An economic decoupling of the U.S. and China is ‘a long way away,’ says former IMF China head

China’s President Xi Jinping and US President Donald Trump throughout a gathering exterior the Great Hall of the People in Beijing.

Artyom Ivanov | TASS | Getty Images

An economic decoupling of the U.S. and China is “a long way away,” however transferring away from a U.S.-centric system actually appeals to Beijing, stated Eswar Prasad, beforehand head of the International Monetary Fund’s China division.

“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,” stated Prasad, who is now a commerce professor at Cornell University.

However, “the desire to get away from the grasp of the U.S.-based or dollar-denominated international financial system is certainly something at the forefront of China’s mind,” stated Prasad.

That is why the world’s second-largest economic system has been pushing for higher use of the Chinese yuan in settling commerce, he stated.

China is additionally actively opening up its capital markets to overseas traders and liberalizing its change price regime.

“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,” stated Prasad.

Balance relationships with US and China

With tensions ratcheting, “the great power dynamics” between the U.S. and China are actually getting extra attention-grabbing, stated Prasad.

While China appeared to have the upperhand earlier in the pandemic, it is now seeing some pushback in opposition to its political affect in nations like Australia, stunning the Chinese management, stated Prasad.

Beijing 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,” stated Prasad.

But he defined that nations now appear to wish to press the reset button.

“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 ,” stated 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,” he added.

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