Mohammed Saqib
Center of Geoeconomics for the Global South (COGGS), UAE
As the world grapples with the lingering effects of the COVID-19 pandemic and ongoing economic instability, the need for a more equitable global financial system has become increasingly urgent. The Global South, in particular, has long been trapped in a cycle of financial dependency and exploitation, with Western-dominated institutions perpetuating a form of financial slavery that hampers the development and sovereignty of nations.
The Global South is keen to reduce its dependence on traditional financial institutions dominated by developed countries and establish a more equitable and inclusive global financial system. China and the BRICS nations are working together to challenge this status quo and address developing countries’ financial disparities.
One of the most significant and tangible initiatives of BRICS to combat financial slavery is the establishment of the New Development Bank (NDB), formerly known as the BRICS Development Bank. Founded in 2014, the NDB has a subscribed capital of $50 billion and an initial authorised capital of $100 billion. The NDB aims to mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies. It has approved over 96 projects worth $33 billion in sectors like renewable energy, transportation, and water management. The NDB provides alternative financing options to reduce dependency on institutions like the World Bank and IMF, which are criticised for imposing stringent conditions and perpetuating economic inequalities.
China has been leading the BRICS nations in actively promoting the use of local currencies in international trade and financial transactions. According to data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the share of the US dollar in global payments has declined from 44.1% in 2015 to 38.4% in 2020, while the share of the Chinese yuan has increased from 2.0% to 4.5% during the same period (SWIFT, 2021). BRICS established the Contingent Reserve Arrangement (CRA) with $100 billion to provide emergency funds during balance of payments difficulties. The CRA has helped member countries cope with financial crises, including supporting them during the COVID-19 pandemic (BRICS, 2021).
Apart from leading the initiatives of BRICS, China’s Belt and Road Initiative (BRI), launched in 2013, is another significant effort to address financial slavery in the Global South. The BRI aims to create a vast network of infrastructure projects connecting Asia, Africa, and Europe, promoting economic integration and development. According to estimates based on transactional data, the value of China’s investment and construction projects in 147 BRI countries totalled around 67.8 billion U.S. dollars in 2022. By 2027, total global BRI spending is estimated to reach $1.3 trillion. Other economic forecasts predict more than 2,600 projects worldwide valued at $3.7 trillion. With investments in transportation, energy, and telecommunications infrastructure. The BRI has also facilitated trade and investment between China and the Global South, with China becoming the largest trading partner for many developing countries.
China has been a key player in establishing and running the Asian Infrastructure Investment Bank (AIIB) alongside the Belt and Road Initiative (BRI). Founded in 2016, the AIIB is a multilateral development bank aimed at supporting infrastructure development in Asia and beyond. As of December 2022, the AIIB had approved over 233 projects worth more than $45 billion. The AIIB provides alternative financing options, reducing developing countries’ reliance on institutions like the World Bank and the International Monetary Fund (IMF).
China has been a pivotal lender in Africa, extending loans exceeding US$170 billion to 49 African countries and regional institutions between 2000 and 2022. It is also one of the major financiers of infrastructure projects in sub-Saharan Africa, with a total investment of $155 billion over the past two decades (Nikki Asia, March 2023).
China, along with BRICS countries, has been involved in debt relief and restructuring initiatives to help alleviate the financial burdens of the Global South. China has participated in the G20 Debt Service Suspension Initiative (DSSI), which provides temporary debt relief to eligible low-income countries during the COVID-19 pandemic.
China has restructured or cancelled debts for several African countries. According to Johns Hopkins University’s China Africa Research Initiative (CARI), China wrote off at least $3.4 billion of debt between 2000 and 2019, almost all interest-free loans to African countries. As of 2022, China has forgiven 23 interest-free loans in 23 countries.
Furthermore, China has been a strong advocate for reforms in global financial governance. The country has called for greater representation and voting rights for developing countries in international financial institutions. The voting shares of BRICS nations in the IMF and the World Bank are significantly lower than their share of global GDP. For example, as of 2021, the combined voting share of BRICS nations in the IMF is approximately 14.7%, while their share of global GDP in nominal terms is around 26%. China’s own voting share in the IMF and the World Bank is significantly lower than its share in global GDP. Its share voting share in IMF is approximately 6.4%, while its share of global GDP is around 19%. By challenging the existing power structures and pushing for a more democratic and inclusive decision-making process, China aims to create a more balanced and equitable global financial system.
China’s efforts to empower the Global South and challenge financial inequality The BRI and AIIB have provided much-needed financing for critical infrastructure projects in developing countries, helping to stimulate economic growth and reduce poverty. Promoting the RMB and trade in local currencies have helped diversify the global financial system and reduce dependency on major currencies.
Despite the criticism of China’s initiatives, like the BRI, China and the BRICS countries are working together to challenge the Western bias and address financial challenges in the Global South through initiatives such as the New Development Bank, AIIB, and debt relief and restructuring, which have shown positive results. This collaboration offers a promising alternative to traditional approaches, providing the Global South with greater autonomy and opportunities for growth. China’s role in shaping a fairer financial future for the Global South will remain significant.