China’s Role in the Negotiations Surrounding the Global Financial Architecture in the Wake of the 2008/09 Financial Crisis

Three years after the outbreak of the last Global Financial Crisis (GFC), China appears to have moved into a position where it can exert greater influence in setting the terms of negotiation for a reformed global financial regulatory architecture. Not unlike other emerging economies, China’s prudential macroeconomic policies have sheltered the economy from the financial turmoil that spread from the United States to Europe, where governments currently struggle with debt issues, recovery programs, and other medium-term consequences of the GFC. China’s continued growth throughout the crisis years of 2008 and 2009 has established the country as an important motor of the global economy. This was especially important for many developing countries that export commodities to the Chinese market, some of which have recently joined the G20 negotiation table. China currently continues to play an important role as stabilizer of the global economy in its most recent efforts to restore confidence in European financial markets.

One of the findings of my research this summer, generously supported by a grant from USC US-China Institute, is that while China’s external position has become stronger, domestic crisis response policies have triggered a new round of conflict among factions in the Party and state apparatus that shape its position in the fora of global economic governance. I have interviewed prominent experts on China’s role in international finance, such as Tsinghua University’s Patrick Chovanec, Michael Pettis and Peking University’s Wang Yong as well as financial journalists to gain a deeper understanding of the internal dynamics of macroeconomic policymaking in China. The massive credit expansion at the source of China’s domestic stimulus program has led to an investment boom, especially in infrastructure, whose future profitability is doubtful. The consequences of this expansion in money supply range from short-term inflationary pressures to a potentially dramatic rise of nonperforming loans in the near future. This in turn would represent a considerable burden for China’s Big 4 banks as they prepare to expand globally. New global regulatory standards for financial institutions are currently under negotiation in the G20 and its adjacent Financial Stability Forum. It is not clear how China’s negotiators in these institutions will balance a position in favor of stronger regulatory standards that could endow Chinese banks with credibility on the one hand, and a more defensive position regarding international scrutiny of the current accounting practices in the domestic banking system on the other.

The second aim of my stay in China this summer was to begin building a network of scholars and experts that could help me facilitate field research in a future stage of my dissertation process. I was encouraged to seek formal affiliation with one of Beijing’s most reputable universities and to engage with scholars of political economy in China. In a series of revealing interviews with Chinese and American academics I learned that state officials can be expected to be especially cautious in their interaction with foreign scholars before and after the 2012 senior leadership transition phase. Interviews with leading figures from think tanks and in academia however promise to be more substantial in content. As China faces global responsibilities of increasing complexity, these representatives of epistemic communities are expected to have a growing influence on the country’s position in international regulatory bodies.

In sum, my first research trip to the People’s Republic of China has been successful both in terms of intelligence gathering and networking with relevant experts in my research area. Building on the foundations of this trip, I am currently preparing my application for affiliation with Peking University’s School of International Studies for the academic year following my qualifying exams, scheduled for the summer of 2012. This inspiring and highly productive research trip would not have been possible without the generous grant provided by the USC US-China Institute. I would like to express my gratitude and appreciation to the grant review committee for their support.

Click here to view projects of other 2011-2012 USCI Graduate Summer Fieldwork Grant receipients.