The coming Beijing Summer Olympic Games
promise to be the most political event since the
first time non-Greeks participated in the ancient
form of the sports enclave. This is no
exaggeration, as the Games will mark the first big
step by China in the international arena as a
power in its own right, while also providing many
Westerners with their first glimpse of the ancient
civilization.
Looking at the tone of the
Western media towards the Games though, it is
clear that cudgels are being taken up and tools
are being sharpened for a propaganda battle aimed
at denting the political and cultural mileage that
would rightfully accrue to China from such a
spectacle.
Tibet is the latest cause
celebre, if it hadn't come along perhaps with the
active encouragement of the US Central
Intelligence
Agency - to the acute
embarrassment of India, which houses the exiled
Dalai Lama in good faith - then global media would
have been more than happy to pick up another
cause, ranging from Taiwan to any ragtag Falungong
practitioner that could be found wandering the
streets of California. Perhaps even Hollywood
moguls like Steven Spielberg would have been given
their anti-China scripts to write and produce,
much in the fashion of Dogs of War.
The constant stream of attacks on China in
the Western media has confused many Asians, and
this is understandable, given that the roots of
the current propaganda battle have more to do with
geo-economics than mere geopolitics. For people
like me who consider the one a continuation of the
other, the distinction is lost anyway. The key
question here is to understand why the Group of
Seven (G7) of leading economic powers is acting
against China, and what are the consequences for
the rest of the region.
Understanding G7
fears Regular readers of this column
will know that I consider the G7 somewhat
contemptuously, as my past article on the subject
(Dear dinosaurs, Asia Times Online, October 20,
2007) makes amply clear. The annual conclave -
finance officials of member countries huddle in
Washington this week - is nothing but an excuse
for a bunch of tomorrow's redundant powers to
confab and gather enough memorabilia with which to
entertain themselves in their dotage.
The
background to this bout of anxiety regarding China
in the Western world's media, not least in its
financial media, is of course the existential
crisis that confronts the major economic powers of
today - the US, which is staring at the demise of
its currency as the global reserve denomination
(Dead-dollar sketch, Asia Times Online, March 4, 2008)
and the various pockets of Europe that need to
come to terms with their own mortality more
urgently than any other group of people (see
Euro-trash, Asia Times Online, March 11,
2008).
While these two articles were
perhaps too brief to examine the full range of
issues confronting these economic zones in
question, the main points about a dysfunctional
financial system that needs constant care and
capital from the collective savings kitty was
pointed to. In turn, lacking the demographic
strength required to engineer enough financing for
these activities, both the US and Europe now feel
an acute need to continue gathering capital from
the rest of the world and in particular, the great
savers of Asia.
China is hardly the sole
target of the G7 nostalgia brigade. In my previous
article (A conspiracy against
gold, Asia Times
Online, April 3, 2008), I laid out the steps being
taken by global central banks against the
potential for gold to replace fiat currencies at
the center of the global financial system. Being
only able to buy or sell the precious metals at
prices set by markets, central banks have no power
to actually manipulate the underlying value of
gold.
Alternatives to the
dollar Thus, if they choose to sell
the commodity and drive its price down, it is
highly likely that bouts of inflation currently
being seen in the global economic system will
eventually force every right-thinking investor to
consider alternatives to the US dollar and the
euro. This is perhaps the biggest fear confronting
central bankers across G7, thereby necessitating
unprecedented steps aimed at restoring the
credibility of various fiat currencies by first
inflating asset values such as stock prices.
The biggest losers in this policy debate
are of course Asian countries, whose collective
savings are falling in value with every move in
the US dollar and its fiat currency cohorts,
thanks to the mountains of savings that are held
in those currencies. Asian central bankers being a
bunch of decidedly unimaginative folks, in effect
work for the US Federal Reserve and the European
Central Bank (ECB). But even they are not stupid
enough to imagine that Asian savers will be fooled
forever, therefore the idea is to buy as much time
as possible.
This state of an unsettled
equilibrium can go on long enough for the US Fed
and the ECB to demolish purchasing power and
effect a bankruptcy of Asian savings though
stealth.
What can Asian countries do?
I have long argued that Asians buying
US dollar and euro-denominated assets for their
reserves is the same idea as imperialism, wherein
workers accept IOUs on the companies they work
for, in place of hard cash. With a bulk of their
future purchasing power tied in enterprises that
must succeed for them to get paid, workers over
time forsake good working conditions and other
necessities to ensure that the indentures are
paid.
In other words, Asia provides the
debt financing required for the global equity
markets to function, which in turn account for a
substantial portion of the savings of many rich
countries including the US and Britain. Pull the
debt financing away and all equity values converge
to zero - but equity investors are clearly betting
that Asians will never get the smarts to do that.
Given this continued demolition of their
purchasing power and eventual penury for many
Asian countries, despite their high savings of
today, it becomes important for the region to
rally around China. This can be done in many ways,
but a few baby steps will go a long way in
reminding G7 where the world's true economic power
lies today.
1. Firstly, every one of
Asia's top leaders must pledge to attend the
opening ceremony of the Beijing Olympics, and must
do so in public immediately. This will serve
adequately as snubs to various European leaders
(such as French President Nicolas Sarkozy) who
have threatened to boycott the ceremony. 2.
Secondly, the region's central banks should
collaborate to dump billions of US Treasuries,
federal agency securities, European government
bonds and mortgage-related securities over the
next few weeks. This will push yields up sharply
across G7 and serve notice of a buyer's
strike. 3. Thirdly, Asian countries must demand
that G7 countries honor their own empty rhetoric
with respect to free markets by allowing
untrammeled access to Asian companies intending to
buy G7 banks and corporates. No more talk of evil
sovereign wealth funds, thank you - you owe
us money, so we will take whatever steps
required getting it back. 4. Lastly, the
region's currencies should adopt a soft peg to the
Chinese yuan, allowing the pace of appreciation
against the US dollar for the whole region to be
dictated by the country with the largest potential
losses in such a situation, namely China.
How
China can help? To be sure, there are
many prickly issues between China and its Asian
neighbors that the former can help to iron out
over the short term, in turn pushing key
democracies such as Japan, South Korea and India
into its own orbit and away from the US influence
that so pervades the region. A few helpful steps
would include:
1. Renounce violence
against Taiwan. Realistically, no Asian country
will allow Taiwan to become independent, and
without that there is no chance of any such
eventuality. Therefore, China need not bother
about the military option that it would never have
to use. 2. Dropping the strident rhetoric
against personalities such as the Dalai Lama, as
Mao Zedong-era language is an embarrassment for
today's China and only emboldens its opponents.
3. Withdraw support from embarrassing tin-pot
dictatorships such as North Korea, Myanmar and
Sudan. 4. Provide leadership on matters shown
above, engaging its Asian neighbors as fellow
industrialists rather than competitors. This
includes leading the region on adjusting currency
values as well as providing cooperation on other
economic matters.
In February, the G7
urged China to accelerate appreciation of its
effective exchange rate, while the major economies
also want it to further open up trade, cut
investment barriers and increase disclosure on
sovereign wealth funds. The US may also like China
to buy a lot more Fannie Mae/Freddie Mac (US
agencies) securities that would in turn support
the housing sector.
The most recent G7
meeting in October was a comedy, but this time the
rhetoric isn't going to be funny for Asia as
leaders gather to push for more aggressive action
that would save their economies while bankrupting
Asian purchasing power. This cannot be allowed to
happen. Therefore, Asian leaders must see through
the current smokescreens around China to
understand that they are themselves the primary
targets of all such actions. It is time to flex
some Asian muscle.
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