I published a chapter in the 2019 edition of Strategic Asia on the strategic foundations of China’s efforts to reshape the international financial architecture.
Summary
The chapter argues that China faces the dual risk of conflict with the United States and encirclement by wary neighbors, factors which together influence its international financial strategy. To deal with the United States, China has pursued strategies to blunt U.S. financial power through support for monetary diversification and the creation of parallel payment and credit rating institutions — all of which reduce its vulnerability to U.S. financial coercion. To deal with its neighbors, China has pursued strategies to build financial leverage over them. It has promoted a renminbi zone, new financial institutions, and infrastructure investment that together foster asymmetric interdependence.
Implications
In the short term, China’s efforts to build constraining leverage over its neighbors could lay the foundation for a sphere of influence unless the U.S. both re-engages regional multilateral economic processes and multilateralizes some of China’s own bilateral efforts such as the Belt and Road Initiative.
Over the medium term, China’s efforts to duplicate the substructure of the international financial system may provide sanctioned states an opportunity to escape U.S. financial pressure while reducing Chinese vulnerability to U.S. financial sanctions.
Over the long term, China’s effort to promote monetary diversification, bypass the dollar, and promote its own currency and payments systems could reduce its vulnerability to U.S. financial sanctions.