China Faces Pushback as it Uses Financial Clout Abroad

The Business Times

11 April 2014

OVER the past few decades, China has accumulated more than US$3.8 trillion of official foreign exchange reserves as it rises to become a global power. Do China’s gargantuan financial assets boost its financial power overseas?

With the globalisation and rising influence of Chinese state-owned enterprises, state-owned banks and sovereign wealth funds, as well as China’s growing clout in several regional groupings, it is clear that Beijing does possess the necessary mechanisms to assert its financial power – by investing in developing countries’ government bonds and fixed assets, providing generous economic assistance packages and concessional loans with virtually no conditions attached and forgiving large amount of a target country’s debts.

In the economic domain, China has consistently used foreign oil contracts and acquisitions to secure direct oil flow from developing nations. However, some recent cases show that, while China is able to successfully harness its financial power in its pursuit for oil, it needs to fulfil its promises to the satisfaction of the recipient countries in order to maintain the value of its offers.

… Friedrich Wu is an adjunct associate professor at the S. Rajaratnam School of International Studies, Nanyang Technological University. Koh De Wei graduated with MSc in international political economy at the S. Rajaratnam School of International Studies in 2013 after receiving BSc and MSc in computer science from Stanford University in 2012. This op-ed is excerpted from the authors’ longer and scholarly article ‘From Financial Assets to Financial Statecraft: The Case of China and Emerging Economies of Africa and Latin America’ in the ‘Journal of Contemporary China (USA)’, March 2014, online version

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