Beijing restrains buying urge
By Antoaneta Bezlova
BEIJING - The Wall Street fire-sale has prompted economic pundits in China and
elsewhere to call on Beijing to snap up stakes in United States financial
institutions and further China's influence on global financial power.
From Mexico to South Africa, investors and strategists are calling on China's
leaders to use the opportunity of the spreading financial crisis to help
determine the new set of financial rules that will emerge from it.
"China cannot easily afford to pass up such an opportunity," says Chen Jie,
professor of economics at Shanghai Fudan University. "We have been anxiously
trying to find investment opportunities for our financial capital but before
the crisis there existed a myriad
of visible and invisible barriers for Chinese investment overseas, particularly
in the United States."
China should lead rescue efforts for the US financial crisis, Mexican tycoon
Carlos Sim, one of the world�s richest men, told the press last week.
"China is now the most important country to help responsibly in this crisis,"
he said. "In the past, developed countries had reserves and financed developing
countries, while today developed countries, especially the United States, are
being financed with resources from developing countries".
But China's response to expectations at home and abroad has been unassuming.
Although fortified with great liquidity and large reserves, Chinese banks and
government investors have preferred to sit on their hands rather than go on a
shopping spree of tumbling Wall Street firms.
Chinese politicians have expressed support for the US bailout plan to save
banks and arrest the financial turmoil but stopped short of pledging to do more
than keep their own financial house in order.
Premier Wen Jiabao summed up China's cautious position: maintaining "steady and
fast growth" is the "biggest contribution" China can make to help the world
overcome the current financial crisis stemming from the United States, he said
during an inspection tour of Chinese provinces this week.
Chinese bank officials have dismissed as groundless reports that China plans to
buy up to US$200 billion worth of US Treasuries to help Washington combat the
deepening financial crisis. In a statement published on the central bank's
website this week, governor Zhou Xiaochuan said the bank views a "stable
currency and job creation" as priorities in the current situation.
Some of Beijing's conservatism stems from the fact that the global credit
crisis has walloped the value of the Chinese government's initial batch of
investments in US financial institutions such as Morgan Stanley and Blackstone
Group. In Internet forums and the press at home the government has been
criticized for taking equity stakes in US financial companies that have
nose-dived.
"No one can see the light at the end of the tunnel for the US crisis and in
view of our past blunders it will be prudent of China to observe more and act
less," the Investors Daily said last week.
Several media outlets have engaged in predictions about the decline of US
dominance in world affairs, presenting the demise of Wall Street as a
retribution for US "arrogance and greed".
"The crisis that befell ordinary American people is caused by the greed of Wall
Street bankers," Wang Songqi, financial analyst with the Chinese Academy of
Social Sciences, told the China Business Journal.
An editorial in the Economic Observer said: "The United States is no longer the
omnipotent savior and global protector of American values ... The demise of
Wall Street means that the cornerstone of this global financial empire has been
broken and no one knows whether it can ever be repaired."
Officially, few Chinese officials have shared in the European politicians'
criticism of the Anglo-Saxon model of capitalism, which they blame for spawning
the global financial crisis.
While embarrassed by the nosedive of its initial Wall Street investments,
Beijing has more pressing tasks than assigning blame for the crisis. Chinese
policymakers have been racing to prevent the country's economy from slowing too
sharply because of global economic forces.
The legitimacy of the ruling communist party rests on maintaining a robust
economic growth and providing prosperity to its people. Over the past 30 years
of reforms, Chinese people have grown richer but not much freer and the
country's rulers have staked their future on efforts to preserve the status quo
by fueling continuous economic growth.
A survey by the Pew Global Attitudes Project this spring found that 86% of
Chinese said they were content with their country's direction, double the
percentage who said the same thing in 2002. By contrast, only 23% of Americans
polled in the survey said they were satisfied with their country's direction.
Yet China's growth, fueled by foreign investment and exports, is interlinked to
the global economy. Any radical downturn in economic prosperity could undermine
the communist party's chance of holding on to its political scepter. There are
already signs of a slowdown. Growth in GDP dropped to 10.1% in the second
quarter from 11.9% in all of 2007.
To counter the fallout, in recent weeks Beijing has made a u-turn on its tight
monetary policy set last year to fight overheating and inflation. The
government relaxed caps on bank lending and approved new tax breaks for textile
exporters, which have been hard hit by weakening demand and rising costs.
Experts anticipate that the forthcoming plenum of the central committee of the
communist party would approve even more decisive measures of easing fiscal and
monetary policies to prevent the global financial crisis from dramatically
slowing down the Chinese economy.
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