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The Global China Bubble
China’s World Bank Competitor Holds Its First Meeting

The China-led World Bank competitor, the Asian Infrastructure Investment Bank (AIIB), held it first meeting this weekend, an accomplishment which Beijing has been trumpeting all week. The WSJ:

“It’s been a triumph for them, so I think it’s all right for them to take a bit of a victory lap,” said David Dollar, a fellow at the Brookings Institution in Washington, a former U.S. Treasury official in Beijing and a nonpaid adviser to the new Chinese bank. “But what they’ve done so far is relatively easy compared with what comes next.”

The bank, known as the AIIB, is starting out with $100 billion in capital and was conceived as China’s answer to the World Bank and Asian Development Bank, institutions dominated by Washington and Japan, respectively. The AIIB has delivered China a propaganda coup by attracting 57 founding members, far more than expected, including such U.S. allies as Britain, Germany, France and Australia.

The AIIB has indeed been a success for China thus far. And as we’ve said, the U.S. should have gotten in on the ground floor rather than opposing the bank and thus losing an opportunity to have some leverage over what could be an influential institution. But at this point, the bank, which intends to finance development in emerging market economies, is a sideshow to the bigger story of China’s global collapse. However much the bank spends in the next few years, it won’t match the hundreds of billions of dollars Chinese investors (state-controlled and private) are pulling out of developing countries. Nor will it compensate for the even more consequential collapse in Chinese demand for global commodities. As we wrote last week, exports from Africa to China plummeted by 40 percent in 2015. They’re likely to only fall even more this year—as are those from countries across Asia and Latin America.

When Beijing has finished off the Veuve Clicquot, it will face a sobering reality: China’s global economic power is on the wane in 2016.

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  • lukelea

    Are you suggesting this is a new, permanent reality or a temporary blip?

    • GS

      Every social system has its systemic limitations, and sooner or later it runs into them head first. I am more familiar with the russian one, but the chinese social system is pretty similar [after all, the russians borrowed theirs largely from the chinese, via the mongols]. When a society foundational idea is “if I’m the boss, you are a POS, and if you’re the boss then I’m a POS” [a verbatim translation of a russian proverbial saying], then the limitations it poses are rather severe.

    • f1b0nacc1

      This is no more permanent than was the Japanese ascendency to world domination so widely predicted in the 1980s. China’s structural issues are only now becoming obvious, and they very poorly suited to coping with them (see GS’s comment for an excellent insight on this).

  • Jacksonian_Libertarian

    I’ve been saying for years here, that China is going to “Hit the Wall”. I also don’t think another world bank is needed, especially one dominated by anti-capitalist Chinese Communists. I’m more worried about the fact that the window is closing on the awesome opportunity presented by Chinese belligerence on its borders and in the South and East China seas. America should be negotiating an extremely favorable economic and military alliance with all those Asian nations being threatened. Unfortunately for us, Obama is the Worst President in American History.

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