File spoon-archives/marxism-international.archive/marxism-international_1997/marxism-international.9709, message 583


Date: Tue, 30 Sep 1997 00:46:40 -0400 (EDT)
From: louisgodena-AT-ids.net (Louis R Godena)
Subject: M-I: Beijing's "China card" 



Roxanne writes:

>Couldn't the [currency] crisis in Thailand and Malaysia spill over into
>China, and with what effect?  China's "reforms" are in some ways
>antithetical to those promoted by the IMF; couldn't an externally-managed
>"currency crisis" tip the scales back toward greater foreign investment
than >that now contemplated by Jiang?

When Japanese Prime Minister Hashimoto visited the US in June, he spoke
ominously of the number of countries in the world, including Japan, that
hold US treasury bonds as part of their currency reserves and how the US
economy can continue to grow because these countries continue to hold the
bonds even when the dollar drops.  Now, most of these countries are in Asia.
If they have to continue selling the dollar to protect their currencies,
Treasury bonds will come under strong selling pressure and US interest rates
will start climbing.  US market players are on tenterhooks about the course
of events in Asian currency markets.

And the largest question mark in the entire Asian currency picture is China,
which has stacked up the second-largest foreign reserves on the planet.  The
combined net purchases of China and Hong Kong of Treasury bonds since 1992
have ballooned to nearly $100 billion.  The two now possess more than $120
billion in Treasury bonds and bills.

If the Southeast Asian currency turmoil spills over to Hong Kong, Beijing
may start jettisoning its Treasury bonds and bills relentlessly.  And,
remember, China's domestic market is almost immune to an international
currency debacle because its currency, the renminbi, is not fully
convertible.  Moreover, the Chinese economic structure is far less
vulnerable to outside shocks.  Investment in securities account for only 5%
of total foreign investment in China.  Direct investments contribute 69% and
loans 25% (In contrast, securities investments are responsible for 29% of
the total amount of money foreign countries sink into members of the
Association of Southeast Asian Nations).

As I suggested in my original post, the low rate of securities investments
in China is an indicator of the underdeveloped capital market in the
country.  Ironically, that makes China less susceptible to any currency
pandemonium in the international markets because direct investments and
loans are, unlike securities investments, not likely to be withdrawn
immediately in an emergency.

This is the real "China card", and this time it is held by Beijing.  If the
economic and financial systems of the largest political power in Asia remain
closed, any effort to keep stability on the market could have only limited
effect.

As long as China can successfully parlay the "weakness" of its currency into
expansion of exports, it will keep imposing pressure on other Asian
countries, thereby maintaining potential instability on the market that
could flare into a full-blown currency crisis at any moment.

And the US knows it.

Louis Godena  




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