China’s state owned media announcement on Monday that the communist power will inject US$43 billion to recapitalise the International Monetary Fund.
This decision cemented China’s image as a responsible country and conformed to national interests, experts said.
“The announcement came against the backdrop of global economic uncertainties and mounting financial market turmoil.
“It aims to narrow the IMF’s funding gap and let it play a better role in safeguarding global economic and financial stability,” said He Fan, assistant director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences.
China’s contribution was part of a pledge made by G20 finance ministers in April to increase the financial firepower of the IMF by over US$430 billion in order to shield the world economy from the European financial crisis.
Analysts said China’s decision to boost resources for the IMF offers China a good way to use its rich foreign exchange reserves.
“China’s capital commitment is not free aid. It is actually an investment and a useful foreign reserve management tool,” the People’s Bank of China (PBOC), the country’s central bank, said on Tuesday in a statement on its website.
The nation’s foreign exchange reserves stood at US$3,04 trillion by the end of March, the largest in the world.
“It’s the IMF borrowing from China on the basis of guaranteeing safe and reasonable returns,” the statement said.
Ding Zhijie, an economics professor at the University of International Business and Economics, said such pledges can be regarded as a preventative measure or a credit line for the IMF, and the fund may only use a small amount of the pledged money.
For instance, “China promised to buy up to US$50 billion of IMF bills when the fund expanded in 2009, but has so far only purchased US$5,7 billion worth,” Ding said.
As a global intergovernmental organisation, the IMF takes necessary measures to ensure the capital safety of its member countries.
“China’s holdings of IMF bills are safe and with normal interest payments so far,” according to the PBOC statement.
“China’s capital increase to the IMF is line with China’s interests and China’s international status and international responsibility,” the statement said.
Experts and the PBOC called on the IMF to implement its 2010 quota and governance reform package and increase developing countries’ voting power in the financial organisation.
In 2010, the IMF’s Board of Governors agreed to shift over 6 percent of the IMF quota to emerging or under-represented countries by October this year.
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