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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (3516)	9/28/2004 6:46:17 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Asia Power -- China Joins Japan at G-7 Table: William Pesek Jr. William Pesek Jr. is a columnist for Bloomberg News. The opinions expressed are his own. Sept. 29 (Bloomberg) -- Upstaging the richest economies is no small feat, and something China is sure to do this weekend when it participates in its first Group of Seven meeting. Industrialized nations didn't invite Chinese officials to Washington out of altruism; it was out fear and perhaps even a tinge of envy. For all of China's problems, its economy is the hottest anywhere. Its rapid growth and air of ascendancy has Americans and Europeans feeling left out of the magic. Yet if G-7 officials think they are holding the cards, that China is going to bow to their demands, they should think again. So should investors expecting big news on the China front this weekend. The same could be said of Japan, which until a year ago was a consistent target of G-7 criticism. These days, the world's No. 2 economy is taking important, albeit belated, steps toward reforming its rigid economy. While Japan has a long way to go, this week's cabinet reshuffle by Prime Minister Junichiro Koizumi suggested reform efforts are being intensified. On China, the G-7 did the right thing inviting it to their powwow. It's an overdue validation of the fast-increasing clout of Asia's No. 2 economy, not to mention the region as a whole. Giving Beijing a seat at the table also is a chance for the economic elites to follow the machinations of the world's most exciting economy. And there's much they would like to know. Currency and Textiles China's currency policy is exhibit A. Politicians from Tokyo to Washington and from Berlin to Johannesburg worry that China's 8.3 peg to the U.S. dollar leaves the yuan markedly undervalued, giving the world's most populous nation an unfair trade advantage. The fear is that ever increasing numbers of jobs will flow to China. The G-7's inability to temper China's trade advantage means big trouble for Japan and euro-zone economies. Rigidity in labor markets in Europe and Japan means economies aren't flexible enough to take advantage of some of the benefits of trade. It means economic loss, rather than gain. As such, China can expect an earful on how it should behave in the global economy. Aside from exchange rates, China will get some grief about textiles; quotas will expire soon for a nation set to dominate the global market. The need to avoid overheating in the economy also is sure to come up early and often. That doesn't mean China is about to budge, no matter what G-7 officials say. ``If a stronger yuan were in the best interest of China, it would have let its currency appreciate, or formally revalued it, a long time ago,'' says Carl Weinberg, chief global economist at High Frequency Economics in Valhalla, New York. China's Leverage China's financial system is mess, and home to untold numbers of non-performing loans. Officials in Beijing know it's simply not ready to face the unpredictable views of currency traders who would decide the yuan's value. At the same time, China, population 1.3 billion, arguably faces the most daunting development challenge in modern history. ``Ultimately,'' Weinberg says, ``China will join the world community and the G-7, but we don't expect it to be cajoled into changing its game plan purely for the benefit of the world's colonial powers. G-7 governments will have to offer China good economic compensation for playing ball with them.'' China finds itself in the odd position of being an underdog, but one with lots of leverage. The promise of its booming market has governments including the U.S. wimping out on criticizing China's human rights abuses. China's allure has the Google Inc.'s of the world facing accusations of aiding the Communist Party in censoring the flow of information to its people. Japan's Bad Loans And so G-7 members should get used to disappointment where their demands on China are concerned. It may come as a surprise to a group used to compliance from the developing world, yet they have little choice but to play things differently with China. Japan, meanwhile, won't exactly be on the hot seat now that it's making progress getting the bad-loan crisis in its banking system under control. Still, G-7 officials will want assurances that Japan's long-awaited recovery isn't fizzling out. Asia's No. 1 economy may be able to counter any skepticism by playing up its newest reform effort: the postal system. It's hard to exaggerate the importance of putting distance between politicians and the world's biggest savings bank. The postal savings system's 3.16 trillion yen worth of assets have long been used as a shadowy piggy bank by politicians, funding pet projects and giving lawmakers fewer reasons to reform the economy. All About Asia Koizumi put his most trusted economic repairman, Heizo Takenaka, in charge of the effort, and also made new cabinet members pledge support for it. While Japan still needs to deregulate the economy, boost entrepreneurship and shore up its national pension system, privatizing the postal system is an important step in the right direction. It's clear this weekend's G-7 meeting will be all about Asia. What's not is that the world's economic elites will get much traction in their efforts to influence the region. To contact the writer of this column: William Pesek Jr. in Singapore through the Tokyo newsroom at (81) wpesek@bloomberg.net. To contact the editor responsible for this column: Bill Ahearn at bahearn@bloomberg.net. Last Updated: September 28, 2004 16:28 EDT quote.bloomberg.com