Article June 22, 2022

Nixon in China: Back to Bretton Woods


By Federico Pachetti, Corvinus Institute of Advanced Studies


Often heralded as marking the start of a significant shift in the People’s Republic of China’s (PRC) relationship with the world, Richard Nixon’s journey to that country in February 1972 came in the midst of an on-going effort and vision: China’s (long-held) desire to be a part of the global economy. While the 50th anniversary of that visit is important in terms of Sino-American relations, it also represents the beginning of the less-discussed history of China’s engagement with multilateral economic institutions, particularly, with the International Monetary Fund (IMF) and the World Bank—the Bretton Woods institutions. What consequences did the Nixon trip produce in that regard? Was it as decisive as it was for Sino-American relations?

Not surprisingly, the Nixon trip—the secrecy surrounding its preparation, the media coverage it attracted, and the geo-strategic consequences it yielded—has captured tremendous attention from historians over the past five decades. Yet, this first step in US-PRC rapprochement has obscured the equally important tale of Beijing’s initial engagement with the World Bank and the IMF. Fully understanding China’s engagement with the global economy and, more broadly, with the non-socialist international system, requires moving beyond that brief moment in February, 1972. We must locate it within the larger trends that were in motion in the post-WWII world and, more broadly, during 20th century history.

Even prior to the establishment of the PRC, China’s desire to be part of the global economic system had been a recurring feature in the history of 20th century global economic governance. That modern China wanted to matter and actively be engaged in the international system was not surprising. Likewise, that Beijing desired to use multilateral institutions to channel capital for the improvement of its people’s standard of living was also not new. The founder of modern China, Sun Yat-Sen, made this clear in 1918. In July 1944, at the time of the Bretton Woods Conference, the Nationalist government was in the midst of its war of resistance against Japan, fought with the help of the Communists too. Far from being a disinterested party, the Chinese delegation at Bretton Woods was second in size only to that of the United States and Chinese officials played an active role in the creation of the IMF and of the World Bank. China’s representatives fully supported the need for global organizations that would have a role in controlling monetary policy and the flow of capital, provide assistance to developing countries, and move to address the pre-war hierarchies among states. Shortly after the Pacific War ended, China found itself in a bloody civil war pitting the Nationalist government of Chiang Kai-shek against Mao Zedong and the Chinese Communists Party (CCP). Given its own domestic situation, the Chinese grew particularly interested in obtaining help to stabilize currency exchanges in the face of rampant inflation and the economic disasters the war had generated. Such efforts reflect the Chinese quest to modernize their economy and a desire to play an important role in the creation of postwar norms and institutions. As long as the inclusive spirit of Bretton Woods system flourished, this all seemed doable.

While the establishment of the PRC in 1949 impacted China’s approach, it would be inaccurate to argue that the new government was uninterested or unwilling to cooperate, on an equal footing, with Western liberal institutions created at Bretton Woods. Indeed, in 1944, the CCP had not opposed economic collaboration with the United States and the newly established IMF and World Bank. Yet, Mao’s proclamation that the nation would “lean to [the] side of socialism” and the outbreak of the Cold War made it clear that reconciling differences would be challenging. Hence, it was decided that Chiang’s government would retain China’s seats in the IMF and the World Bank. By the early 1950s, any chance of collaboration was gone.

Yet, as China’s domestic and international circumstances changed over the years, Beijing initiated efforts, including the American president’s visit, that were intended to recreate, under different historical circumstances, the spirit of Bretton Woods. Thus, 1972 was neither the first step in the journey nor a spontaneous moment. In the interim, however, there appeared to be little likelihood that Beijing would be admitted to the IMF and World Bank. Non-aligned countries occasionally had pressured the US to expel Taiwan from these organizations, with no success.

However, a changing international environment, along with shifting interests in Washington and Beijing, generated new possibilities. A crucial turning point came in late 1971, when the PRC was seated in the United Nations. This move opened the door for a renewed effort by the PRC and its supporters to obtain Beijing’s membership in the two global economic institutions. A 1973 World Bank document later commented on the moment saying “the UN resolution had recognized the People’s Republic’s rights on the international scene and, although the international financial institutions were not directly linked to the UN, they were still members of the UN family and should set in accordance with generally recognized international principles.”

Though the United States and Japan were among the few countries still committed retaining Taipei’s seat, by February 1972, the pool of nations prone to expel Taiwan from the IMF and the World Bank was significant. Primary sources reveal that a number of countries adopted a wait-and-see position but were nonetheless more than ready to challenge the ROC’s membership whenever an opportunity arose. As revealed in the personal papers of World Bank President Robert McNamara, in April 1972, Claude Isbister, one of the World Bank’s executive directors, noted that the “IBRD’s [International Bank for Reconstruction and Development] relationship with Taiwan is a domino situation and highly unstable, precisely because so many countries are in positions similar to Canada, namely, not prepared to raise the question but whenever it is raised they will vote for Peking.”

With this in mind, while there is room to argue that ‘The Week that Changed the World’ laid the necessary political foundations required for PRC’s full membership in the IMF and the World Bank, it is important to acknowledge that process was already in motion. That said, it is difficult to imagine that Beijing could have completed its effort to (re) engage with the Bretton Woods institutions without a normalized relationship with the United States, something not realized until the end of the decade.

Certainly, when Nixon visited China in 1972, Beijing had not made explicit its wish to become a member of the Bank or the Fund. Doing so would have meant fulfilling financial obligations such as divulging its reserves in order to make the renmbibi convertible into other currencies as well as providing gold to the IMF. Additionally, as Eric Helleiner and Bessma

Momani note, “If the PRC applied for a new membership, its quota might be as large as the fifth biggest at the Fund, outranking Japan. Moreover, if the Fund accepted the legitimacy of the PRC, then Taiwan could not continue with its present quota which was calculated based on mainland assumptions.” In fact, while Beijing wanted to expel Taiwan from the IMF and the Bank because it believed that the island was not entitled to represent China, it did not want to assume any financial obligations and therefore treated the two issues separately.

Regarding World Bank membership, McNamara was worried that Taiwan might, if expelled, default on its financial obligations to the institution. As Pieter Bottelier writes: “The ROC had borrowed substantial amounts of money from the WB for infrastructure and other development projects. A default by Taiwan would have jeopardized the Bank’s critically important triple-A bond rating, which kept (and keeps) the cost of WB loans relatively low for developing member countries. Already in the Fall of 1971, after Henry Kissinger’s secret visit to China, when a change in the relationship between the PRC and the US (and the West in general) was ‘in the air,’ McNamara, anticipating such a change, took measures to protect the WB’s bond rating.”

China’s first official request for membership in the two organizations came in September 1973.  The PRC’s ministry of Foreign Affairs, Chi Peng Fei, wrote to the IMF and the World Bank officially requesting that they expel Taipei since the PRC was “one of the founding members of the International Bank for Reconstruction and Development” and that “for more than twenty years China’s seat in the International Bank for Reconstruction and Development had been illegally usurped by the Chiang Kai Shek clique.” The letter emphasized that “this wrong state of affairs must be put right.” Interestingly, the PRC note claimed credit for something its enemy had done twenty-nine years earlier even while signaling a desire for continuity with the past adherence to the Bretton Woods norms, which Taiwan had negotiated.

Despite the opening created by the UN vote and the Nixon trip, it was not until the late 1970s that the PRC decided to seriously move forward on membership in the World Bank and the IMF. Ultimately, it took the passing of Mao and the emergence of Deng Xiaoping as the undisputed leader of China to launch the reform and opening up process and anchor China’s economic development to Western capital and technology. The PRC would join the IMF and the World Bank in spring 1980. By then, China’s return to the Bretton Woods institutions was complete. Regardless of the government in charge, China’s desire to be part of global economic system had been consistent if not always present. Fifty years after Nixon travelled to Beijing, this position has not faded.

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