Daily Management Review

Former IMF China Head Says Economic Decoupling Of US And China ‘A Long Way Away’


Former IMF China Head Says Economic Decoupling Of US And China ‘A Long Way Away’
According to Eswar Prasad, previously head of the International Monetary Fund’s China division, while achieving an economic decoupling of the United States and China is “a long way away”, it can be appealing for China to be able to move away from a US-centric system.
“These two economies are still quite closely tied. After all, it’s very hard for the two largest economies in a way to stop bumping into each other in various dimensions,” said Prasad, who is now a trade professor at Cornell University.
However, Prasad said that “the desire to get away from the grasp of the US-based or dollar-denominated international financial system is certainly something at the forefront of China’s mind”.  
He said that is why the second-largest economy of the world has been pushing for greater use of the Chinese yuan in settling trade.
Apart from liberalizing its exchange rate regime, Beijing is also actively opening up its capital markets for foreign investors and companies.
“That is going to be tied in with domestic capital market development which Chinese leaders know is going to be crucial for China’s sustained growth in the future,” said Prasad.
Prasad believes that with increasing tensions between the US and China, “the great power dynamics” between the two largest economies of the world are certainly getting more interesting.
The Chinese leadership and authorities have been surprised by some of the pushback against its political influence in countries such as Australia even though China apparently seemed to have the upperhand during the earlier stage of the novel coronavirus pandemic, Prasad said.
He went on to say that China thought “the political control and the economic control they had over much of Asia and other parts of the world would stand in good stead”.
But countries now seem to want to press the reset button, Praased explained about the behavior of some of the countries against China.
“The difficulty for most other countries that want to get away from China’s grasp is that they don’t have an alternative that they can trust ,” said Prasad.
“The U.S. used to play that role, it doesn’t quite play that role anymore, so many countries are floundering in striking this delicate balance between maintaining good relations with China and the U.S., but we are certainly seeing a reset beginning to take place,” Prasad added.