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| September 12, 2001 | atimes.com | ||
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Editorials
China to the rescue? "It's a very powerful policy and psychological point, because it feels like you've fallen off a cliff," said C Fred Bergsten, director of the Washington, DC, Institute for International Economics and a former head of the Asia-Pacific Economic Cooperation (Apec) eminent persons group, commenting on the fact that the US economy's growth rate has dropped from 5.7 percent during the spring of last year to just two-tenths of one percent in the same period this year and that unemployment has shot up by a full percentage point in 10 months, from 3.9 percent last October to 4.9 percent in August. That - fast - sinking feeling is shared by nine of the world's 10 largest economies and the synchronized global slowdown has politicians and business leaders of countries large and small scrambling for answers and a way out. It was no different at the Suzhou, China, Apec finance ministers' meeting last weekend, and the economy Asian Apec members were pinning their hopes on to toss them a lifeline was world number six [see table], China, still growing at a robust 7-7.5 percent. "[China] is one of the few economies that is growing strongly so I think that's very helpful," said Singapore's Minister of Finance Richard Hu. "China will try to continue to grow as strongly as possible to give confidence to China itself. Of course, then it helps the rest of the world." Others chimed in with similar comments, Japanese business leaders and Finance Minister Masajuro Shiokawa going so far as to call for a revaluation of the Chinese yuan. The business leaders complain that the undervalued yuan does not reflect the strength of Chinese companies, which have become increasingly competitive in global markets. Shiokawa said that China's economic development made an exchange rate adjustment inevitable. Last year Japan ran a record trade deficit of 2.8 trillion yen with China and calls for a yuan revaluation of 30 percent or more have been made by Japanese manufacturers hard pressed to compete against Chinese exports. They point out that China radically devalued its currency in 1990 and 1994 to help strengthen its balance of payments and that the value of the yuan [pegged at 8.28 to the US dollar] is now 50 percent lower against the yen than it was in 1990. And, of course, if even the Japanese are complaining about China's export strength - the 12-month moving average of export figures from China-plus-Hong Kong exceeded Japan's in March 2001 and the gap has kept growing ever since - South Korea and the Southeast Asian nations, more direct competitors with Chinese goods, have even more to worry about. But Chinese officials at the Apec meeting were quick to politely, but firmly reject the mooted exchange-rate help and further pointed out that in spite of the country's strong economy, it cannot make up for lost demand from the US, whose economic preformance is now at an eight-year low. "China is doing its own homework to maintain domestic demand, but I don't think you should expect China to play such a big role as the United States or even Japan," China's Vice Minister of Finance Jin Liqun said. "China is still a low income, developing country." Jin is right, of course, and Japanese exchange-rate complaints simply constitute the pathetic admission that vaunted domestic reforms are going nowhere and exports as usual are the only hope for staying out of even deeper recession than Japan is now experiencing. As for Korea and Southeast Asia, they, much like Japan, must focus their economic policy efforts on developing domestic demand rather than ringing the alarm bells on Chinese exports and China's draining away of foreign direct investment from their national economies. One way China can and is prepared to help the rest of Asia is through freer trade and investment regimes in the region. But beyond that, it should stay the course with regard to exchange rate and domestic and external sector policies. East Asia must find its own ways to meet the China challenge rather than complain about the China threat in lieu of instituting reforms to get its own house in order. ((c)2001 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)
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