New financial institutions can be force for good governance

The negative spin on China's role in global economic governance is widespread in the financial press. However, new financial institutions proposed by China and the other BRICS countries will raise the pressure for serious governance reform in the World Bank and will provide much needed competition, professor Robert Wade (LSE and DIIS) and senior researcher Jakob Vestergaard (DIIS) write in a letter published in the Financial Times.

In his recent column 'China’s rise confounds a splintered west', Financial Times commentator Philip Stephens argues that China’s plans for an Asian infrastructure bank, a BRICS bank and a New Silk Road project add to the fragmentation of the post-1945 globally integrated economic and financial system, and: 'In the medium to long-term all sides will be losers, as global financial and economic integration falls prey to narrower definitions of national interest and competing rules and norms'.

This argument exaggerates China’s role. China initiated the Asian Infrastructure Investment Bank, but India proposed the BRICS bank, and Brazil proposed the BRICS Contingent Reserve Arrangement to provide emergency balance of payments loans to members. The BRICS are acting collectively and amount to much more than China. Furthermore, an increase in infrastructure investment is likely to increase, not diminish, global integration.

The letter can be read in full at Financial Times online, or at Jakob Vestergaard’s blog, GEG Watch.