China Takes Another Step in Its Effort to Dethrone Western Hegemony

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Despite China’s ongoing and severe economic problems, Chinese leader Xi Jinping continues to press his country and its yuan forward as a global alternative to the United States and its dollar.

Aiming at the International Monetary Fund (IMF) and the World Bank—two clear agents of American dominance—Xi has put forward a number of alternative lending and grant-giving international arrangements, including the Asian Infrastructure Development Bank, China’s own Belt and Road Initiative (BRI), and the BRICS New Development Bank (NDB)—this done in tandem with the other BRICS nations, Brazil, Russia, India, and South Africa.

Most recently, Xi has advanced this agenda through what Beijing refers to as the Shanghai Cooperation Organization (SCO). Each effort has its challenges, and even if these can be overcome, Xi would still have a long way to go to achieve his ambitions for China in this regard.

Though Xi’s initiative is new, the SCO has been around for quite a while. It was founded in 2001, mostly as a security-focused grouping. It has 10 members: China, Russia, India, Pakistan, Iran, Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan, and Belarus. Over time, it has acquired more than 12 so-called dialogue partners, including Saudi Arabia and Turkey.

At the 25th summit of the group, held in Tianjin late this past summer, Xi advanced a new, more economic and financial agenda for the group. He sought a grant-making and lending facility for members and associates, pledging some 2 billion yuan ($280 million) in grants over the next three years and 10 billion yuan ($1.4 billion) in loans. According to Chinese Foreign Minister Wang Yi, the aim is to boost infrastructure development among SCO members. Xi took pains to tell those assembled at the summit of his desire to see these arrangements working “as soon as possible.”

But in practice, it is clear that the SCO, like other such arrangements promoted by Beijing, will serve Xi’s desire to extend and consolidate China-led financial networks, expand Beijing’s international reach, and enlarge the area of the globe’s commerce and finance centered on the yuan rather than the dollar.

This SCO venture, like the other Beijing-sponsored arrangements, faces several significant challenges. At the simplest level, the amounts involved hardly come near the scope of the World Bank and the IMF, not to mention direct dollar aid and lending advanced by Western governments. Consider that the World Bank alone anticipates some $120 billion in loans for 2025, far more than Beijing’s commitment to the SCO venture.

What is more, the region’s infrastructure needs far exceed the billions of yuan Xi committed at the summit. Some will lose out on funding, doubtless feel frustrated and passed over, and may turn to the World Bank. Dissension might also arise among participants in the SCO arrangement and in other Beijing-sponsored arrangements like it. They are hardly a uniform lot. India, for instance, has few if any shared interests with Pakistan, except perhaps the desire to injure each other.

Most fundamentally, there is an implicit contradiction in what Xi has proposed. To manage grants and loans, the SCO will need to build its own institutional infrastructure. In particular, it will need to arrange a way to manage risk. Otherwise, these new arrangements will face the same problems that have arisen in parts of China’s BRI, where funds have flowed into less-than-promising ventures that subsequently failed. But risk controls will require the lending facility to impose conditions and limits on its lending, thereby contradicting Xi’s promise at the summit to free members from conditions imposed by the IMF and the World Bank.

Even if Beijing can overcome these challenges—in the SCO venture and others like it—Xi’s project has a long way to go to dethrone the dollar from its present dominant position in international exchange and finance, much less to offer the world a complete counterbalance to Western-based arrangements. The well-established BRI’s annual outlays barely come up to the scope of lending at the World Bank alone, much less all other Western efforts at the IMF, for instance, and by separate governments.

Still, this latest, relatively small effort at the SCO shows that Xi and Beijing retain their vast ambition despite the country’s economic and financial troubles, and that is worth Washington’s and other Western powers’ attention.