Monday, March 23, 2015

Is China’s new stack enough to divide the US-UK alliance?

Obama and Cameron. Is China strong enough to divide this friendship?
The United States probably hopes it can continue to hold back the flood of Chinese insistence. The United Kingdom, its staunchest ally, thinks otherwise. On retrospection, one would conclude that the flood is insistent and could get more so as time goes by. China is the second largest economy in the world. It is one of the largest emerging economies globally although its annual growth is projected to slow down to 7% and one of the most populous nations in the world.

So, it would be natural that China should seek ways to stack itself against the barriers placed on its path to global financial governance. It recently launched the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank. Singapore, United Kingdom and Indonesia have agreed to be members of the AIIB. About 27 nations are expected to be member nations when the March 31 deadline expires. The U.S might be wondering in disbelief but as the UK sees it, that’s how the wind of change is blowing in international financial circles.

The UK believes the world is changing and it has to change with it. In a recent World Economic Forum article, Jim O’Neill, a former chairman of Goldman Sachs Asset Management, clearly states the arguments of the UK government.

He argues that growing resistance to China’s inclusion in International financial governance will fuel and create the development of parallel international financial institutions like the AIIB. China’s economic might cannot be passed over. Its Gross Domestic Product (GDP) is bigger than Germany, France and Italy combined. Even if the US refuses to ratify the agreement reached on agreed changes to the governance of the IMF and the World Bank, BRICS nations which consist of Brazil, Russia, India, China and South Africa, have shown a commitment to have their voices heard outside the channels of the IMF and World Bank.

Those are not easy assertions. Even if the US accepts those arguments, it reluctantly will, if at all. It’d rather address China’s rise to global economic superpower status which is at odds with the UK’s belief that China’s internal affairs should be left as is – internal.

The IMF Managing Director Christine Lagarde is quoted on Reuters as saying she would be "delighted" to cooperate with the AIIB.

So, will these divergent opinions create a rift in the US-UK alliance? It remains to be seen.

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