China warns against protectionism
By Antoaneta Bezlova
BEIJING - China is worried that the lingering financial crisis could unleash a
spiral of protectionist policies across the globe, which could further dent its
Rising protectionism, China fears, might facilitate global acceptance of the
"savings glut" theory, which assigns blame to China and other emerging
economies for the origins of the crisis.
Arriving in London after his appearance at the World Economic Forum in Davos,
Chinese Premier Wen Jiabao issued a warning against the rise of protectionist
sentiment across the world, saying it could undermine global efforts to deal
with the economic downturn.
Wen's meeting with British Prime Minister Gordon Brown this
week precedes a Group of 20 economic summit to be hosted by Brown which will
bring together the leaders of the world's largest economies.
China's Ministry of Commerce officials attending the Davos forum earlier spoke
about the danger of "fanning protectionist sentiments" in the United States and
elsewhere with "unhelpful" statements about China's currency policies and its
The rise in Chinese rhetoric came as the country celebrated the lunar new year
- traditionally its longest and most important festival. As domestic activities
ground to a halt, Chinese officials were dealing with the implications of
accusations by the President Barack Obama administration that China manipulates
Earlier, the nominee for Treasury secretary, Timothy Geithner, told US
lawmakers that Obama "backed by the conclusions of a broad range of economists
believes that China is manipulating its currency".
The remarks by Geithner, who was later confirmed, represent a shift from
president George W Bush's team, which avoided using the term "manipulation" in
criticizing China's exchange-rate management.
While Beijing has rejected the claims outright, the pronouncements - so early
in the days of the new US administration - have reignited fears in Beijing that
Obama will take a tougher line on China's trade policies.
As presidential candidate, Obama signed on as a co-sponsor of legislation aimed
at China that would give US companies the ability to petition for import duties
to compensate for the effect of a weak currency.
State-sanctioned Chinese media have begun running articles and commentaries
warning about the risks that such protectionist attitudes present for China and
its export-driven economy.
Experts are worried that a defensive approach to China's US trade might
facilitate the acceptance of what they say is a "wrong concept about the
origins of the crisis" as a consensus among American political circles.
The global "savings glut" theory holds that the US allowed its trade deficit
with China to balloon, while borrowing money from China cheaply and fueling a
consumption binge that led to the housing bubble and the credit crunch.
Ben Bernanke, chairman of the US Federal Reserve and former Treasury secretary
Hank Paulson have both alleged that super-abundant savings from fast-growing
emerging economies like China and the oil-exporting countries laid the seeds of
a global credit bubble.
Zhang Jianhua, head of China's central bank research bureau, has called the
"savings glut" theory "gangster logic".
"But if we allow this gangster logic to become mainstream thinking, China will
be made a scapegoat in the crisis and will have to pay the price," said a
commentary in the China Business Journal. "It will not only hurt China's
ambitions to use its currency exchange reserves for assets purchases abroad but
also its plans to make the Chinese currency a bigger player in international
Yang Min, from the China Development Research Foundation, said China should
stay alert against rising protectionism if the "savings glut" theory gains
broader acceptance. He warned against laying blame for the crisis on China as a
means of pushing Chinese leaders to strengthen the yuan and reduce the
country's trade surplus.
"This sparring is no longer an academic argument, but a trial of strength for
China," he told the China Business Journal.
The yuan has long been a bone of contention between Beijing and Washington. US
officials insist that China should let the yuan appreciate, which could make
Chinese exports more expensive and help lessen its ballooning trade surplus
with the US.
Chinese authorities did let the yuan rise at an increasing pace from the middle
of 2005 until last year when the global crisis worsened and signs emerged that
Chinese exports were suffering more than expected from the plunge in global
demand. Since then they have introduced new measures to boost exports, and even
allowed the yuan to move downward in December.
The Bush administration avoided labeling China a currency manipulator,
initiating instead a new mechanism of engagement called the Strategic Economic
Dialogue, which it believed would be more successful at protecting US
A number of Chinese articles have appeared recently that while ostensibly
appraising the Bush administration's China legacy have warned the new White
House team not to discard the stable state of bilateral relations by following
a "whatever-not-Bush" policy.
"Irrespective of what he leaves for Obama - an economic downturn, two wars and
bitter international ties - Bush's best gift will be improved Sino-US
relations," said an opinion in the China Daily earlier this month.
The consensus so far appears to be that initial frictions between the two sides
will soon give way to a more pragmatic approach and sounder policy choices by
"China is the biggest holder of US debt and Washington must realize that it
cannot cope with the crisis without China's cooperation and help," says Zhou
Shijian, expert on China-US relations at Beijing Tsinghua University. "Helping
the US economy recover benefits both sides."