Marcus Gee, of Canada’s The Globe and Mail, has written an insightful article on China’s attitude shift as the G20 summit in London approaches. China has taken excruciating care not to alarm the rest of the world of its growing might, but in light of the upcoming political convergence, has begun to assert itself on the world stage. 

“Never before has China had such influence,” said University of Alberta scholar Wenran Jiang. ” When we see hints that China might get out of the US dollar, world stock markets react.”

The economic crisis has thrown doubts on the free-market model of capitalism championed by the United States, making China’s state-guided model look better by comparison.

It should be noted that China has recently surpassed Japan to become the largest holder of US Treasury bonds, securities issued by Washington to help pay for rising debts. Beijing understandably now worries that the value of these holdings will erode as the US attempts to spend its way out of recession, potentially fueling inflation and causing the US dollar to decline. 

The Chinese response further exemplifies their shift in attitude, from low-key to high profile. ”It is a pity the U.S. is still trying to borrow its way out of a crisis that occurred basically because it has borrowed too much,” read a China Daily commentary. Chinese Premier “Uncle” Wen Jiabao, stated that he was “a little bit worried” that a discounted dollar would wipe out a great deal of hard-earned Chinese wealth. He said he hoped the United States would remain “a credible nation, ” an equally sharp barb when aimed at a former sole superpower.

Zhou Xiaochuan, head of the People’s Bank of China, went further when he made a bold proposal to replace the dollar as the world’s reserve currency, substituting a synthetic currency created by the International Monetary Fund called the SDR (Special Drawing Rights).

Most analysts say the idea has no standing, given the complexity of replacing the dollar. However, investment banker Kenneth Courtis, former vice-chairman of Goldman Sachs Asia, said the fact that China felt confident enough to make it is a sign of how power is shifting from one side of the Pacific to the other.

“Through a period of transition, which will take some years, a new equilibrium will emerge which will reflect a different balance of power which is less politically, economically, and ideologically American centric,” he said in an e-mail.

Stay tuned for an upcoming article from both David Harris and myself on how North American mining corporations and other companies in the western world can compete with a rising China in emerging market investment.