with America’s President Joe Biden during the APEC summit in November 2023. The proposed meeting could be helpful for bringing a thaw in the US-China economic differences. Similarly, in spite of some differences, India and China are working together in organizations like BRICS where India’s Prime Minister Narendra Modi met the Chinese President Xi Jinping in August 2023.
At present the West dominates the global economic governance owing to the clear edge of US dollar in international monetary system. The IMF just released the estimated growth rate of our world economy in its latest World Economic Outlook. It has stated that global growth is expected to decline further in 2024 to 2.9 percent from dull growth of 3.0 per cent in 2023. It is the lowest growth rates in decades. On the other hand, IMF projected India to continue with strong growth at 6.3% in both 2023 and 2024. It is certain that deeper engagement between the countries like the US, China and India is needed to solve the global issues of economic equity and stable economic governance.
Dr Bharti Chhibber is an expert on international relations and teaches foreign policy at the University of Delhi, India and Dr Wing Lok Hung teaches Greater China in the Global Political Economy at the Chinese University of Hong Kong