Asia Sentinel

China becomes a reluctant banker to mop up western profligacy

Although the beleaguered Bush administration is looking to the Chinese government to soak up a good proportion of the treasury bonds it is issuing to finance the US$700 billion-plus bailout for America’s troubled financial institutions, the Chinese Communist Party Central Committee so far has had little to say and appears ready to exact its pound of flesh after a series of recent military and other snubs by the US.

To the disappointment of the US’s increasingly desperate politicians, the central committee Sunday ended its plenary session remaining mum about the exact role that Beijing would play in joining in efforts by the US and the Western world to combat the worst financial crisis since the 1929 Depression.

In the past week, US Treasury Department officials have expressed hope that China – which sits on US$1.8 trillion worth of foreign exchange reserves – will take proactive steps to help fight the looming global meltdown.

Given the so-called constructive, cooperative partnership between China and the US, it is likely that Beijing, which already holds some US$600 billion worth of treasuries, will continue to function as a “responsible stakeholder” in the global community. Earlier this month, Premier Wen Jiabao indicated that Beijing would “join hands” with other nations in fighting the financial tsunami.

And People’s Bank of China (PBOC) Vice-Governor Yi Gang, who took part in the emergency G20 meeting in Washington over the weekend, told the media that “China was willing to strengthen coordination with other nations, and hoped all countries could make concerted efforts to protect the stability of the international financial market.”

It is also clear, however, that the Hu Jintao leadership will be attaching conditions to what the Chinese media call the “save the US” operation. Last week, the People’s Bank of China, China’s central bank, denied a report in the Hong Kong media that it would be purchasing US$200 billion more American government bonds.

More significantly, the Chinese media, which is tightly controlled by party censors, has been replete with articles and commentaries urging Beijing authorities not to throw in good money after bad. On the issue of buying more US bonds, Chen Baosen, a senior researcher at the Chinese Academy of Social Sciences, noted that “under the principle of international cooperation, China should adopt a sympathetic and supportive stance” toward the US plight.

However, Chen also pointed out that “China should not deviate from its own national interest through paying the bill [for the US].” Jin Bitou, a popular commentator, was more explicit. He wrote on the People’s Daily website that it would be “suicidal” to put China’s forex exchange holdings in just the US dollar basket. Another analyst writing in the China News Service blogsite suggested that Beijing must secure “solid collaterals such as Boeing aircraft” before acquiring more American IOUs.

Given China’s dependence on the American export market – and the growing symbiotic nature of the two economies – it is probable that Beijing would at least buy some of the new US bonds on offer. The size of the purchase, however, could depend on whether the two capitals can resolve several hiccups that have cropped up recently. Beijing has fumed over Washington’s approval of the sale of US$6.5 billion worth of guided missiles and other hardware to Taiwan, saying that this would “gravely jeopardize China’s national security.” The Chinese media has also run several commentaries on the “anti-Chinese” implications of recent stationing of the US nuclear aircraft carrier, the USS George Washington, in the Japanese naval port of Yokosuka.

More importantly, finance officials under Premier Wen have indicated displeasure over obstacles that the China Investment Corp (CIC) (the Chinese sovereign fund vehicle) and other state-controlled companies are facing in acquiring American assets. For example, CIC’s late September plan to snatch up a big chunk of Morgan Stanley failed to materialize. Over the longer term, Beijing wants Washington to lower allegedly protectionist measures against Chinese exports – and to give the Chinese government a bigger say in international financial institutions such as the World Bank. The Hu-Wen leadership seems confident that given the steady erosion of America’s “sole superpower” status, the rising “quasi-superpower” that is China will be better positioned to exert bigger influence in shaping the fast-changing global economic order.

Comments (15)

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thanks
written by ramin , February 08, 2009

thanks a lot
very intresting
http://www.meta-forex.com/

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...
written by peter kay , October 27, 2008

and G L O B A L I S A T I O N it is

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none
written by peter kay , October 27, 2008

G L O B A I S A T I O N it is

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China-US financial problems
written by This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , October 25, 2008

So like Mr. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it said: It's no pic-nic time in China? But is it "morning in America again?"

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China-US financial problems
written by This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , October 23, 2008

Everyone eats thinks he is a nutritionist, and everyone reads a little bit thinks he is Mr. Know-all. The
financial turmoil in the US is nothing. There is no loss of material, just overlending. The banks can
say that whoever had money in the bank can now have a bit of the houses they have loaned money to. So essentially, there is no financial poblem here. But not many people know that the coming financial problem of China will be ten times worse. The more than one trillion dollars that China claimed as foreign exchange cannot be converted into cash. It can only be redeemed with American
goods and services. So technically China has no money. And considering the fact that China
bought oil and raw material, contracted out international companies to build their super infrastructures and China only built little things, China is actually in debt. The things about China is nothing is safe and everybody lies. The common people lie; the leaders lie. No people know what is real in China. So when it comes to the most important thing of all the banks: Do the banks in China have money? Officials in China always take bribes, inflate the real value and want to steal
money and run away. The banks in China have no money. Westerners who traded with China for
some time know this fact. The Chinese people don't believe their officials and now they know the trade agreement with the US: no trade surplus cash. This means the banks in China are going to
collapse like their earthquake buildings or bridges. Right now China has to deal with the aftermaths
of three natural diasters and 100 million migrant workers who will or already had no jobs. It's no
pic-nic time.

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Outside looking in
written by zyx , October 14, 2008

Completely missing the point. This author is well known for being highly critical of China’s central leadership, so how would he know what the Chinese Communist Party Central Committee’s next action would be? To be in the know, you would need to have good contacts from the inside or, comes to the worst, be a spy. This article is purely conjecture or at best downright guestimate. It’s a case of 50/50 getting it right.

Then again, I guess China would have to cough up to prop up the West despite the adversarial attitude constantly displayed by the West (such as that exemplified by Jack) - it’s a case of live & let live and we are all in it together in this globalised world.

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...
written by jack , October 14, 2008

Funny thing is, whether China holds a trillion dollars or 3 trillion is irrelevant, Korea has shown that $200 billion is sufficient for a financial crisis. China isnt any more powerful with more reserves...it is simply getting less return on its money as treasuries don't pay much, and even less now because US and European interest rates have plunged. Boeing would love to sell more planes to China...but China must wait in line like everyone else, because $300 billion of orders come first before any new ones. China is beginning to learn what Japan learned long ago, if you want to maintain a large trade surplus, there will be unanticipated financial consequences. Japan was FORCED to build up forex reserves against its will, China is doing it deliberately. Now, both nations are stuck into continuing it...

China will get rich, but the cost will be much much slower economic growth down the line.
Japan had been running surpluses for its aging population as its workforce is shrinking, but that virtually guarantees it cannot be a superpower anymore. China is facing the same situation...loss of superpower status for financial success by running its surpluses and sitting on huge sums of money with little return on investment.

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...
written by jack , October 14, 2008

China is loaning money to USA, which filters to the military, or its protectors no matter what it holds it in. Euros and yen are ultimately dollars because those nations rely on US for security, US will simply force those governments to pay more back to the US for protection. Case in point, Korea, Japan and Taiwan will pay proportionally more for US military hardware and protection as China gets more threatening. The only nation that China can get something real for is rubles, because Russia is the sole nation willing to sell weapons to China. Not that Russia will sell anything particularly useful to China, Russia is protecting its technology too. Beijing doesn't need all that cash anyway, what it really just is doing is buying insurance against financial crises so its economy can develop...it has way more than enough already. So anything more than what it had last year is just a free loan to the US.

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USA has some nerve
written by Ashamed , October 14, 2008

The big bed USA runs out of the people's money, has a mess in Wall Street, in the housing market, unemployment, all over, and has to run to China, who has wisely used and saved their money, to bail the government out. Oh wait a minute, maybe that's why the $700 billion bailout plan hasn't been approved, because the Chinese government is not as inadequate as our government with handling money!

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To catch a thief
written by Bushwhacker , October 14, 2008

Bush is the Worst President of America but is the Best President for China during his long tenure.

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BLAME IT ON CRIMINALISM
written by PDT , October 13, 2008

Don't blame capitalism for what has happened in the criminal nation U.S.A. It is practicing criminalism which is capitalizing on people's lost savings,whether the victims are non-Americans or not.Criminals have no friends,no com-patriots but crime-parnerts.Wall Street is the place the criminal nation harboring local and international financial criminals to organize speculating currency attacks on other nations including northern neighbor Canada.They are well protect by their military might that nobody cannot do nothing about it .Criminalism now back-fires on its society whose citizens are learning the lessons the hard way.

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BLAME IT ON CRIMINALISM
written by PDT , October 13, 2008

Don't blame capitalism for what has happened in the criminal nation U.S.A. It is practicing criminalism which is capitalizing on people's lost savings,whether the victims are non-Americans or not.Criminals have no friends,no com-patriots but crime-parnerts.Wall Street is the place the criminal nation harboring local and international financial criminals to organize speculating currency attacks on other nations including northern neighbor Canada.They are well protect by their military might that nobody cannot do nothing about it .Criminalism now back-fires on its society whose citizens are learning the lessons the hard way.

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It doesn't seem to be a snub, just caution and a fairer say
written by John Sylvester , October 13, 2008

I think there are many fundamental reasons why Beijing has stalled on granting assistance to the US government. The first is territorial and political when Washington approved of the sale of US$6.5 billion to Taiwan. The Americans should have seen that one coming. Second, China risks both its debt rating and the stability of its banking system if it heeds US calls to revalue its currency. Third, it has been far more prudent that the US and the Europeans in the realm of finance. This article doesn't state that it won't give the US its much-needed cash but that it hints at China wanting "solid collaterals" before doing so. It would be crazy not to help the US turn its economy around, whatever the mistaken belief of its leaders in pursuing almost completely unfettered global capitalism that has now turned sour. But it should also twist Washington's arm to get a better stake in the world of finance and ensure the Americans underwrite any loans.

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Weapon of Mass Destruction
written by Papa , October 13, 2008

These crony capitalists have just unleashed financial terrorism across the entire innocent and defenceless world. Greed & corruption. Wiping out people's hard earned savings and causing suicides and massive unemployment, etc., round the world. The so-called bastion of the free market economy. has betrayed everyone. So much for the hue & cry over the death of 4 babies from tainted milk.

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...
written by TonyT , October 13, 2008

They should realize they won't get their money back in the long run. The USA has this bad problem of passing the debt to other nations and then not letting them do anything with the dollars they earn from the debt except buy more treasury bonds.

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