China Scrambles to Stave Off Economic Meltdown

The specter of a prolonged global recession has dampened China’s wish for a world financial order less dominated by the United States and its dollar, giving way to more urgent dealings with recession worries at home.

As every day brings news of more factory closures and social unrest all over the country, Beijing has swung into a crisis management mode, mandating a sober media tone and attempting to shore up public confidence.

Over the last few weeks the lead pages of major Chinese news outlets have been headed by titles like "coping with crisis" and "withstanding the financial tsunami." Where once editorials and commentaries were ubiquitously calling for an end to American-style capitalism and the global sway of the dollar, these days the emphasis is on salvaging China’s own boat.

"It is not dissimilar to when you mobilise to go to war," Liu Jin, an expert on capital markets at the Cheung Kong Graduate School of Business in Beijing, said. "We are in a crisis and the mood in the media is set to help the public cope with the crisis."

To boost the slowing economy, China unveiled a stimulus package of 585 billion US dollars earlier this month. The money will be pumped into constructing railways, housing, airports, highways and other projects aimed at expanding domestic demand.

"It must be now obvious to many that the impact of the financial crisis to China is not only about us buying U.S. treasury bonds that could shrink in value," says Wang Luolin, researcher with the Chinese Academy of Social Sciences. "The end of the U.S. development model driven by consumption means the end of China’s development model based on exports."

As of this week China has overtaken Japan as the largest holder of U.S. treasury securities, with 585 billion dollars compared with Japan’s 573.2 billion, for the first time.

A commentary in the ‘Investor Journal’ deplored Chinese critics of the dollar’s "hegemony" in the financial world as ‘‘blind."

"It is unfortunate that such criticisms have been widely heard not only among the public but also among economists and policy makers," the piece said. "China with its vast manufacturing hubs and huge exports has been one of the biggest beneficiaries of the US dollar-centred international trade system."

China’s manufacturing sector, which produced 14 percent of the shoes, clothes and toys imported into the U.S. in 2007, has sharply slowed down over the past few months due to drop in consumer spending. Hundreds of small businesses in the manufacturing towns along the country’s east and southern coast have been forced to close or suspend production.

China is most concerned about the growing labour unrest, human resources minister Yin Weimin said Thursday. A series of strikes and protests about job losses have been staged in coastal provinces. Official urban unemployment was still about four percent, but could rise to 4.5 percent by the end of the year, he said at a press conference.

"The global economic crisis is picking up speed and spreading from developed to developing countries and the effects are becoming more and more pronounced here," he said, adding there will be more layoffs and more unrest until the country’s economic stimulus package kicks in next year.

Financially though, China, which exercises capital controls and manages its currency exchange rate, has managed to escape the worst of the current crisis.

Sitting on the fence as the financial meltdown deepens has led some officials and experts to call for Beijing to use the opportunity to wield its power in the financial world and raise the profile of the Chinese currency. Some have said the U.S. should give up its control over the International Monetary Fund (IMF) in return for China’s helping out in the crisis.