US Financial Crisis/Bailout, China's Role
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Brown seeks cash for IMF as China, India feel crisis
By Matt Falloon Matt Falloon – 2 hrs 26 mins ago
Barclays gets Middle Eastern cash Play Video Reuters – Barclays gets Middle Eastern cash
* Signs point to US recession Play Video Video: Signs point to US recession BBC
* Wall Street ends higher after bad October Play Video Video: Wall Street ends higher after bad October AP
British Prime Minister Gordon Brown (C) walks with Saudi officials on his Reuters – British Prime Minister Gordon Brown (C) walks with Saudi officials on his arrival at King Saud university …
RIYADH (Reuters) – British Prime Minister Gordon Brown on Sunday called for billions of dollars in extra funding for the International Monetary Fund to prop up struggling economies, while Chinese Premier Wen Jiabao said maintaining China's strong domestic growth was his priority.
Leaders from Mumbai to Moscow and Berlin moved to support their own economies on Saturday, with India's central bank cutting interest rates for the second time in two weeks, Russia putting 170 billion roubles ($6.4 billion) into a state bank and German Chancellor Angela Merkel pledging support for a big investment package to boost Europe's largest economy.
Brown, speaking in Riyadh, said oil-producing Gulf States and China should contribute money for the IMF to lend to countries at risk of financial collapse.
"If we are to stop the spread of the financial crisis, we need a better global insurance policy to help distressed economies," Brown said.
Chinese Premier Wen, writing in the ruling Communist Party's ideological journal, warned of growing domestic social risks from a global economic downturn.
"Against the current international financial and economic turmoil, we must must give even greater priority to maintaining our country's steady and relatively fast economic development," Wen wrote.
"We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development...and factors damaging social stability will grow."
China cut interest rates on Wednesday for the third time in six weeks to help the world's fourth-largest economy ride out the reverberations of the global financial crisis.
In India -- like China, a magnet for foreign investment in recent years as their economies roared -- the central bank on Saturday cut its main lending rate for the second time in as many weeks to ease a cash squeeze and spur economic growth.
INDIA WAS GETTING WORSE
Analysts said the surprise move showed Indian concern that strains on its economy were quickly becoming more severe.
"These actions were necessary (and had) to be taken on the liquidity front...the situation was getting worse," said Vikas Agarwal, a strategist at JP Morgan.
The central bank cut the repo rate, its main short-term lending rate, by 0.5 percentage point to 7.5 percent and banks' cash reserve requirements by 1 percentage point to 5.5 percent.
Policymakers around the world have slashed interest rates in recent weeks and injected huge amounts into their banking systems to try to combat the spillover effects of the global crisis, which has caused credit markets to freeze up and threatens to plunge the world economy into recession.
In Riyadh, Brown said the IMF needed hundreds of billions of dollars to protect struggling economies from the crisis.
"That is why I have called for more resources for the IMF -- hundreds of billions of dollars on top of the $250 billion they already have available -- to lend to those countries at risk of financial collapse," said Brown, who has positioned himself at the forefront of the global response to the crisis.
In response, Kuwait's finance minister said his government would base any decision to support international markets on potential returns and investment opportunities.
British business minister Peter Mandelson said that persuading Saudi Arabia to contribute money would take time, indicating that no promise of cash is expected this weekend.
"That's why the prime minister spending hours talking one on one with the king of Saudi Arabia is so important," Mandelson told reporters.
Brown's tour of the Gulf precedes a global summit in Washington on November 15 at which he and some other world leaders will press for reform in the international financial system.
The British leader said that cooperation on getting the world economy through the crisis could create a new global order - "fairer, more stable and offering greater prosperity for all."
RUSSIA, GERMANY UP EFFORTS
In South Korea, where there have been concerns about banks' exposure to the global liquidity squeeze, the central bank said the financial system remained sound.
"There does not seem to be a likelihood of the unrest in domestic financial markets that originated in the international financial markets developing into a crisis for the Korean financial system as a whole," a Bank of Korea report said.
Banks everywhere have been racing to shore up their balance sheets after a spate of collapses and hastily arranged mergers prompted by heavy losses from bad mortgages and financial derivatives related to them.
On Saturday, Russia's Finance Ministry said it placed 170 billion roubles ($6.41 billion) from its National Wealth Fund with state bank VEB as part of a plan to allow for state purchases of shares and corporate bonds.
The news of state share purchases helped Russian shares rise sharply, lifting them to a 50 percent gain for the week. Shares were trading on Saturday because Monday and Tuesday are public holidays.
Also on Saturday, Germany's Merkel promised support for an "extensive" package to help ordinary Germans, which a government paper said would give the economy a 50 billion euro boost. Germany put together a 500 billion euro ($638.9 billion) rescue package for banks last month. Merkel and Brown will meet in London on Thursday.
The global crisis has overshadowed the election to pick a successor for U.S. President George W. Bush, who leaves office in January. Republican John McCain and Democrat Barack Obama swept through battleground states on Saturday in a last-minute push before Tuesday's vote.
The developments in the worst financial crisis in eight decades followed signs in the past week that world markets were stabilizing, with interbank rates falling and U.S. stocks posting their biggest weekly gain in 34 years.
(Additional reporting by Saikat Chatterjee, Matt Falloon, Yoo Choonsik; Writing by Lincoln Feast; Editing by Angus MacSwan)
well now they are saying that since the financial sector collectively owes the CEO's $400bn pension,that's essentially where a huge chunk of the bailout money is gonna go to....straight into those bastards' wallet LOL...the US is hopeless if they continue to screw around with taxpayers.
OCTOBER 25, 2008 Summits
A 21st-Century Bretton Woods
Success at global finance summit hinges on China's willingness to play role once taken by U.S.
By SEBASTIAN MALLABYArticle
There wasn't much to see in Bretton Woods in July 1944, when delegates from 44 countries checked into the sprawling Mount Washington Hotel for the United Nations Monetary and Financial Conference. Almost a million acres of New Hampshire forest surrounded the site; there were free Coca-Cola dispensers, but few other distractions.
In this scene of rustic isolation, 168 statesmen (and one lone stateswoman, Mabel Newcomer of Vassar College) joined in history's most celebrated episode of economic statecraft, remaking the world's monetary order to fend off another Great Depression and creating an unprecedented multinational bank, to be focused on postwar reconstruction and development.
At the Final Plenary, a sea of black-tied delegates gave a standing ovation to British economist John Maynard Keynes, whose intellect had permeated the three weeks of talks. Lord Keynes paid tribute to his far-seeing colleagues, who had performed a task appropriate "to the prophet and to the soothsayer."
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French President Nicolas Sarkozy (left) with British Prime Minister Gordon Brown earlier this month.
The Bretton Woods conference has acquired mythical status. To economic-history buffs, it's akin to the gathering of the founding fathers at the constitutional convention. To politicians anxious to make their marks upon the world, it's a moment to be richly envied. The recent calls from British Prime Minister Gordon Brown and French President Nicolas Sarkozy for a new Bretton Woods conference, to which the Bush administration has acceded, have caused TV crews to descend upon the old hotel, which has undergone a $50 million facelift. But Bretton Woods revivalism is nothing new. Indeed, it's a long tradition.
After the onset of the Latin debt crisis in 1982, U.S. Treasury Secretary Donald Regan floated the idea of a new Bretton Woods to steady the hemisphere's currencies. The following year, reeling from three devaluations of the franc, French President Francois Mitterrand declared, "The time has really come to think in terms of a new Bretton Woods. Outside this proposition, there will be no salvation." Mitterrand persisted in this grandiloquence over the next two years. He finally quieted down in 1985, when Margaret Thatcher dismissed his proposal as "generalized jabberwocky."
In the wake of the emerging-market crises of 1997-98, Bretton Woods nostalgia broke out again -- this time in post-Thatcher Britain. "We should not be afraid to think radically and fundamentally," Tony Blair opined. "We need to commit ourselves today to build a new Bretton Woods for the next millennium." The precise content of Mr. Blair's millennial ambition was, shall we say, vague. But no fellow leader was rude enough to say so.
Among acts of international economic statesmanship, perhaps only the Marshall Plan has been invoked more frequently. There have been calls for a Marshall Plan for postcommunist eastern Europe, a Marshall Plan for Africa, a Marshall Plan for the inner cities. Indeed, anybody wanting Washington to splurge finds Marshall exceedingly convenient.
But Bretton Woods has a richer and more rarefied cachet. It was about reordering the international system, not just mobilizing money for an enlightened cause. And whereas the Marshall Plan was an example of the unilateralism for which the U.S. is known, the Bretton Woods conference was a triumph of multilateral coordination. It featured countries as diverse as Honduras, Liberia and the Philippines (Keynes spoke disdainfully of a "most monstrous monkey-house"), though it did not include South Korea or Japan, important voices in today's economic summitry.
Both sides of the Bretton Woods achievement seem alluring today, yet both may be chimerical. The conference rebuilt the economic order by creating a system of fixed exchange rates. The aim was to prevent a return to the competitive devaluations best illustrated by the "butter wars." In 1930 New Zealand secured a cost advantage for its butter exports by devaluing its money; Denmark, its main butter rival, responded with its own devaluation in 1931; the two nations proceeded to chase each other down with progressively more drastic devaluations.
This beggar-thy-neighbor behavior added to the protectionism that brought the world to ruin, and the Bretton Woods answer was simple. In the postwar era, the dollar would be anchored to gold, and other currencies would be anchored to the dollar: No more fluctuating money, ergo no competitive devaluation. To undergird this system, the Bretton Woods architects created the International Monetary Fund, which was far more central to their ambitions than their other legacy, the World Bank. If a country's fixed exchange rate led it into a balance of payments crisis, the IMF would bail it out and so avert devaluation.
Today the idea of another monetary rebirth has much to recommend it. The credit bubble that has wreaked havoc on the world's financial markets has its origins in a two-headed monetary order: Some countries allow their currencies to float, while others peg loosely to the dollar. Over the past five years or so, this mixture created a variation on the 1930s: China, the largest dollar pegger, kept its currency cheap, driving rival exporters in Asia to hold their exchange rates down also. Thanks to this new version of competitive currency manipulation, the dollar-peggers racked up gargantuan trade surpluses. Their earnings were pumped back into the international financial system, inflating a credit bubble that now has popped disastrously.
Persuading China to change its currency policy would be a worthy goal for a new Bretton Woods conference. But currency reform is low on the agenda of the summit that the Bush administration plans to host on Nov. 15. (The administration styles this gathering a "G-20 meeting," ignoring the European talk of a Bretton Woods II.) The British and French leaders who pushed for the meeting want instead to talk about financial regulation -- how to fix rating agencies, how to boost transparency at banks and so on. But many of these tasks require minimal multilateral coordination.
If the Europeans shrink from demanding that China cease pegging to the dollar, it's perhaps because they anticipate the concession that would be asked of them. China isn't going to give up its export-led growth strategy for the sake of the international system unless it gets a bigger stake in that system -- meaning a much bigger voice within the International Monetary Fund and a corresponding reduction in Europe's exaggerated influence. When you strip out the blather about bank transparency and such, this is the core bargain that needs to be struck. Naturally, the Europeans aren't proposing it.
It will be up to the two great powers -- the U.S. and China -- to fashion the deal that brings China into the heart of the multilateral system. Here, too, is an echo of the first Bretton Woods, for underneath the camouflage of a multilateral process there was a bargain between two nations. Britain, the proud but indebted imperial power, needed American savings to underpin monetary stability in the postwar era; the quid pro quo was that the U.S. had the final say on the IMF's design and structure. Today the U.S. must play Britain's role, and China must play the American one.
There's a final twist, however. In the 1940s the declining power practiced imperial trade preferences; the rising power championed an open world economy. When Franklin Roosevelt told Winston Churchill that free trade would be the price of postwar assistance, he was demanding an end to the colonial order and the creation of a level playing field for commerce. "Mr. President, I think you want to abolish the British empire," Churchill protested. "But in spite of that, we know you are our only hope."
Today it is the rising power that pursues mercantilist policies via its exchange rate. China's leadership, which sits atop an astonishing $2 trillion in foreign-currency savings, could trade a promise to help recapitalize Western finance for an expanded role within the IMF. But China may simply not be interested. The future of the global monetary system depends on whether China aspires to play the role of Roosevelt -- or whether it prefers to be a modern Churchill.
Sebastian Mallaby directs the Center for Geoeconomic Studies at the Council on Foreign Relations. He is writing a history of hedge funds.
China moves to centre stage
Oct 30th 2008 | BEIJING
From The Economist print edition
In a whirl of financial summitry, China ponders how to wield its new-found clout
EPA
“WE SWIM together, or we sink together,” said the European Commission’s president, José Manuel Barroso, as Asian and European leaders gathered in Beijing for a summit on October 24th and 25th that was dominated by the global financial crisis. But China, proclaiming itself relatively unscathed, is in no rush to act.
The crisis is pushing the world’s fourth-largest economy, with the biggest foreign-exchange reserves, to the centre of global summitry. The prime minister, Wen Jiabao, has said China will “actively participate” in a meeting of world leaders called by George Bush to discuss the issue on November 15th. After the Asia-Europe meeting, or ASEM, Mr Wen headed to Russia and Kazakhstan, venue for a pow-wow of Central Asian leaders, for more talks with global finance at the forefront.
But for all its avowed confidence in its own future (“the impact is limited and controllable,” said Mr Wen), and its hinted aspirations for a world financial order less dominated by America and its dollar, China does not want to throw its weight around. At ASEM, the seventh such biennial gathering since 1996, China echoed Mr Barroso’s calls for concerted international action. But it had few ideas to offer on what this should involve. More regulation of the international financial system, Mr Wen unadventurously proposed.
The most concrete idea discussed by the Asian countries at ASEM was to set up an $80 billion fund by the middle of 2009 to help countries in the region deal with liquidity problems—a plan already agreed in May. The bulk of the money would come from China, Japan and South Korea, but details of how much each would contribute and how the fund would be managed have yet to be announced.
For China, with $1.9 trillion in reserves, and Japan, with nearly $1 trillion, the proposed amount is hardly massive. But the countries giving most are likely to wield most clout. The participating countries, which also include the ten members of the Association of South-East Asian Nations, are a fractious lot and have differing views, not least over the roles of China and Japan in Asia. Most of them are still far too touchy about sovereignty to agree on any meaningful pooling of it.
Chinese leaders told ASEM that their priority was to keep their own economy running smoothly. This, said Mr Wen, was China’s “greatest contribution to the world”. China’s economic growth has recently slowed, unusually, to a single-digit rate (9% in the third quarter) and many economists expect it to remain that way next year. But its buoyancy is a solace to Asian countries, several of which enjoy trade surpluses with China, and to the European Union, for which China is the fastest-growing market—albeit, as the Europeans like to point out when they complain about Chinese trade barriers, still no bigger than Switzerland. At least European moans about successive years of the yuan’s depreciation against the euro, making European exports costlier, have now been silenced by a reversal of the trend.
China seemed reluctant at first to let the financial crisis dominate ASEM’s agenda. But it lost nothing by doing so. It deflected attention from climate change, another big issue of concern. The Europeans want China to make stronger commitments to cut its carbon emissions. But if there were concerns at ASEM about backsliding by China as it focuses more on boosting growth and employment, participants were too well-mannered to raise them publicly (just as they were all far too tactful to complain that Taiwan, Asia’s fifth-biggest economy, is not even represented at ASEM because of China’s objections).
A shared sense of crisis also gave China a face-saving way of engaging in some fence-mending. Germany’s chancellor, Angela Merkel, who had riled the Chinese by meeting the Dalai Lama in September last year, was told by President Hu Jintao during a meeting on the sidelines that China’s relations with Germany were “good”.
That is as far as a Chinese leader will ever go towards saying that all is forgiven. Japan’s new prime minister, Taro Aso, was also cordially received despite his China-sceptical views, and despite his just having signed a security pact with India, which some at least in China will see as directed against their country. Japan and China agreed to set up a hotline. China and Vietnam agreed to finish marking their contentious land border by the end of the year.
But while China relishes the attention it commands at such gatherings, it is resisting the temptation to swagger in its dealings with America. There are concessions China would like. One would be an end to America’s de facto power of veto in the IMF. Recently it has been showing its pique at this by blocking publication of an IMF report examining whether China has been manipulating its exchange rate for the sake of trade advantage. A Chinese newspaper said America must give up its control over the IMF in return for China’s helping out in the crisis. But the government has not gone that far in public.
In Russia, with whose leaders China shares strong misgivings about America, Mr Wen did allow himself to say that developing countries should have a stronger say in a new financial system. He also said there was a need to “diversify” the global currency system, a tactful way of saying the dollar’s sway should diminish. But ASEM’s closing statement said the IMF should play a critical role in helping badly-hit countries. Its only caution was that this should be “upon their request”.
Albert Keidel of the Carnegie Endowment for International Peace, a Washington think-tank, says China does not want “to be seen as a problem for existing powers” at this stage of its economic development. But he also argued in a recent paper that there could be trouble ahead as recession in the West, which he believes China could ride out, stokes protectionist demands. The crisis could also result in China’s economy surpassing America’s earlier than expected—well before 2030, Mr Keidel suggests. Hard as Chinese diplomats try to wear a friendly face, this would be a psychological jolt for Americans.
Beijing’s Glorification of the “China Model”
By Willy Lam
Guo Shuqing, president of China Construction Bank
While Beijing has reiterated its willingness to help combat the international financial crisis, the Hu Jintao-Wen Jiabao administration has stopped short of making substantial commitments to the global rescue effort. This is despite the fact that the ongoing crisis has afforded China a golden opportunity to demonstrate its credentials as an emerging quasi-superpower as well as a respectable member of the world community. Remarks made by senior officials and media commentators have given the impression that Beijing is taking advantage of the perceived demise of “American-style capitalism” to play up the success of "socialism with Chinese characteristics." And the Hu-Wen leadership’s apparent self-complacency regarding the superiority of the "China model" could impede further economic and political reforms.
Statements made by top officials at the Asia Europe Meeting (ASEM) in Beijing late last month have given the best indication of whether Beijing aspires to a leading role in fighting the financial tsunami. Speaking at the ASEM conference, President Hu said “China will work in a responsible manner with the global community to diligently safeguard international financial stability and economic stability.” Yet the top leader also noted that as China is a developing country with 1.3 billion people, the CCP leadership would devote its main attention and resources to maintaining domestic growth. As Hu put it, “maintaining a good development trend for China’s economy is itself an important contribution” to stabilizing the global financial system. Both at ASEM and in talks with foreign dignitaries, Hu and Premier Wen reiterated that for Beijing, “the most important thing is to manage our own affairs well” (Xinhua News Agency, October 24; China Daily, October 25).
At the very least, however, Beijing has given subtle hints that it will continue buying American government bonds. With foreign exchange reserves exceeding $1.9 trillion in September, the Chinese government has been looked upon by Western and Asian countries as a “savior’ with deep pockets (Xinhua News Agency, October 14). A late October dispatch by the Xinhua News Agency quoted an unnamed Chinese banker as saying that “American bonds are still a major direction for Chinese [foreign exchange] investments.” The banker added that U.S. treasury bills remained a “safe and stable investment vehicle” (Xinhua News Agency, October 29; Financial Times, October 24). Yet a big question mark hangs over how much more the People’s Bank of China and other central government agencies will buy. So far, Beijing has purchased some $600 million of treasury bills, $360 million worth of bonds issued by Fannie Mae and Freddie Mac, and several hundred millions dollars worth of other securities issued by American companies. Since the eruption of the financial upheaval in September, numerous Chinese economists and editorial writers have called upon Beijing not to put all its eggs in one basket. Well-known economist Kuai Zheyuan asserted that given fast-depreciating American assets, “there will be disastrous results if Beijing were to try to save the U.S. market by buying even more American bonds.” Other commentators have claimed it would be misguided for the central government to “throw in good money after bad” by snapping up more U.S. securities (Yazhou Zhoukan [Hong Kong weekly], October 12; People’s Daily October 7).
So far, the Chinese leadership seems more interested in firing subtle shots across the bow of an American-dominated economic order, which is perceived to be a key reason why the subprime mortgage disaster in the U.S. has mushroomed into an international crisis. Premier Wen and other top cadres have talked about the need for a "novel world order." While speaking in Moscow last week, Wen dwelled on the imperative of “building a new international financial order” partly through attaining “new levels” of financial and industrial cooperation between China, Russia and other members of the Shanghai Cooperative Organization, which includes Kazakhstan, Uzbekistan, Tajikistan, and Kyrgyzstan. The premier’s Moscow talk focused on the need to give developing nations more say in global institutions such as the International Monetary Fund; improving international regulatory mechanisms, including tighter supervision over financial institutions in countries whose currencies are held as reserves around the world; and building a diverse international currency system (Xinhua News Agency, October 29; People’s Daily, October 31). While stopping short of railing against “American financial hegemony,” Wen had launched an indirect but vehement attack on American preponderance in the global economic system.
At the same time, senior cadres and state-media pundits have played up the superiority of the “China model,” including the fact that thanks to the Hu-Wen leadership’s “scientific theory of development,” Chinese financial institutions have remained viable. “We must shatter our superstitious belief [in the superiority of] foreign banks and foreign financial markets,” said the President of China Construction Bank, Guo Shuqing. Guo, an economist who was Premier Zhu Rongji’s protégé, added: “Foreign banks should learn from Chinese banks. For example, we are more cautious and conservative … and we understand the needs of our customers” (People’s Daily, October 7). In addition, mainstream Chinese newspapers have given extensive coverage of how, in the wake of rescue packages that American and European authorities have put together to save their crumbling economies, quasi-socialist practices have come back into vogue. Xinhua reported that Karl Marx’s classic Das Kapital was climbing up bestsellers’ lists in both China and Europe (Xinhua News Agency, October 29). The message of the powerful state propaganda machinery is clear: American-style laissez-faire policies are out, Chinese-style authoritarian market economics is in.
In ideological study sessions routinely conducted in party cells, government units and universities all over the country, party members and cadres have been asked to read a recent article by the Director of the CCP Department of Publicity Liu Yunshan entitled “The Chinese system is incomparably superior.” “Chinese-style socialism has exhibited nonpareil superiority,” Liu wrote. “The China model has demonstrated strong vigor and energy” (Apple Daily [Hong Kong], October 24; Xinhua News Agency, October 5). Exaltation of the China model is also the theme of a nation-wide ideological campaign to study President Hu’s vaunted “scientific theory of development,” a code word for the current leadership’s policies of promoting the well-being of the masses under stern CCP guidance. Hu’s “scientific” approach to development, which strives to strike a balance between growth and stability—and between market initiatives and state control—is seen as an antidote to the kind of unbridled capitalism that underpins the financial woes in the Western world. While kicking off the campaign at the Central Party School in late October, Vice-President Xi underscored the imperative of “systematically grasping the Marxist stance, viewpoints and methodology that are manifested by the scientific outlook on development.” In other speeches about the Chinese experience, Xi extolled Chairman Mao’s wisdom in upholding the primacy of Marxism and the principle of party dominance in political and economic matters (People’s Daily, October 17; Xinhua News Agency, September 8).
The apparent complacency displayed by the top leadership has raised fears that the Hu-Wen team may put reform in the back burner for the rest of their four-year term. U.S. Treasury Secretary Henry Paulson expressed concern that “some in China look at the recent failures in our financial markets and conclude that they should slow down their reforms.” Paulson urged Chinese officials to “learn from our significant mistakes and move forward with reforms that have the potential to produce important gains for China and its people” (Wall Street Journal, October 22). It is nonetheless true that particularly given the fact that economic growth will likely slip to around 9 percent in 2008—compared to 11.9 percent last year—the focus of the Hu-led Politburo is on maintaining socio-political stability, not reform (Time Asia, October 23). That is why at the just-ended Third Plenary Session of the 17th Central Committee, which is devoted to agrarian issues, much-anticipated liberalization measures such as speeding up peasants’ migration to the cities failed to materialize (see China Brief, “Hu’s New Deal and the Third Plenary Session of CCP’s 17th Central Committee,” Volume 8, Issue 20).
Changes in what late patriarch Deng Xiaoping called the daqihou or “macro-level, global climate” have also affected the future of political reform, which has remained largely frozen the past decade. Last year, hopes for some form of liberalization were raised when Premier Wen, deemed the most liberal member of the Politburo, surprised observers by heaping praises on certain “universal values and institutions.” Wen said in early 2007 that “values such as science, democracy, rule of law, freedom and human rights are not the monopoly of capitalist [countries],” but “universal values that should be pursued by all mankind” (Open Magazine [Hong Kong], October 2008; Xinhua News Agency, February 26, 2007). The corollary of Wen’s message was that it was okay for socialist China to try out these international norms.
Owing to the apparent decline of American-style capitalism, however, “universal values” associated with U.S. democracy have been discredited within the majority of CCP members. Even before the onset of the financial tsunami, several noted conservative cadres had assailed the concept of “universal values,” saying that these were but “sugar-coated bullets” to lure China to morph into a capitalist country through “peaceful evolution.” These conservatives are echoing a speech made by the president of the Chinese Academy of Social Sciences, Chen Kuiyuan, in the summer. Chen indicated in his much-quoted CASS talk in July that “we must establish self-respect and confidence in our own people.” “We must not engage in blind worship [of the West] and we must not extol Western values as so-called universal values,” the ideologue said (CASS.org.cn, September 2). Orthodox theorist Feng Yuzhang added that eulogizing “global values” amounted to “an advocacy of all-out Westernization, which is an effort by [Western powers] to change the socialist order in China” (People’s Daily, September 10; Open Magazine, October 2008).
From now until mid-December, much of the energy of the top leadership will be occupied with licking into shape a seminal document to mark the 30th anniversary of Deng’s reform and open-door policy. The paper, which is drafted under the supervision of President Hu and Vice-President Xi, will also lay out a road map on how the CCP will push economic and political reform forward. Given that the focus of the nation has shifted to maintaining GDP growth under the harsh climate of diminishing exports to major Western markets, the Hu-Wen leadership is likely in no mood to take the type of risks that bold reforms will entail. And should the party elite succumb to a kind of triumphalism over the supposed superiority of authoritarian socialism with Chinese characteristics, the prospects for liberalization could be dealt a severe blow.
By Willy Lam
Guo Shuqing, president of China Construction Bank
While Beijing has reiterated its willingness to help combat the international financial crisis, the Hu Jintao-Wen Jiabao administration has stopped short of making substantial commitments to the global rescue effort. This is despite the fact that the ongoing crisis has afforded China a golden opportunity to demonstrate its credentials as an emerging quasi-superpower as well as a respectable member of the world community. Remarks made by senior officials and media commentators have given the impression that Beijing is taking advantage of the perceived demise of “American-style capitalism” to play up the success of "socialism with Chinese characteristics." And the Hu-Wen leadership’s apparent self-complacency regarding the superiority of the "China model" could impede further economic and political reforms.
Statements made by top officials at the Asia Europe Meeting (ASEM) in Beijing late last month have given the best indication of whether Beijing aspires to a leading role in fighting the financial tsunami. Speaking at the ASEM conference, President Hu said “China will work in a responsible manner with the global community to diligently safeguard international financial stability and economic stability.” Yet the top leader also noted that as China is a developing country with 1.3 billion people, the CCP leadership would devote its main attention and resources to maintaining domestic growth. As Hu put it, “maintaining a good development trend for China’s economy is itself an important contribution” to stabilizing the global financial system. Both at ASEM and in talks with foreign dignitaries, Hu and Premier Wen reiterated that for Beijing, “the most important thing is to manage our own affairs well” (Xinhua News Agency, October 24; China Daily, October 25).
At the very least, however, Beijing has given subtle hints that it will continue buying American government bonds. With foreign exchange reserves exceeding $1.9 trillion in September, the Chinese government has been looked upon by Western and Asian countries as a “savior’ with deep pockets (Xinhua News Agency, October 14). A late October dispatch by the Xinhua News Agency quoted an unnamed Chinese banker as saying that “American bonds are still a major direction for Chinese [foreign exchange] investments.” The banker added that U.S. treasury bills remained a “safe and stable investment vehicle” (Xinhua News Agency, October 29; Financial Times, October 24). Yet a big question mark hangs over how much more the People’s Bank of China and other central government agencies will buy. So far, Beijing has purchased some $600 million of treasury bills, $360 million worth of bonds issued by Fannie Mae and Freddie Mac, and several hundred millions dollars worth of other securities issued by American companies. Since the eruption of the financial upheaval in September, numerous Chinese economists and editorial writers have called upon Beijing not to put all its eggs in one basket. Well-known economist Kuai Zheyuan asserted that given fast-depreciating American assets, “there will be disastrous results if Beijing were to try to save the U.S. market by buying even more American bonds.” Other commentators have claimed it would be misguided for the central government to “throw in good money after bad” by snapping up more U.S. securities (Yazhou Zhoukan [Hong Kong weekly], October 12; People’s Daily October 7).
So far, the Chinese leadership seems more interested in firing subtle shots across the bow of an American-dominated economic order, which is perceived to be a key reason why the subprime mortgage disaster in the U.S. has mushroomed into an international crisis. Premier Wen and other top cadres have talked about the need for a "novel world order." While speaking in Moscow last week, Wen dwelled on the imperative of “building a new international financial order” partly through attaining “new levels” of financial and industrial cooperation between China, Russia and other members of the Shanghai Cooperative Organization, which includes Kazakhstan, Uzbekistan, Tajikistan, and Kyrgyzstan. The premier’s Moscow talk focused on the need to give developing nations more say in global institutions such as the International Monetary Fund; improving international regulatory mechanisms, including tighter supervision over financial institutions in countries whose currencies are held as reserves around the world; and building a diverse international currency system (Xinhua News Agency, October 29; People’s Daily, October 31). While stopping short of railing against “American financial hegemony,” Wen had launched an indirect but vehement attack on American preponderance in the global economic system.
At the same time, senior cadres and state-media pundits have played up the superiority of the “China model,” including the fact that thanks to the Hu-Wen leadership’s “scientific theory of development,” Chinese financial institutions have remained viable. “We must shatter our superstitious belief [in the superiority of] foreign banks and foreign financial markets,” said the President of China Construction Bank, Guo Shuqing. Guo, an economist who was Premier Zhu Rongji’s protégé, added: “Foreign banks should learn from Chinese banks. For example, we are more cautious and conservative … and we understand the needs of our customers” (People’s Daily, October 7). In addition, mainstream Chinese newspapers have given extensive coverage of how, in the wake of rescue packages that American and European authorities have put together to save their crumbling economies, quasi-socialist practices have come back into vogue. Xinhua reported that Karl Marx’s classic Das Kapital was climbing up bestsellers’ lists in both China and Europe (Xinhua News Agency, October 29). The message of the powerful state propaganda machinery is clear: American-style laissez-faire policies are out, Chinese-style authoritarian market economics is in.
In ideological study sessions routinely conducted in party cells, government units and universities all over the country, party members and cadres have been asked to read a recent article by the Director of the CCP Department of Publicity Liu Yunshan entitled “The Chinese system is incomparably superior.” “Chinese-style socialism has exhibited nonpareil superiority,” Liu wrote. “The China model has demonstrated strong vigor and energy” (Apple Daily [Hong Kong], October 24; Xinhua News Agency, October 5). Exaltation of the China model is also the theme of a nation-wide ideological campaign to study President Hu’s vaunted “scientific theory of development,” a code word for the current leadership’s policies of promoting the well-being of the masses under stern CCP guidance. Hu’s “scientific” approach to development, which strives to strike a balance between growth and stability—and between market initiatives and state control—is seen as an antidote to the kind of unbridled capitalism that underpins the financial woes in the Western world. While kicking off the campaign at the Central Party School in late October, Vice-President Xi underscored the imperative of “systematically grasping the Marxist stance, viewpoints and methodology that are manifested by the scientific outlook on development.” In other speeches about the Chinese experience, Xi extolled Chairman Mao’s wisdom in upholding the primacy of Marxism and the principle of party dominance in political and economic matters (People’s Daily, October 17; Xinhua News Agency, September 8).
The apparent complacency displayed by the top leadership has raised fears that the Hu-Wen team may put reform in the back burner for the rest of their four-year term. U.S. Treasury Secretary Henry Paulson expressed concern that “some in China look at the recent failures in our financial markets and conclude that they should slow down their reforms.” Paulson urged Chinese officials to “learn from our significant mistakes and move forward with reforms that have the potential to produce important gains for China and its people” (Wall Street Journal, October 22). It is nonetheless true that particularly given the fact that economic growth will likely slip to around 9 percent in 2008—compared to 11.9 percent last year—the focus of the Hu-led Politburo is on maintaining socio-political stability, not reform (Time Asia, October 23). That is why at the just-ended Third Plenary Session of the 17th Central Committee, which is devoted to agrarian issues, much-anticipated liberalization measures such as speeding up peasants’ migration to the cities failed to materialize (see China Brief, “Hu’s New Deal and the Third Plenary Session of CCP’s 17th Central Committee,” Volume 8, Issue 20).
Changes in what late patriarch Deng Xiaoping called the daqihou or “macro-level, global climate” have also affected the future of political reform, which has remained largely frozen the past decade. Last year, hopes for some form of liberalization were raised when Premier Wen, deemed the most liberal member of the Politburo, surprised observers by heaping praises on certain “universal values and institutions.” Wen said in early 2007 that “values such as science, democracy, rule of law, freedom and human rights are not the monopoly of capitalist [countries],” but “universal values that should be pursued by all mankind” (Open Magazine [Hong Kong], October 2008; Xinhua News Agency, February 26, 2007). The corollary of Wen’s message was that it was okay for socialist China to try out these international norms.
Owing to the apparent decline of American-style capitalism, however, “universal values” associated with U.S. democracy have been discredited within the majority of CCP members. Even before the onset of the financial tsunami, several noted conservative cadres had assailed the concept of “universal values,” saying that these were but “sugar-coated bullets” to lure China to morph into a capitalist country through “peaceful evolution.” These conservatives are echoing a speech made by the president of the Chinese Academy of Social Sciences, Chen Kuiyuan, in the summer. Chen indicated in his much-quoted CASS talk in July that “we must establish self-respect and confidence in our own people.” “We must not engage in blind worship [of the West] and we must not extol Western values as so-called universal values,” the ideologue said (CASS.org.cn, September 2). Orthodox theorist Feng Yuzhang added that eulogizing “global values” amounted to “an advocacy of all-out Westernization, which is an effort by [Western powers] to change the socialist order in China” (People’s Daily, September 10; Open Magazine, October 2008).
From now until mid-December, much of the energy of the top leadership will be occupied with licking into shape a seminal document to mark the 30th anniversary of Deng’s reform and open-door policy. The paper, which is drafted under the supervision of President Hu and Vice-President Xi, will also lay out a road map on how the CCP will push economic and political reform forward. Given that the focus of the nation has shifted to maintaining GDP growth under the harsh climate of diminishing exports to major Western markets, the Hu-Wen leadership is likely in no mood to take the type of risks that bold reforms will entail. And should the party elite succumb to a kind of triumphalism over the supposed superiority of authoritarian socialism with Chinese characteristics, the prospects for liberalization could be dealt a severe blow.
Well I am glad that Willy Lam has come around to my way of thinking
This is precisely what I have been saying for ages, except that I believe that Beijing is absolutely right to be cautious and start its charity at home.
China has for now than more than a decade, been called the Engine of World Growth and so it makes perfect sense to keep that Engine running smoothly. We are seeing the start of this process with Low End manufacturing being kicked out of old Export Hubs and packing itself off to set up new in the Interior.
The proof of Financial Pudding is in the eating and the Aroma coming out of Beijings Capital kitchen is sweet indeed! Quite unlike the stench of Wall Street.
This is precisely what I have been saying for ages, except that I believe that Beijing is absolutely right to be cautious and start its charity at home.
China has for now than more than a decade, been called the Engine of World Growth and so it makes perfect sense to keep that Engine running smoothly. We are seeing the start of this process with Low End manufacturing being kicked out of old Export Hubs and packing itself off to set up new in the Interior.
The proof of Financial Pudding is in the eating and the Aroma coming out of Beijings Capital kitchen is sweet indeed! Quite unlike the stench of Wall Street.
bladerunner
Banned Idiot
That doesn't make sense Why would you borrow $1000 and then deposit a portion of it in another bank at less then the interest you borrowed it for..
It would only work if one was in the carry trade where say in Japan where depositers where getting next to nothing in interest, one could borrow X amount of thousands and place it in a country which was offering a high interest rate and the currency exchange was also working in your favour
Infra_Man99
Banned Idiot
Not everything in this world makes sense. There is such thing called deflation and inflation, something economists are still struggling to handle and fully understand. The US has been inflating the US dollar for a VERY long time because US banks are allowed to print excess money to back their loans with interest, and the interest has a tendency to further increase the inflation.
Basically I'm talking about banks borrowing from each other.