This is from this week's AsiaWeek:
JUST STAY STABLE, PLEASE
Asia wants a steady and responsible China
By Alejandro Reyes / Hong Kong
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IT WAS STANDING ROOM ONLY in the wood-paneled lecture hall. Onstage: a smiling Chinese Vice-Premier Li Lanqing, speaking to senior executives from around the world, many of them investors in the mainland. In his short presentation, Li gave them what they wanted to hear. The renminbi, he promised, would not be devalued in the next 12 months. Wild applause. China was undoubtedly the star at the recent World Economic Forum in the Swiss ski resort of Davos. Its neighbors are increasingly regarding it in the same favorable light.
Asia desperately needs Beijing to hold the line. "The most pressing threat is that China may have to devalue within this year," President Fidel Ramos recently warned Filipinos. That would put the rest of the region through the wringer of another round of falling currencies. Hong Kong would likely have to jack up already high interest rates even higher to protect its dollar's peg to the greenback. Few now doubt the resolve of Chinese leaders. "They are pretty adamant that in the interests not only of Hong Kong and China but [also] of all of Asia, the renminbi should maintain the present level," says Donald Tsang Yam-kuen, Hong Kong's financial secretary.
What else can the mainland do? "China is not Japan," says an ASEAN diplomat in Singapore. "We're all looking to Tokyo. The best thing for us would be for China to stay stable." Not easy. With the mainland navigating a minefield of state-enterprise reform, rising unemployment and a major banking overhaul, anything can go wrong. "It is going to be very tricky but there is a good chance that China will go through the process well," says Edward Tse Cho-che, vice president at Booz-Allen & Hamilton in Hong Kong, who oversees the multinational consulting firm's China practice. "But if it runs into problems, gets pressured, and has to do a number of things including devalue the renminbi, then the rest of Asia will really be sucked into the whole swirl."
The region would also welcome financial help, though the $1 billion China contributed to the International Monetary Fund-led rescue package for Thailand is probably the most Beijing can afford. It needs fresh capital itself to recapitalize state-owned banks. Chinese restraint in flooding world markets with cheap goods such as toys and garments would also be helpful, along with market-opening moves for Asian products and investments. On a recent trip to China to inspect a troubled Singapore township project in Suzhou, near Shanghai, Singapore Senior Minister Lee Kuan Yew complained about the difficulties the Lion City's flagship investment had encountered, especially infighting between the central government and Suzhou authorities.
"One of the ways to create jobs is to continue attracting foreign investment," says Tse. "If China wants to maintain economic stability, then it will have to do that." Another neighborly step is the move to reflate the economy through a domestic stimulus package that stresses infrastructure spending. "The decision was made based on what has happened in Southeast Asia, particularly the possible slowdown of China's exports for next year because everybody is more competitive and is cutting imports from China," says Fan Gang, director of the National Economic Research Institute in Beijing. By focusing on internal growth, the Chinese are signalling their resolve not to out-export the neighbors.
What Asia does not want to see is China throwing its weight around on security and other issues. Beijing's hard line on territorial disputes, particularly over the Spratly islands, had strained relations with the Philippines and other claimants. China's aggressive posture toward Taiwan had also caused jitters. Because of a lack of determined leadership from Japan on the Asian economic crisis, China may get ahead of itself. "While Japan has failed to rise to the occasion, its rival for regional leadership has been making all the right moves," says Robert Lees, secretary-general of the Pacific Basin Economic Council. "Beijing has accepted the realities and responsibilities of being a full player in the global economy."
The truth is that China, the economic behemoth, remains an enigma. Some find the idea of a rational Beijing that plays by the rules difficult to swallow. Still, the Asian economic crisis may mark China's acceptance that it belongs to the regional and global economic grid. "For a nation steeped in 5,000 years of inward-looking tradition, China did not take the outward-looking decision on its currency lightly," says Stephen Roach, chief economist for Morgan Stanley in New York. He believes Beijing has an understanding with the G7 group. In exchange for hanging tough on the yuan, "the world's major industrial countries would move forcefully to restore confidence in the crisis economies of Asia." Others say Chinese membership in the World Trade Organization may be part of the deal. By helping Asia, China is also helping itself. |
