Why IMF’s disaster is good news for China

BEIJING, China — The shakeup in power at the International Monetary Fund in the wake of sexual assault charges against former director Dominique Strauss-Kahn is almost certain to mean more clout for China.

China’s voice has been growing at the global fund, but with a new leader on the horizon, it’s potentially about to become more powerful. Underscoring that developing countries have more sway with the IMF than in years past, French Finance Minister Christine Lagarde brought her campaign for the top IMF post to Beijing as part of her tour of developing nations this week.

She praised China’s economic rise, saying she supports giving China and other developing countries a stronger voice at the global body in accordance with their economic clout. Lagarde, considered the frontrunner to replace Strauss-Kahn, is now visiting several developing countries to drum up support for her bid.

Lagarde said she supported decisions to increase China’s voting rights at the IMF since reforms began in 2008, and she pledged to continue reforms that could give growing economies like China more of say at the fund.

“I’m convinced that the fund will continue to be legitimate if it represents accurately the strength and weight of economies around the world,” she said in a press briefing before leaving China.

Chinese analysts say Lagarde — if she wins the spot — should back up her pledge by promoting Chinese economist Zhu Min, now special economic advisor to the fund, as a deputy director. Lagarde indicated Zhu Min’s promotion was a definite possibility, though she said she wanted to focus on her own position first before making any decisions or announcements about deputies.

“I think it would be fully appropriate if he played a key role in the management of the fund,” she said.

It’s a message that China is hoping to hear, but Chinese leaders have not publicly backed Lagarde. Instead, China has focused on insisting that the IMF give developing economies a greater say in the fund, something China has been vocal about since the global economic meltdown in 2008.

Chinese economist Tang Min, now retired from a post with the Asian Development Bank, said in a separate interview that symbolism is hugely important in the top post at the IMF — even though, as a rules-based body, the director of the IMF must represent member countries, not their own self-interests.

“If China had a choice, we’d probably rather have Zhu Min become the president,” said Tang. “But it’s really impossible.”

In her press conference, Lagarde rebuffed a suggestion that she is Europe’s candidate.

“The IMF does not belong to anybody; it belongs to the 187 members of the fund,” she said. “The management of the fund does not belong to a particular nation or region, which is why the selection process should be indeed open, transparent and based entirely on the merits of the candidate.”

“Equally, you cannot be banished or punished because of your nationality,” she added.

Lagarde called her meetings in China with the central bank governor and other officials positive. Though China has not publicly backed Lagarde, state media has published some unofficial praise for her policies.

India, meanwhile, refused to publicly support Lagarde’s candidacy after she visited there this week.

Separately, across town, the IMF’s acting managing director, John Lipsky, spoke more critically of China. Lipsky’s said the fund’s new review of China’s economy showed that while it continues to be a bright spot, vast problems including an undervalued currency and tight financial sector controls remain.

Lipsky said China is now integral to the global economy and its transition away from a heavy dependence on manufacturing could be tricky.

China, he said, now “has the ability to transmit real sector shocks through the global economy but [also] to originate those shocks as well."