ECONOMY: Despite Its Clout, China Feels Vulnerable to Shocks

• by Antoaneta Bezlova (beijing)
• Friday, April 03, 2009
• Inter Press Service

A day before leaders of rich and emerging economies got together on Apr. 2 to chart the trajectory for global economic recovery, a prominent mainland economist declared on the front page of English-language newspaper ‘China Daily’ that China 'should not be burdened too much' with bailing out other countries because it remains more vulnerable to the crisis than many people believe.

'It is not as strong an economy as some people think,' said Tang Min, a senior economist with the China Development Research Foundation under the State Council, or China's Cabinet. 'China is also a victim of the crisis. Of the 50 million people who have lost their jobs around the world, 20 million are in China, more than any other country.'

Ma Guangyuan, a research fellow with the Chinese Academy of Social Sciences suggested that in the view of the depth of the current crisis, China 'should hide its capacities and bide its time'.

'Now it is not a good time to realise our superpower dream,' Ma said. 'The butterfly effect of the crisis means that not a single country would be spared the financial storm. It is preposterous to think that the Chinese yuan would become a global currency overnight and that China would lead a radical change in international values.'

In the run-up to the London G20 meeting, China had shown more assertiveness than ever before in influencing global decision-making. Chinese officials have demanded a bigger role in the International Monetary Fund (IMF) and other global bodies, rebuked the U.S. leadership’s handling of the financial crisis while praising Beijing’s own response.

'Facts speak volumes, and demonstrate that compared with other major economies, the Chinese government has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,' Central Bank Governor Zhou Xiaochuan said in remarks posted on the website of the People’s Bank of China ahead of the summit.

The statement appeared just a few days after Zhou published an essay calling for a new global currency managed by the IMF to replace the U.S. dollar for use in trade and in storing reserves.

At the G20 summit, China lived up to expectations that it will act in accordance with its increased confidence.

British Prime Minister Gordon Brown, who hosted the summit, said China agreed to contribute 40 billion dollars toward the bolstered war chest of the IMF, while the European Union and Japan would each chip in 100 billion dollars. World leaders agreed to boost funds for the IMF and other global institutions by 1.1 trillion dollars.

At home however, state-sanctioned media downplayed China’s contribution to the Fund, preferring to focus on what is perceived here as Beijing’s success in pushing forward the reform of the IMF to reflect better the interests of developing countries.

'It is a historic summit because it signals the arrival of a new multi-polar era,' Gao Haihong, a researcher with the Institute of World Economics and Politics under the Chinese Academy for Social Sciences, told ‘Beijing News’. 'Developing countries are getting more recognition and their voices are receiving more attention.'

The issue of how much, if any, China should inject into the IMF has been a sensitive one for domestic audiences fed a menu of mixed news about the country’s strength and vulnerability. Local media have been increasingly straightforward in reporting the effects of the crisis on China, where many manufacturing industries have collapsed due to the slump in external demand. Millions of jobs have been lost and social unrest has spiked all over the country.

Tang Min insisted that China’s biggest contribution to a global recovery would be keeping the Chinese economy growing and following through on its stimulus package. 'Bailing out China is our most important contribution to the world,' he told ‘China Daily’.

But in contradiction to this, Beijing has at the same time worked hard to drive home a message about the country’s 'superior system', one that has managed to withstand the crisis better than developed economies.

For instance, some financial commentators have admonished U.S. treasury officials to take a cue from Beijing’s reform of its banking system. Burdened with a mountain of non-performing loans a few years ago, Chinese banks now rank among the world’s top global banks in terms of market capitalisation.

'China’s banks of today are America’s banks of tomorrow,' said an editorial in the ‘China Times’ this week, pointing out that Washington is following Beijing’s path in setting up an asset commission to absorb 'toxic assets'.

It remains to be seen if Washington would implement the full recipe for financial health prescribed by Chinese economists. Chinese banks are state-owned and follow fiscal directives from Beijing rather than their own boards.

In another sign of growing confidence, China has publicised plans to transform its financial hub Shanghai into a first-rate international monetary centre by 2020. The announcement is part of Beijing’s blueprint to expand the reach of its tightly controlled currency, eyeing the possibilitythat the renminbi may one day replace the U.S. dollar as an international currency for trade settlements.

This week, Beijing signed a currency swap with Argentina, agreeing to exchange 70 billion yuan (10 billion dollars) for use in trade and investment. The agreement between the two countries effectively eliminates the need for their companies to buy dollars to pay for transactions.

In recent months, China has signed similar agreements with Belarus, Indonesia, Malaysia and South Korea.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

Where next?

Advertisement