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China takes center stage at summit

Pressure mounts on Beijing, with its huge foreign reserves, to do more to help alleviate the financial crisis.

November 15, 2008|Don Lee | Lee is a Times staff writer.

SHANGHAI — As global leaders gather today for an economic summit in Washington, no one may feel the spotlight's glare as much as Chinese President Hu Jintao.

In the weeks leading up to this meeting of leaders of the Group of 20 developed and emerging countries, there have been repeated calls from different corners of the world for China to step up and take a bigger role in addressing the global financial crisis.

Beijing responded Sunday with a $586-billion economic stimulus package that includes infrastructure spending and other measures to bolster domestic demand. And on Friday, Chinese officials confirmed they had offered $500 million in aid to financially teetering Pakistan, calling it "an urgent agreement based on the two countries' long-term friendly relations."

But there will probably be expectations for China to do more, given that it holds the biggest stockpile of foreign exchange reserves in the world, nearly $2 trillion worth, and that it looks to be one of the few major economies to show significant growth in the near term.

In particular, British Prime Minister Gordon Brown has urged China as well as oil-rich Saudi Arabia to boost the resources of the International Monetary Fund.

Japan, which holds the second-largest cache of foreign reserves, around $1 trillion, is expected during the summit to pledge $100 billion in loans to the IMF, according to Japanese media. Though his nation's own economy is ailing, reports suggest Prime Minister Taro Aso is trying to assert leadership in dealing with the worst global downturn in decades.

"Japan's move will exert a certain pressure on China," said Zhang Shenjun, deputy dean of Beijing Normal University's Institute of Political Science and International Studies.

He said China hadn't been happy with the IMF, in particular the way nations' voting rights are assigned, and would likely press for changes in the American-dominated organization before committing to add to its coffers.

A Chinese Foreign Ministry spokesman declined to comment.

Zhang said Beijing currently had its hands full trying to maintain its own development and growth, which it viewed as doing its part to bring stability to the shaky global economy. Its rapid growth in recent years has spurred a boom in commodities and opened new opportunities for multinational firms.

On Friday, a senior Chinese official, adding details to a fiscal stimulus plan that has been likened to America's New Deal, said a "large part" of the two-year, $586-billion package was new money and the central government would account for about $173 billion of the total investments. The rest would be supplied by local sources, according to the official New China News Agency.

China can afford the spending because it has been running a fiscal surplus and has a cushion in its foreign reserves exceeding $1.9 trillion as of Sept. 30, up from $819 billion at the end of 2005. The booming growth has come mostly from the nation's trade surplus and inflows of foreign investment.

Just how Beijing should use its large reserves has been a subject of much discussion both within and outside China. But analysts point out that the money already has been invested -- more than half in U.S. Treasury issues and other American bonds and much of the rest in euro-denominated assets -- and it isn't so easy or practical to transfer hundreds of billions, or even tens of billions, of dollars, at least not without causing serious disruption to the currency market, which wouldn't be in China's self-interest either.

As such, analysts say some people's worries of China dumping massive amounts of dollars have little basis.

"The U.S. and EU debt markets are the only places big and liquid enough to absorb them," said Stephen Green, an analyst at Standard Chartered Bank in Shanghai, writing in a research report this week. At the same time, he said, China also isn't likely to make a public commitment to buying future U.S. Treasuries, as some have called it to do to help "save" the U.S.

"There's no domestic support for that," he said.

Xu Aijun, 30, who owns a small home-decorations business in Shanghai, seems to convey the feelings of many ordinary Chinese citizens.

"Our country was affected by the credit crisis too, and we need investment domestically to support the economy and create jobs," he said as he considered Hu's visit to Washington. "I think that's where we should use our foreign reserves."

Tao Wang, an economist at UBS Securities in Beijing, says it should be remembered that China is already helping the global financial situation by holding on to U.S. Treasury debt. "If it sells it, interest rates would go up and the dollar would collapse," she said.

During the summit, the heads of the Group of 20, which accounts for about 90% of the world's economic output, also are expected to take up global coordination of tighter regulations on financial institutions, increased support for banks and fiscal stimulus efforts.

Chinese officials haven't tipped their hand on what Hu and his delegation will be supporting as far as calls for greater accountability and transparency of financial firms. Analysts say the Chinese could also push for assurances from developed countries to limit protectionist legislation.

At a news conference Thursday, China's Foreign Ministry spokesman, Qin Gang, talked mostly in generalities, saying there was a need to carry out "reform to replace the existing international finance system with a fair, just, inclusive and orderly one" that would help developing countries in particular.

As in prior world summits, China is expected to coalesce with other emerging countries such as India and Brazil. And, increasingly, those around the table will be keenly waiting to hear what China has to say.


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