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The Beginning of the China-Led New Financial Order and Korea's Countermeasures

4 Pages Posted: 1 Feb 2017  

Ho Yeol Lim

Korea Institute for International Economic Policy

Hongwon Kim

Korea Institute for International Economic Policy

Date Written: February 1, 2017

Abstract

The emergence of China in the international financial order can be analyzed in three aspects: strengthening its position within the IMF system led by the West, establishing a new financial order through multilateral development banks (MDBs) like the AIIB and NDB, and the internationalization of the renminbi (RMB). For the China-led financial order to take root, China should continue to pursue further reforms and openness regarding free convertibility, capital accounts, and the exchange rate. China, however, is maintaining a cautious approach.

In conclusion, the China-led new financial order is still in its infancy. Taking all the three above mentioned aspects together, it will be difficult for China to dramatically change the current international financial order in the short term, when taking into consideration the Chinese financial goals and internal capability, the speed of progress in AIIB's projects, and the West's containment policy toward China.

Korea, however, will have to secure its own national interest by establishing mid- to long-term strategies and specific countermeasures against the new financial order. Above all, Korea needs to actively and accurately adopt a bandwagon policy, since China will carefully deal with domestic problems like insufficient financial capacity and the existing order centered on advanced countries. In the mid- to long-term it needs to concentrate on establishing a Korea-led development financial institution which will focus on development in North Korea.

Keywords: China, AIIB, Silk Road Fund, RMB Internationalization, Finance

Suggested Citation

Lim, Ho Yeol and Kim, Hongwon, The Beginning of the China-Led New Financial Order and Korea's Countermeasures (February 1, 2017). KIEP Research Paper World Economy Brief 17-03. Available at SSRN: https://ssrn.com/abstract=2909493 or http://dx.doi.org/10.2139/ssrn.2909493

Ho Yeol Lim (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Hongwon Kim

Korea Institute for International Economic Policy ( email )

Seoul 137-602

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