By Eadie Chen and Simon Rabinovitch Reuters
Wednesday, October 8, 2008
China, the world's biggest holder of currency reserves, may yet play an important part in calming a global financial storm from which it is largely sheltered.
Prime Minister Wen Jiabao, who has promised to "join hands" with other nations to tackle the deepest financial crisis since the Great Depression, says the biggest contribution China can make is to keep the world's fourth-largest economy humming.
To that end, China has cut interest rates twice in three weeks, including a move on Wednesday. Yet speculation is swirling that Beijing could also chip in with a vote of confidence by pledging to hold onto its vast dollar assets and even buy more to help fund the massive bailout of the U.S. financial system now under way.
"For the sake of long-term U.S.-China relations, for the sake of China presenting a better image, I think China should stand up and say that it supports the U.S. dollar and is buying Treasuries," said Tao Xie, an expert on U.S.-China relations at the Beijing Foreign Studies University.
On one level, doing so would be very much in China's self-interest. Perhaps two-thirds of its $1.81 trillion in foreign exchange reserves is in U.S. Treasury and other bonds, and there was much hand-wringing during the dollar's slide earlier this year at the hefty losses Beijing was incurring.
"The dollar assets are held hostage. Dumping them is in nobody's interest," said Ding Zhijie, a finance professor who advises the government.
On the other hand, there is a strong current of opinion in official circles that America has only itself to blame. A leading state newspaper said on Tuesday that China should not foot the bills for U.S. woes, while a commentary on Wednesday lashed Washington for a lax, short-sighted monetary policy.
And China's state-owned banks and its sovereign wealth fund, stung by losses on earlier investments, have conspicuously kept their hands in their pockets while Japanese financial firms have bought into Wall Street's fallen or ailing giants.
As a quid pro quo, researchers suggested, Beijing should press Washington to open U.S. markets wider to Chinese companies, take concrete steps to stabilize the dollar and help China wield more power in bodies like the International Monetary Fund.
The global crisis has so far had little impact on China. Far from depending on capital inflows, it is a huge exporter of savings; the financial system is awash with cash; capital controls shield it from volatile outflows; and its banks are underdeveloped and inward-looking.
Yet collateral damage through economic linkages are a growing concern. Exports are softening and recent surveys of purchasing managers have been weak.
Auto sales growth has slowed to single digits. Housing sales in major cities have almost ground to a halt as people expect prices to fall further. And four big steelmakers have agreed to cut output by 20 percent to prop up prices.
"I personally feel that the economic fundamentals are undergoing dramatic changes," said an official close to a team from the National Development and Reform Commission that visited five central provinces last month.
http://www.iht.com/articles/2008/10/08/business/col09.php
Wednesday, October 8, 2008
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