skip to main |
skip to sidebar
Yuan as Reserve Currency less important than Economic and Political Reform
By Chris Harry
In theory, the addition of the RMB as a top-reserve currency would further diversify the world's exchange reserves. It also would draw China further into the world economy, which might also be a positive force for encouraging China to move toward a stable economic model based on greater transparency and not-so-minor adjustments such as the rule of law. On the other hand, Chinese banks would have to sink and park huge sums of money as deposit insurance, which could further weaken its already fragile debt-to-GDP ratio imbalance.
The fact that China is a maverick economic player that relies on artificial growth which is willing to use any and all means to continue the growth bubble for the sake of social stability and the perpetuation of the party-state, also means that China could potentially become a hugely disruptive and destabilising force in the world economy.
Party interests will always remain paramount and unchecked under the current system, so only when China makes a fundamental political and economic shift, can we expect the Yuan to make a positive contribution to global economic stability. China will also need to follow international rules and regulations in order to make a positive contribution to international economic stability. Again, under the current system in place in China, we cannot expect that it is willing to follow international norms, practices and rules.
The lack of a domestic rule of law clearly indicates China unwillingness to abide by international treaties and conventions. China's approach in the South China Sea shows a total disregard for the sovereignty of its own neighbours and is a breach of the treaties it signed, took part in drafting, and pledged to uphold.
Xi's administration has been emboldened to further apply the no-rules bully approach toward domestic politics and foreign policy. At the same time, the domestic economy has been tanking ever since Xi took power.
The stock market debacle also shows a total lack of transparency and honesty in dealing with internal domestic issues. In the end, the government relied on a command-driven and heavy-handed approach to force a recovery of the stock market. In the process, billions in individual investors' earnings evaporated, along with one-fourth of its crucial monetary reserves to support China's state retirement funds.
Beijing took a huge gamble by creating a false bull market in order to orchestrate state-led insider trading, so as to prop up Zombie SOEs that are bleeding out huge losses daily and are kept alive by state-controlled banks that can barely handle the pressure of giving out free money to keep these SOEs afloat.
When China gets its political and economic house in order, then we might expect the RMB to play a positive role in the world economy.
Article and image editing by Chris Harry
It is hugely ironic that ever since Premier Li Keqiang has declared war on pollution back in March the pollution in China's capital has steadily grown worse.
Since January of this year, days at 200+ levels on the PM 2.5 index are the norm rather than the exception. This means that Beijing's air quality is regularly 20 times higher than the level that the WHO considers a health hazard. On many so-called "sunny" days here in the heart of the China Dream, the skies are often dingy and enveloped under a glowing grey of thick haze.
The reality on the ground is that pollution continues to worsen here in Beijing and in the rest of the country. Another reality in China is that many, if not most laws, are either not actually enforced or are enforced inconsistently at best. Laws in China are often only applied arbitrarily to the benefit of government officials and to the detriment of its citizens.
The current anti-corruption campaign is a perfect example of this. It is simply a 'campaign' and not the consistent application and adherence to any laws. The only likely concrete result of the anti-corruption campaign will be the transfer of money stolen from taxpayers by some targeted officials from rival party factions to other corrupt officials allied to the new leadership. Under the current system, which has no independent monitoring or judiciary, laws simply become tools in the hands of officials to enrich themselves, remove political rivals, deny citizens the right to monitor, protest or interfere with their interests and to consolidate their own power.
As things stand now, polluting factories will simply give bribes to get around legislation and the central government will likely neither enforce nor supervise the rules in any meaningful way. Regional government leaders will also avoid enforcement in order to increase the profits of local industry and to enhance their GDP growth track records whilst pocketing graft money from local polluters.
In addressing the lack of results on the anti-pollution front the central government mainly blames regional governments (its favourite scapegoat) for causing the problem, but then fails to act to intervene or prevent 'regional pollution', which means the responsibility ultimately lies with Beijing. What is more, the levels of air and water pollution in the capital also speak to the lack of sincerity on the part of China’s central government to tackle pollution. Meanwhile, the majority of China’s top ten most polluted cities surround the larger region around the capital, which clearly demonstrates a lack of will or ability on the part of China’s national leaders to take concerted action to stem the tide of steadily rising pollution.
Back in February, the local Beijing government failed to enact its own emergency measures when air pollution had risen to red alert levels of over 500 on the PM 2.5 index, so it does not appear that China’s central government is even committed to enforcing its own laws consistently. Therefore, it is fair to ask why regional governments would take state laws seriously. If central leaders consistently flout national laws and regulations, then why should regional leaders be expected to respect anti-pollution legislation? In fact, Beijing stands as the key obstacle to the enforcement of laws to actually curb pollution. A one hundred percent monopoly on power unavoidably translates into one hundred percent responsibility for the destruction of China's environment.
The most compelling evidence to suggest that ‘sweeping’ new laws will likely fail to have a great impact can be seen from the government’s past record on 'fighting' pollution. China has already enacted a whole range of laws and regulations to curb pollution in recent decades, yet the pollution continues to worsen as the environmental crisis continues to deepen.
Laws have to be enforced in order to have any real effect. As long as China remains a corrupt country without a viable rule of law, anti-pollution laws are simply empty words on paper. The smog is very real and so far the implementation of anti-pollution legislation appears to be merely an illusory phantom with about as much substance as Emperor Xi’s China Dream.
