Asia must rally behind China
By Chan Akya
April 10, 2008
http://www.atimes.com/atimes/Global_Economy/JD10Dj02.html
The coming Beijing Summer Olympic Games promise to be the most
political event since the first time non-Greeks participated in the
ancient form of the s****ts enclave. This is no exaggeration, as the
Games will mark the first big step by China in the international arena
as a power in its own right, while also providing many Westerners with
their first glimpse of the ancient civilization.
Looking at the tone of the Western media towards the Games though, it
is clear that cudgels are being taken up and tools are being sharpened
for a propaganda battle aimed at denting the political and cultural
mileage that would rightfully accrue to China from such a spectacle.
Tibet is the latest cause celebre, if it hadn't come along perhaps
with the active encouragement of the US Central Intelligence
Agency - to the acute embarrassment of India, which houses the exiled
Dalai Lama in good faith - then global media would have been more than
happy to pick up another cause, ranging from Taiwan to any ragtag
Falungong practitioner that could be found wandering the streets of
California. Perhaps even Hollywood moguls like Steven Spielberg would
have been given their anti-China scripts to write and produce, much in
the fa****on of Dogs of War.
The constant stream of attacks on China in the Western media has
confused many Asians, and this is understandable, given that the roots
of the current propaganda battle have more to do with geo-economics
than mere geopolitics. For people like me who consider the one a
continuation of the other, the distinction is lost anyway. The key
question here is to understand why the Group of Seven (G7) of leading
economic powers is acting against China, and what are the consequences
for the rest of the region.
Understanding G7 fears
Regular readers of this column will know that I consider the G7
somewhat contemptuously, as my past article on the subject (Dear
dinosaurs, Asia Times Online, October 20, 2007) makes amply clear. The
annual conclave - finance officials of member countries huddle in
Wa****ngton this week - is nothing but an excuse for a bunch of
tomorrow's redundant powers to confab and gather enough memorabilia
with which to entertain themselves in their dotage.
The background to this bout of anxiety regarding China in the Western
world's media, not least in its financial media, is of course the
existential crisis that confronts the major economic powers of today -
the US, which is staring at the demise of its currency as the global
reserve denomination (Dead-dollar sketch, Asia Times Online, March 4,
2008) and the various pockets of Europe that need to come to terms
with their own mortality more urgently than any other group of people
(see Euro-trash, Asia Times Online, March 11, 2008).
While these two articles were perhaps too brief to examine the full
range of issues confronting these economic zones in question, the main
points about a dysfunctional financial system that needs constant care
and capital from the collective savings kitty was pointed to. In turn,
lacking the demographic strength required to engineer enough financing
for these activities, both the US and Europe now feel an acute need to
continue gathering capital from the rest of the world and in
particular, the great savers of Asia.
China is hardly the sole target of the G7 nostalgia brigade. In my
previous article (A conspiracy against gold, Asia Times Online, April
3, 2008), I laid out the steps being taken by global central banks
against the potential for gold to replace fiat currencies at the
center of the global financial system. Being only able to buy or sell
the precious metals at prices set by markets, central banks have no
power to actually manipulate the underlying value of gold.
Alternatives to the dollar
Thus, if they choose to sell the commodity and drive its price down,
it is highly likely that bouts of inflation currently being seen in
the global economic system will eventually force every right-thinking
investor to consider alternatives to the US dollar and the euro. This
is perhaps the biggest fear confronting central bankers across G7,
thereby necessitating unprecedented steps aimed at restoring the
credibility of various fiat currencies by first inflating asset values
such as stock prices.
The biggest losers in this policy debate are of course Asian
countries, whose collective savings are falling in value with every
move in the US dollar and its fiat currency cohorts, thanks to the
mountains of savings that are held in those currencies. Asian central
bankers being a bunch of decidedly unimaginative folks, in effect work
for the US Federal Reserve and the European Central Bank (ECB). But
even they are not stupid enough to imagine that Asian savers will be
fooled forever, therefore the idea is to buy as much time as possible.
This state of an unsettled equilibrium can go on long enough for the
US Fed and the ECB to demolish purchasing power and effect a
bankruptcy of Asian savings though stealth.
What can Asian countries do?
I have long argued that Asians buying US dollar and euro-denominated
assets for their reserves is the same idea as imperialism, wherein
workers accept IOUs on the companies they work for, in place of hard
cash. With a bulk of their future purchasing power tied in enterprises
that must succeed for them to get paid, workers over time forsake good
working conditions and other necessities to ensure that the indentures
are paid.
In other words, Asia provides the debt financing required for the
global equity markets to function, which in turn account for a
substantial ****tion of the savings of many rich countries including
the US and Britain. Pull the debt financing away and all equity values
converge to zero - but equity investors are clearly betting that
Asians will never get the smarts to do that.
Given this continued demolition of their purchasing power and eventual
penury for many Asian countries, despite their high savings of today,
it becomes im****tant for the region to rally around China. This can be
done in many ways, but a few baby steps will go a long way in
reminding G7 where the world's true economic power lies today.
1. Firstly, every one of Asia's top leaders must pledge to attend the
opening ceremony of the Beijing Olympics, and must do so in public
immediately. This will serve adequately as snubs to various European
leaders (such as French President Nicolas Sarkozy) who have threatened
to boycott the ceremony.
2. Secondly, the region's central banks should collaborate to dump
billions of US Treasuries, federal agency securities, European
government bonds and mortgage-related securities over the next few
weeks. This will push yields up sharply across G7 and serve notice of
a buyer's strike.
3. Thirdly, Asian countries must demand that G7 countries honor their
own empty rhetoric with respect to free markets by allowing
untrammeled access to Asian companies intending to buy G7 banks and
cor****ates. No more talk of evil sovereign wealth funds, thank you -
you owe us money, so we will take whatever steps required getting it
back.
4. Lastly, the region's currencies should adopt a soft peg to the
Chinese yuan, allowing the pace of appreciation against the US dollar
for the whole region to be dictated by the country with the largest
potential losses in such a situation, namely China.
How China can help?
To be sure, there are many prickly issues between China and its Asian
neighbors that the former can help to iron out over the short term, in
turn pu****ng key democracies such as Japan, South Korea and India into
its own orbit and away from the US influence that so pervades the
region. A few helpful steps would include:
1. Renounce violence against Taiwan. Realistically, no Asian country
will allow Taiwan to become independent, and without that there is no
chance of any such eventuality. Therefore, China need not bother about
the military option that it would never have to use.
2. Dropping the strident rhetoric against personalities such as the
Dalai Lama, as Mao Zedong-era language is an embarrassment for today's
China and only emboldens its opponents.
3. Withdraw sup****t from embarrassing tin-pot dictator****ps such as
North Korea, Myanmar and Sudan.
4. Provide leader****p on matters shown above, engaging its Asian
neighbors as fellow industrialists rather than competitors. This
includes leading the region on adjusting currency values as well as
providing cooperation on other economic matters.
In February, the G7 urged China to accelerate appreciation of its
effective exchange rate, while the major economies also want it to
further open up trade, cut investment barriers and increase disclosure
on sovereign wealth funds. The US may also like China to buy a lot
more Fannie Mae/Freddie Mac (US agencies) securities that would in
turn sup****t the housing sector.
The most recent G7 meeting in October was a comedy, but this time the
rhetoric isn't going to be funny for Asia as leaders gather to push
for more aggressive action that would save their economies while
bankrupting Asian purchasing power. This cannot be allowed to happen.
Therefore, Asian leaders must see through the current smokescreens
around China to understand that they are themselves the primary
targets of all such actions. It is time to flex some Asian muscle.
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