China Forges Ahead with Development Banks as an Alternative to the Western Financial System

China about to push the US asidePublished: 1 April 2015
Author: Richard Mellor
Intro by: TSN editor

China?s increasing economic power is now being reflected in the global financial sector with the launch of two new international banks – the BRICs New Development Bank and the Asian Infrastructure Investment Bank. Both are seen as a serious challenge to American domination of the world economy.

New Development Bank: There has long been discontent in the developing countries with the reactionary neo-liberal and corrupt operations of the World Bank, the International Monetary Fund and the International Bank for Reconstruction and Development. In response, two years ago the New Development Bank was agreed to by the leaders of China, Russia, India, Brazil and South Africa at the BRICS summit in South Africa ? combined these countries comprise cover more than 3 billion people, a quarter of the world?s land area and 25 percent of global GDP. Since then a range of other newly developed countries including Mexico, Argentina, Nigeria and Indonesia have indicated their desire to join the new financial institution.
…The new international bank will be headquartered in Shanghai in China and will open its doors for lenders in 2016 with $100 billion in capital. Unlike the World Bank whose management operates like a capitalist company being controlled according to the capital shares that each country puts into it (and is in effect run by the US), each participating country in the New Development Bank will have one vote and no country will have a veto.

Asian Infrastructure Investment Bank (AIIB): Focusing specifically on Asian projects, China has taken the initiative to launch a new $50 billion international investment bank to begin operation this year. Like the BRICS New Development Bank, this new initiative to create the AIIB has got Washington very worried as they see their international super-power dominance being undermined economically. Despite public opposition and criticism from US President Obama, many of America?s allies broke ranks to join a total of 40 countries as founders of the new bank by yesterday?s deadline. These include Britain, Germany, Italy, Sweden, Denmark, the Netherlands, Finland, as well as China?s regional rivals in South Korea and Taiwan. The only significant country that has supported the United State?s negative position is Japan who have not signed up to the bank.

Looking at this development in more detail and weighing up its significance, we publish below a very useful article by Richard Mellor, the editor of the Facts For Working People blogsite.

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Chinese Asian Infrastructure Investment Bank
Upsets Washington

We have always argued on this blog that the so-called diplomacy of the world?s nations is phony. It is the pretense that good intentions between states are the norm and negotiations around issues like trade or territory take place in an atmosphere of trust with a goal of benefiting all parties, the goal is harmony.

The reality is the opposite as Wikileaks has shown and why Wikileaks? founder Julian Assange, NSA whistleblower Edward Snowden, Chelsea Manning and others like them are so despised by those participating in this diplomacy of thieves.

The fact is that capitalism is a permanent state of war. The relations between capitalist states are one of permanent war as nations struggle to gain a competitive edge over their rivals through bullying, lying, plunder and robbery under the cloak of diplomacy. When this doesn?t work, then they resort to what they call hard power as opposed to soft and mass violence ensues.

The hypocrisy is incredible.

Despite all the talk from the US spin doctors about wanting the rest of the world to develop, this only applies to nations that are dependent on US power and US money for their development and as long as they have valuable resources that US and western capitalism needs. Most importantly, they cannot rival US military power and global influence.

The rise of China has always been a major concern for the western powers and is particularly threatening to US imperialism and its position as the number one global power. While US imperialism?s global influence has declined somewhat it is still a power armed to the teeth, with the ability to blow us all up; it?s a deteriorating regime with the big guns.

A Threat To US Power
The creation of an Asian Infrastructure Investment Bank (AIID), a multilateral development bank led by China with a $50 billion kick in has war profiteers in Washington and the Pentagon all flustered. What?s worse, the Chinese have managed to get 26 Asian countries to support the venture. And worse still, a number of important US allies are on board, including the UK, France and Germany, New Zealand, Italy. Even South Korea has joined and Japan and Australia are considering it. Readers may remember that prior to this period of decline and stagnation, Japan was enemy number one in the world when it came to US competitors, its decline has opened up doors for the Chinese. Allies these countries may be, but there is no honor among thieves and the US spying on their leaders, taping their phone calls and screening their e mails is not an activity that strengthens friendships. It?s not cool to get caught at this stuff. But arrogance leads to carelessness.

Reading a Wall Street Journal (WSJ) editorial last week I had to laugh. The leading mouthpiece of US capitalism and its plunder around the world is astonished that its allies and other would be proxies in Asia are supporting the AIID despite Washington?s protestations. ?Beijing has never made a secret of its belief in checkbook politics, and in recent years it has spent vast sums in pursuit of its regional ambitions?.? the WSJ editorial states. In another WSJ article on the subject, Andrew Browne writes that Washington is ??concerned that the lender will act as a tool of Chinese foreign policy, albeit it in a more sophisticate way?. (My added emphasis)*

Well Browne and the WSJ do have one point; ?sophisticated? is not the term that comes to mind when discussing the US bourgeois and their foreign policy. One million dead in Iraq, a lost war that is splitting the country in to three parts and these also fragmented. Creating the Islamic State. Failing to defeat the Taliban, provoking war in Eastern Europe, supporting every rotten regime around the world that advances Wall Street?s interests. And, how does the conversation between Netanyahu and Obama go?:

?Barack, we?ve killed 500 Palestinian women and children, we?re running out of bullets. Can you send more??

?No problem Bibi, we?ve got your back. Even Bernie Sanders and Elizabeth warren are on board?

Britain Breaks Ranks
?We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,? a senior US official tells the UK?s Financial Times. British imperialism, a tenth rate power these days, has really hurt some feelings among the US?s one per cent. The British bourgeois has been one of the staunchest lapdogs when it comes to US aggression but ?Appeasing China for commercial purposes?? the WSJ editorial says, is tantamount to London, abandoning, its historic ??.responsibility to speak up for the freedom of its former colony Hong Kong.?

The Chinese are in every continent; they own the largest African Bank. They have built railroads, infrastructure, factories, bridges throughout Africa and Latin America which is considered by the US 1% to be their back yard. They have funded projects in Vietnam, a traditional enemy and that country has joined the AIIB. Now, one of China?s foremost Vietnamese critics, economist, Lee Dang Doanh has praised the venture as a ?clever idea because it will soothe anxieties as China deploys its vast wealth around the world.? writes Browne. Doanh also ?praises western powers for breaking ranks with Washington? and joining the bank.

This is not good for US imperialism.

Naturally, all the powerful capitalist economies pursue these goals. The US doesn?t practice ?Checkbook politics?? This is the land of checkbook politics, ask any American. The US bribes UN representatives to vote its way at the UN. Where it can?t buy or bribe allies it will throw some violence at them as it does at home. It will use its vast wealth and huge secret spying apparatus to infiltrate and destabilize regimes that refuse to allow US capitalism access to its markets and raw materials. The first Americans in Vietnam were CIA operatives used to destabilize the country and deter any opposition to its polices.

The US bourgeois? fear that behind Chinese foreign policy and the creation of the Asian Infrastructure Investment Bank is an attempt to increase China?s global influence is valid. But it is this Chinese sophistication that worries them, ?Poor regimes willing to stay on Beijing?s good side will earn cheap loans on lax terms, but the bank will promote a version of China?s state capitalism, not transparent markets.? the Wall Street Journal warns its readers. For some, the Chinese are not tarnished with quite the same colonialist brush as the Europeans and Americans.

The Chinese bureaucracy has been fairly successful so far when it comes to running a market economy alongside a huge state owned sector. This is the problem for the US capitalist class. For them, everything must be privatized, education, health care, transportation, the banks, infrastructure, agriculture. As in the US, any state intervention that crowds out private capital or appears in the slightest to provide a service has to be abandoned, vilified, privatized——–the market rules and cannot be undermined as profits come first.

The Journal’s editorial warns, ?The trillions of dollars Asia needs for public works will never materialize unless private investors see reliable, non-corrupt opportunities for returns. Easy public loans that perpetuate cronyism don?t help.?

Readers should think about this statement for a minute. The US social infrastructure is a disaster, The U.S. needs to spend a staggering $2 trillion to rebuild infrastructure Business Insider wrote in 2011. Try getting that from the hedge fund managers. US capitalism has more than two trillion dollars stashed away refusing to invest until its profitable enough to do so. Private individuals have some $32 trillion stashed in offshore accounts avoiding taxes according to a study published in 2013, and that?s private not corporate funds. And US capitalism has received trillions in “cheap money”. It grew to a great extent thanks to African slave labor that received no wages for 300 years.

The continuing decline in US living standards will continue until public control and production of social needs including infrastructure, replaces the private. The journal editorial could apply to any world power but there is no doubt that among the world?s working class billions, it is the US that is feared the most, the US that is seen as the warmonger.

How Far Will China Go in Pro-Market Reforms?
It is difficult to say how far China can go along the capitalist road. Dominant sectors of the economy including the finance sector are state run. There are hundreds of thousands of protests and strikes every year against land grabs, environmental damage and working conditions. There is massive overcapacity and a real estate bubble. Whole projects have been abandoned. Strikes have won major wage increases and we have seen the huge protests in Hong Kong. The Chinese bureaucracy has an advantage in that they are all familiar with Marx?s economic writings for one thing. They are trying to balance and ease the worst effects of the market. How successful they will be remains to be seen.

There are huge clashes ahead in China as far as I can see, particularly as the economy slows. Clashes between the aspirations of the rising capitalist class and the Communist Party bureaucrats. Clashes between the state and the massive working class, the rural workers and the urban. And further clashes between workers and the private sector. The environmental crisis is acute in China and there will inevitably be huge battles around this issue.

In relation to China, it is also important to remember that if in 1985 one had asked the academic experts on the Soviet Union how long this dictatorship would last they might well have said 1000 years; such was the power and crushing weight of the dictatorship, by the late 80?s it was gone.The bureaucracy was no longer feared.

Global Instability
The last point I would like to make is that these conditions of constant war, tension and conflict will never end until capitalism is overthrown; it is the modern era?s new normal. The world is far more unstable today than during the cold war when two global powers had a relationship of carving up spheres of influence that brought relative calm by today?s standards. Now, the existence of nation states within an integrated world economy is emerging once again as a source of conflict on a major scale alongside the disintegration of former states, or failed states as they call them today. Capitalism is truly in deep crisis.

It is not that working class people of any nation don?t understand this in a sense, that the world and the governments of nations are rotten. But with no national or international working class movements and organizations that can cut through the confusion and explain these developments in a political way, unite workers along economic, political and of course class lines, the tendency is for people to buckle up for the ride and take the position that better it?s our rotten bastards than theirs. This writer is no expert, just sharing my views on the subject from a worker’s perspective.

It is exactly such a movement that is necessary if we are to survive on this planet. We have not yet run out of time, but we will.
by Richard Mellor  (Richard can be reached by email at: aactivist@igc.org)

* US Hard Line on Bank Sets Up Rifts: WSJ World News, 3-25-15

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