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China: Gaining Financial Power

Abstract

The article examines the formation of China’s financial power. Possessing such a type of power, allowing to influence the behavior of other states through a system of financial interrelations with them, is an important factor of China’s transformation into a superpower. The basic prerequisites for the formation of China’s financial power have already developed: the country has the largest economy in the world and the third largest financial market after the US and the eurozone, wide foreign relations and considerable military power. The huge economic wealth allows China to increase foreign investment, as well as to initiate the establishment of new multinational development banks. Due to this, China is gradually building channels and mechanisms of its influence in the global financial system, although so far it has not taken a leading position. China’s emergence as a new pole of power in global finance requires more intense internationalization of the yuan, the transnationalization of Chinese bank business, and the transformation of China into a global financial center able to offer international investors ample opportunities to invest and raise capital, comparable to those provided by the United States. In turn, the achievement of these goals is almost impossible without a large-scale liberalization of international monetary and financial relations of China, including free convertibility of the yuan. Chinese authorities declare their readiness for such reforms, confirming it by the abolition of a number of restrictions. However, the growing openness of the Chinese financial system can increase its vulnerability to adverse external influences, in particular, from the United States, not interested in the rise of China. Given this, the Chinese authorities are likely to liberalize the financial system carefully, slowing it down as soon as threats to internal stability appear. In this regard, the article justifies the assumption that strengthening China’s financial power will be a long, uneven and contradictory process, which may be accompanied by crises triggered by the intensification of the struggle with the United States for dominance in the financial sphere and for global leadership in general.

Keywords:

China; financial power; international political economy; world financial system; international capital flows; RMB internationalization; international monetary and financial relations.


Authors: Maksim Petrov, Anna Piliposyan, Vasily Tkachev

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