China has become the world’s third-largest creditor, up from 16th in 2005. And it is concentrating its charms on the emerging world
is back in business. Even as the world shuts down, the retail heart of Hong Kong, which enforced an early lockdown, is beating again. Yet normality is not complete. The local branch of, a symbol of Beijing’s sway, remains barricaded. Its managers fear that pro-democracy protesters, free after weeks of quarantine, might target it again. This points to a tension within China’s global ambitions. Its political system can suppress problems fast by mobilising everything in the pursuit of one goal.
Sceptics doubt a country with both a current-account surplus and strict capital controls can provide the world with a reserve currency. But China’s surplus has shrunk vastly since its peak in 2007. A deficit is likely to become the norm. Its ageing population is saving less. Beijing wants more domestic consumption, which will boost imports. And stagnant Western economies will mean sluggish exports.
Nevertheless it brings three dangers. The first is that it accelerates the balkanisation of financial markets initiated a decade ago. Most countries reacted to the financial crisis by enacting new regulations. Many have made the system safer. Yet watchdogs have sometimes seemed more motivated by a will to restore local control than foster global resilience. “Ring-fencing” forces global banks to establish subsidiaries, which are under the watch of local regulators, rather than just branches.
“Localisation” rules also prevent data-sharing for risk-management purposes, pointing to the second danger: that a broken-up system will be less secure. Multiple links between banks and fintech firms offer more points of entry for cyber-crooks. Dependencies are building upon nodes that are not regulated and are poorly understood, creating room for systemic breakdowns.
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