Financial Cold War

A groundbreaking exploration of US-China relations as seen through the lens of international finance Rising tensions between China and the United States have kept the financial markets on edge as a showdown between the world’s two largest economies seems inevitable. But what most people fail to recognise is the major impact that the financial markets themselves have had on the creation and acceleration of the conflict. In Financial Cold War: A View of Sino-US Relations from the Financial Markets, market structure and geopolitical finance expert James Fok explores the nuances of China-US relations from the perspective of the financial markets. The book helps readers understand how imbalances in the structure of global financial markets have singularly contributed to frictions between the two countries. In this book, readers will find: A comprehensive examination of the development of financial markets in both China and the US, as well as the current US dollar-based global financial system Insightful observations of the roles of technology, innovation, regulation, taxation, and politics in the markets, and on their resulting effect on US-Sino relations Thorough explorations of the role of Hong Kong as an intermediary for capital flows between China and the rest of the world Suggestions for how, balancing the many varying interests, policymakers might be able to devise effective strategies for de-escalating current Sino-US tensions Financial Cold War is a can’t-miss resource for anyone personally or professionally interested in the intersection of economics and international relations, financial markets, and the infrastructure underlying the international financial system.

Preface xi Acknowledgements xix Abbreviations xxiii Chapter 1 Introduction 1 Legacy of the GFC 5 Modern History of Sino-US Relations 6 The Financial Roots of Sino-US Conflict 11 The Financial Path Out of Conflict 15 Part One The Colour Of Money Turns Green 17 Chapter 2 How the US Dollar Took Over the World 19 An Ad Hoc Position 21 The Barbarous Relic 24 Two Competing Plans 30 A British Innovation 34 The Coupon Express 36 Plumbing the World’s Financial Markets 42 Niksonu Shokku 47 Volatility 51 ‘Risk Free’ Assets 57 Boom and Bust 62 Chapter 3 Whose Problem? 65 The Unipolar Moment 69 The Almighty Mr. Market 74 Emerging Markets Crises 84 The Weakest Link 98 The Music Stops 102 Anyone for Tea? 108 A Tipping Point? 113 Part Two Capitalism With Chinese Characteristics 123 Chapter 4 From First World to Third and Back Again 125 Maritime Power 131 The Milk of Paradise 135 Wars and Revolutions 147 A Leap into the Abyss 156 Herding Cats 161 Crackdown 172 Journeys to the South 177 A New Path 181 The Bird’s Nest 187 Chapter 5 Two Steps Forward, One Step Back 192 Going Public 197 The Protection Racket 206 The Price of Money 212 Still Building, But Will They Come? 221 Alien Attack 228 Who Will Look After Grandma? 237 Connecting China and the World 242 Can’t Buy Me Love 262 Part Three The Financial Cold War 271 Chapter 6 A New Cold War? 273 A Close Call 277 Fly Me to the Moon 279 Tax Me If You Can 284 A War of Words? 291 Geo-economic Warfare 294 Chapter 7 The Role of Markets in the 21st Century 307 Selective Efficiency 310 What Happens When Competition Dies 313 Wrong Incentives 318 Bubbles and Cycles 321 Funny Money 328 We’re All in the Same Boat 342 Chapter 8 Avoiding the Thucydides Trap 343 Admitting the Problems 345 A New Bretton Woods? 350 MAD for Markets 362 It All Starts with Leadership 365 Afterword 369 Cast of Characters 381 Bibliography 399 Notes 423 Index 453