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Sunday, August 7, 2022
Analysis by Antoaneta Becker
LONDON, Jun 26 2010 (IPS) - Against a backdrop of rising expectations that it holds the key to global economic recovery, China has sent a subtle signal that its economic health is frail and that external pressure to revalue its currency will cause more damage than good.
Just ahead of the G20 summit in Toronto this weekend, Chinese auditors released an explosive report throwing cold water on global perceptions of China as a country of low debt.
Chinese banks may have escaped the mortgage-related turmoil that has been battering U.S. and European financial institutions but in zealously lending to keep recession at bay they may now find themselves in peril.
China’s National Audit Office published its findings this week that some local governments have run up debts amounting to three times their available budgets. The auditors found that local debts totaled 2.79 trillion yuan (41 billion dollars), and nearly 40 percent of it was generated in 2009 during the country’s spending and lending spree to fight recession. Nationwide, banks loans to local government investment companies have risen 70 percent over the year before.
While the report did not raise the prospect of a Greece scenario of default on national debts for China, its message was meant to dampen expectations that Beijing will take the lead in redressing economic imbalances and allow a significant rise in its currency, the yuan.
This message was reinforced by a high-ranking Chinese official quoted in the state media as saying on the eve of the G20 meeting that “China and India will bleed if burdened with driving the global economy.
“To entrust global economic recovery to China and India is to be completely oblivious to the realities of emerging countries,” Zhang Yansheng, director of the Foreign Economic Affairs Department of the National Development and Reform Commission (NDRC) told the ’21st Century Business Herald’.
“We are not to be made to pay the price for developed countries’ loose monetary policies,” Zhang added.
Beijing is facing mounting calls to resume relaxation of the yuan, a relaxation that it halted in mid-2008 when the financial crisis broke, in order to help its exporters ride out the global credit crunch.
The value of the Chinese currency has been the most talked about issue among the world’s economic policy makers in recent weeks. For a while the crisis enfolding in the euro-zone had given respite to global accusations that China keeps its currency artificially undervalued to give its exporters competitive edge.
But with U.S. mid-term elections in sight and congressmen and the Obama administration unhappy with high unemployment, this is changing. U.S. Treasury Secretary Timothy Geithner said last week that the yuan was an impediment to global rebalancing, suggesting that U.S. patience with Beijing’s currency polices is wearing thin.
Many U.S. politicians are clamouring again that China be named by the Treasury a “currency manipulator” and tariffs up to 40 percent imposed on its goods to offset the undervaluation of its yuan.
“The Chinese will keep treating us like they have us on a yo-yo unless we make a serious push for our legislation,” Senator Chuck Schumer, a New York Democrat, told a Senate Finance Committee hearing focusing on U.S.-China trade this week. “They take a step forward, and then a step back. It’s the same pattern we have seen for years.”
China’s weekend announcement that it planned to abandon the dollar peg has failed to rally markets, proving too vague and void of definite commitment and a precise timeframe. Many analysts have speculated that the announcement was intended to deflect pressure ahead of the G20 meeting and the upcoming Jul. 15 U.S. report on currency manipulation.
Contrary to global expectations that Beijing feels more confident of the economic rebound in the country, Chinese commentators have been frank in speaking against the intended relaxation of the yuan peg, questioning the country’s readiness for it.
“The pressure on China to revalue has never been greater but we must make it clear to the outside world that China is undergoing a painful internal restructuring of the economy,” says Ye Qiang, analyst who follows the reform of Chinese currency. “Priority is given to U.S. plans to boost its exports and Europe’s new austere policies, but what about our own plans to change economic mode of development and create social welfare system? Should we put them on hold to bail out the U.S. and Europe?”
The news that China is burdened with piles of debt came to reinforce the ambiguous aftermath of the last weekend announcement, shattering perceptions that Beijing is one of the few global oases of low debt and economic health.
“The pressure from some government debt burdens is quite heavy, and poses a definite risk,” Liu Jiayi, director of the national audit office said in his report.
The Greek debt crisis, which caused the euro to slump by some 15 percent against China’s yuan, has made Chinese goods more expensive in the eurozone and has threatened Beijing’s ability to increase export sector jobs. This has come amid a wave of workers strikes demanding that Chinese leaders provide decent wages and better working conditions.
Deflecting attention from China’s move on the yuan, Beijing is now urging the G20 to concentrate on avoiding a second economic slump. Zhang Yansheng from the NDRC, China’s main planning economic body, has warned that Europe’s determination to implement austerity measures and fiscal discipline in the eurozone will be followed by the U.S. and Japan, threatening the fragile state of global recovery.
“What we have to be most wary of is a double-dip recession for the global economy,” Zhang said.
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