The Global Credit Crisis: What Will China Do?

A new global balance of economic power and prestige may be emerging from the international credit crisis precipitated by Wall Street’s September crashDavid Gow at the Guardian speculates:

While the western delegates at the World Economic Forum’s summer conference in [Tianjin] were confused, bemused and hyperanxious about the financial crisis and its impact on the , the Chinese were magisterially assured. Certain that they are the new masters of the universe – now or very soon.

See the Tianjin 2008 World Economic Forum on YouTube.

Gow continues:

[…]  There were two striking aspects to the Tianjin discussions among policymakers. First, the Chinese authorities were blunt that it was up to the US to sort out the mess it had created, putting at risk, as Wen told CNN, “the safety and security of Chinese capital”. Chinese investments in US and European financial assets have gone sour in the toxic meltdown. So the country’s leaders are demanding global co-operation to fix the regulatory framework, with Liu Mingkang, the top banking supervisor, exclaiming with unusual ferocity that American lending practices had been “ridiculous” and demanding a large say in any reforms.

[…] A senior European diplomat at the opening ceremony [warned]: “The Chinese are investing heavily in R&D and moving rapidly up the technological value-chain but we Europeans are in danger of falling behind and failing to invest in research. We could swiftly drop out of the premier league as far as they are concerned.”

Mexican tycoon has also called for China’s leadership in the current economic crisis, as posted previously on CDT.

Meanwhile, in his Telegraph blog Malcolm Moore doubts that the Chinese government is keen to risk being burned twice by investing in failed American financial institutions:

And on top of the (public) money that China has already lost in Morgan Stanley and Blackstone comes the real kicker – the value of the dollar is plunging as the US cranks up its presses and prints its way out of the crisis.

The $1.8 trillion of foreign exchange reserves held by China are still largely denominated in greenbacks and there must be some horror in Beijing at the [financial bailout] plans put forward by the Fed.

[…] As investors bail out of the dollar, China’s mandarins will have lost (yet more) face with their public for their poor investment decisions. And there will be serious economic consequences. Just as the US threatens to slump into recession, Chinese-made goods will become more expensive for American consumers.

Government regulators in China do appear to be proceeding cautiously.  From the Financial Times:

Ping An’s managers and shareholders must be feeling grateful to China’s painfully slow regulatory process and the cautious mandarins in Beijing who refused to approve the company’s plan to buy Fortis Investments.

Ping An agreed in March to pay €2.15bn ($3bn) for half of the asset management arm of Fortis, the Belgo-Dutch financial group which was partially nationalised on Monday with a €11.2bn capital injection from the governments of Belgium, Holland and Luxembourg.

[…] Ping An is not the first Chinese company to be saved from a bad investment by government refusal to sign off on a deal.

October 3, 2008, 9:12 AM
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