To Solve Crisis, China Should Take Care of its Own

Cover editorial, issue 391 October 27 2008
Original article: [Chinese]

Before today, has China ever been handed such a heavy burden of responsibility for the world's future?

After 911, its cooperation on anti-terrorist campaigns and mediation during the North Korea nuclear weapon issue have increased its importance on the world stage and strengthened its voting rights in the UN Security Council. But never has its global role been so important as today.

The collapse of several US investment banks seems to have lifted the sluice gate of global economic ruin. Politicians and academics have begun to shift their attention to China, whose giant economy and government wealth seemed to them a vague hope, and looked forward to it putting on the brakes as soon as possible.

A great wave of praise and expectation that China join the market rescue alliance has emerged. US Treasury Secretary Henry Paulson said China had played a positive role in the global financial crisis – meaning instead of being urged to be a "responsible stakeholder", China is already such a one and has exerted a positive influence.

As Paulson put it, "it is clear that China accepts its responsibility as a major world economy that will work with the United States and other partners to ensure global economic stability."

French president Sarkozy, German Chancellor Merkel, and the European Commission President Barroso remarked in succession that China had such a great financial power that it was indispensable in rebuilding the international financial system.

Academics at think tanks, such as the C. Fred Bergsten of Peterson Institute for International Economics, offered an even bigger carrot--if China injected capital to help recover the global economy, it would soon win a dominating position within it, they said.

China has realized its importance, and in preparing to answer such calls with earnest action, Premier Wen Jiabao's statement that China would improve coordination and cooperation with other countries for the purpose of protecting the stability of the global financial market was well received. Paulson stressed the statement as "China's promise".

President Hu Jintao summarized what China had done and could still do. China supported the rescue action of the US and Europe while still maintaining the stability of its own economic system, increasing liquidity in financial markets, and cooperating with other countries' macro-economic policies.

But should or could China still do more?

Though economic growth remains stable, China's GDP slowed in September to 9%--No doubt Chinese businesses will see even darker months over the next year. With this in mind, to maintain domestic macro-economic stability is the most important premise for China's aid in the financial crisis, less its own economic conditions worsen global ones.

Presently, many foreign commentators held that China had yet to be greatly impacted by the deepening financial crisis, so it was still able to help out. However, CITIC Pacific and China Railway Group suffered huge losses in their foreign exchange trading recently. This indicates the crisis' fallout to China will likely become more serious than expected. Therefore, it is too early to make such an optimistic conclusion.

Although China has huge foreign exchange reserves, its per capita wealth is much less than those of many developing countries, even when compared with the post-crisis US and European countries. Despite double-digit growth in the past five years, China still has much to do in social security, health care and education. For instance, China has yet to weave a comprehensive social security umbrella despite that it has over 1 trillion yuan of financial revenues each year. Indeed, China should first take care of its own.

In reality, China is not getting on well despite its USD2 trillion in reserves and that it appears to have huge stores of idle funds. Such analysis perhaps makes China and its expectants believe that China's participation is necessary and that it will do its utmost.

Let China take care of its own affairs. Maintaining the stability of its real economy and financial system will be the most realistic and greatest contribution to the international financial markets.