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Wednesday, September 23, 2020
BEIJING, Feb 1 2009 (IPS) - China is worried that the lingering financial crisis could unleash a spiral of protectionist policies across the globe, which could further dent its trade-dependent economy.
Rising protectionism, China fears, might facilitate global acceptance of the “savings glut” theory, which assigns blame to China and other emerging economies for the origins of the crisis.
Arriving in London after his appearance at the World Economic Forum in Davos, Chinese Premier Wen Jiabao issued a warning against the rise of protectionist sentiment across the world saying it could undermine global efforts to deal with the economic downturn.
Wen is expected to hold talks on Monday with British Prime Minister Gordon Brown who is preparing to host, in April, a G20 summit that will bring together the leaders of the world’s largest economies.
China’s ministry of commerce officials attending the Davos forum have also spoken about the danger of “fanning protectionist sentiments” in the United States and elsewhere with “unhelpful” statements about China’s currency policies and its trade surpluses.
The spike in Chinese rhetoric is occurring in the middle of the country’s celebrations of the lunar new year – traditionally its longest and most important festival. As domestic activities grind to a halt, Chinese officials have been busy dealing with the implications of accusations by the newly-sworn Obama administration that China manipulates its currency.
The remarks by Geithner – later confirmed as U.S. treasury secretary – represent a shift from president George W. Bush’s team, which avoided using the term “manipulation” in criticising China’s exchange-rate management.
While Beijing has rejected the claims outright, the pronouncements – so early in the days of the new U.S. administration – have reignited fears here that president Obama will take a tougher line on China’s trade policies.
As presidential candidate, Obama signed on as a co-sponsor of legislation aimed at China that would give US companies the ability to petition for import duties to compensate for the effect of a weak currency.
State-sanctioned Chinese media have begun running articles and commentaries warning about the risks that such protectionist attitudes present for China and its export-driven economy.
Experts are worried that a defensive approach to China’s U.S. trade might facilitate the acceptance of what they say is a “wrong concept about the origins of the crisis” as a consensus among American political circles.
The global “savings glut” theory holds that the U.S. allowed its trade deficit with China to balloon, while all the way borrowing money from China cheaply and fuelling a consumption binge that led to the housing bubble and the credit crunch.
Ben Bernanke, chairman of the U.S. Federal Reserve and former U.S. treasury secretary Hank Paulson have both alleged that super-abundant savings from fast-growing emerging economies like China and the oil-exporting countries laid the seeds of a global credit bubble.
Zhang Jianhua, head of China’s central bank research bureau, has called the “savings glut” theory “gangster logic”.
“But if we allow this gangster logic to become mainstream thinking, China will be made a scapegoat in the crisis and will have to pay the price,” said a commentary in the China Business Journal. “It will not only hurt China’s ambitions to use its currency exchange reserves for assets purchases abroad but also its plans to make the Chinese currency a bigger player in international trade settlements”.
Yang Min from China Development Research Foundation says China should stay alert against rising protectionism if the ‘savings glut” theory gains broader acceptance. He warned against laying the crisis blame on China as means of pushing Chinese leaders to strengthen the yuan and reduce its massive trade surplus.
“This sparring is no longer an academic argument, but a trial of strength for China,” he told the China Business Journal.
The yuan, also known as the renminbi, has long been a bone of contention between Beijing and Washington. U.S. officials have long insisted that China should let the yuan appreciate, which could make Chinese exports more expensive and help lessen its ballooning trade surplus with the U.S.
Chinese authorities did let the yuan rise at a faster pace until last year when the global crisis worsened and signs emerged that Chinese exports were suffering more than expected from the plunge in global demand. Since then they have introduced new measures to boost exports and even allowed the yuan to move downward in December.
The administration of former president George W. Bush avoided labeling China a currency manipulator, initiating instead a new mechanism of engagement called the Strategic Economic Dialogue, which it believed would be more successful at protecting U.S. interests.
A number of Chinese articles have appeared recently that while ostensibly appraising Bush administration’s China legacy have warned the new White House team not to discard the stable state of bilateral relations by following a “whatever-not-Bush” policy.
“Irrespective of what he leaves for Obama – an economic downturn, two wars and bitter international ties – Bush’s best gift will be improved Sino-Us relations,” said an opinion in the China Daily earlier this month.
The consensus so far appears to be that initial frictions between the two sides would soon give way to more pragmatic approach and sounder policy choices by Washington.
“China is the biggest holder of U.S. debt and Washington must realise that it cannot cope with the crisis without China’s cooperation and help,” says Zhou Shijian, expert on China-US relations at Beijing Tsinghua University. “Helping U.S. economy recover benefits both sides”.
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