Raimondo must face reality of West’s shrinking importance in global affairs during her China visit

Developing countries want a stronger voice in international decision-making and in setting the rules and practices of the future multilateral architecture, and are taking practical steps to achieve that

David Dodwell

Published: 1:00am, 28 Aug 2023

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As US Secretary of Commerce Gina Raimondo sits down this week with Chinese trade officials for “constructive discussions on issues relating to the US-China commercial relationship, challenges faced by US businesses, and areas for potential cooperation”, she would do well to ponder two facts.

First, China’s trade with the developing world has overtaken trade with the West, with the Association of Southeast Asian Nations overtaking the United States as China’s top trading partner. Second, the five Brics economies account for a larger share of global GDP, in purchasing power parity terms, than the Group of 7.

Instead, a different set of numbers are likely to be at the front of her mind. China’s exports to the European Union fell 20.6 per cent year on year in July while those to the US fell 23.1 per cent, suggesting that a weakened China is in decline as the dominant manufacturer to the world, potentially falling into a recession.

Her Chinese counterpart, Commerce Minister Wang Wentao, will doubtless push a different narrative. China’s overall trade grew by 2.1 per cent in the first half of 2023, with the economy continuing to grow at a faster pace than in most countries.

The sharply contrasting narrative of numbers not only reflects the two different prisms through which China and the US view the world but also an accelerating shift in the world economy. Countries in the developing world want a stronger voice in international decision-making and in setting the rules and practices of the future multilateral architecture, and they are taking practical steps towards that goal.

The US is making huge efforts to consolidate a consensus among traditional friends and allies. China, meanwhile, is providing intellectual leadership to a group of countries sprawled across the developing world that share very little in common, except a belief that they have been badly served by the rules of the global economic order created in the wake of World War II and that new rules and architecture are needed.

China’s blueprint for change is President Xi Jinping’s Global Development Initiative. The scheme strives for more equitable promotion of development, poverty alleviation and improved health across the developing world, on the basis of a new and improved rule book for international governance.

To deflect the danger of countries pushing back against an initiative that is so conspicuously in China’s self-interest, Beijing has gone to great lengths to support development of new groupings such as the Belt and Road Initiative, the Shanghai Cooperation Organisation, the Regional Comprehensive Economic Partnership and of course the Brics bloc.

The latter drew global attention last week as it announced it would expand its membership from Brazil, Russia, India, China and South Africa to 11 countries, with plans to expand further.

These new blocs seem to many Western leaders to be an improbably divergent hodgepodge of assemblies with few interests or values in common. For the established groupings that have invested so much effort into forging an internal consensus around shared values, they can find no glue that provides coherence. Many are convinced these new groups will be ineffectual talk shops at best, and angry wasp nests at worst.

From the left, Brazilian President Luiz Inacio Lula da Silva, Chinese President Xi Jinping, South African President Cyril Ramaphosa, Indian Prime Minister Narendra Modi and Russian Foreign Minister Sergey Lavrov pose for a group photo during the Brics Business Forum in Johannesburg, South Africa, on August 22. Photo: DPA

China is trying to find new adhesive ingredients to glue these improbable countries together. Foremost is “true multilateralism” which works by consensus, with one vote for one country whatever its size, and is strictly committed to non-interference in any country’s internal affairs. These new groupings seek the power of numbers to protect themselves from unilateral power or pressure.

With so many of their economies whipsawed by the politicisation of the US dollar and the power of the West’s banks, these countries seek to dilute their reliance on Western institutions. They want to break the West’s influence over the World Bank and the International Monetary Fund and democratise the UN family of organisations to ensure greater even-handedness towards all member economies.

Symbolic of this shift are the activities of two multilateral banks at the heart of the Brics bloc and Belt and Road Initiative – the New Development Bank (NDB) and the Asia Infrastructure Investment Bank (AIIB), which began operating in 2015 and 2016 respectively. Looking specifically at the NDB, which is headquartered in Shanghai but headed by former Brazilian president Dilma Rousseff, it has clear lending priorities in clean energy, transport, water, environmental protection, social infrastructure and digital infrastructure.

Dilma Rousseff, chair of the New Development Bank, delivers a speech during the opening ceremony of the bank’s eighth annual meeting in Shanghai on May 30. Photo: AFP

Capitalised at US$100 billion, each of its five founding members hold stakes of just under 19 per cent, with 1 to 2 per cent holdings with Bangladesh, Egypt and the UAE. In contrast with the World Bank and the IMF, each individual shareholder carries a single vote, no matter what the size of their stake.

The NDB has so far loaned out more than US$33 billion to 96 projects across its five members, though lending to Russian projects has been suspended since Moscow’s invasion of Ukraine. Without doubt, with an expanded Brics membership and the arrival of Saudi Arabia as a huge potential financial contributor, it is set to grow substantially in its capital base and where it lends across the developing world.

Whether they are challengers or complementary to the World Bank and the IMF, the NDB and AIIB offer borrowers in developing economies a wider range of choice. They are the first steps towards practical change in the global economic architecture, governance of global financial institutions and how they make their lending decisions. Raimondo would do well to ponder this new reality.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades