Volatility in the US banking system is an opportunity for China, Yale’s Stephen Roach said. In an op-ed for Project Syndicate, he pointed to weaknesses that were exposed from SVB’s collapse. “A rising China is taking dead aim at crisis-prone America,” Roach said. Loading Something is loading.
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The latest bank crisis is opening doors for China to raise its standing in the world, according to Yale economist Stephen Roach.
He pointed to recent turmoil rocking the US banking sector, starting with the failure of Silicon Valley Bank in early March, which raised fears about other regional banks.
“For the past 20 years, a group within the senior ranks of the Chinese leadership has argued that America is in a state of permanent decline, providing an opening for China’s global ascendancy. This view gained support in the aftermath of the US-made global financial crisis, and most assuredly will gain even more support as the SVB crisis hits a new segment of the US financial system,” Roach said in an op-ed for Project Syndicate on Friday. “A rising China could hardly ask for more.”
Though some experts say SVB’s collapse was due to the bank’s unique problems rather than a systemic issue, Roach believes the crisis is emblematic of deeper problems in the financial system.
The bank began its rapid descent after posting a lost on the sale of a bond portfolio. The Fed’s aggressive rate hikes over the last year weighed heavily on bond prices, and the losses caused a rapid pullback in deposits that led SVB to its demise.
Roach called the failure of SVB a sign that the US was “woefully unprepared” to deal with rising inflation and tighter monetary policy, adding that the Federal Reserve “blew it again” with their tightening cycle.
And while the Fed’s bank stress tests are intended to improve risk-management strategies at large banks in event of a recession, the Fed has overlooked small regional banks in its supervision.
“That’s precisely the point of the increasingly worrisome interplay between another US-made financial shock and a sharply escalating Sino-American cold war. A rising China is taking dead aim at crisis-prone America,” Roach warned.
Other economists have also warned of the rising economic power of China. “Dr. Doom” economist Nouriel Roubini said the Chinese yuan could soon end dollar dominance.