Meeting a New Capitalist Power
When Clinton visited the Shanghai stock exchange yesterday, he was at the heart of a new global financial force.
Striding to the heart of China's fledgling capitalism, President Clinton joined traders at the new Shanghai Stock Exchange yesterday, donning a red trader's jacket and hailing them for their "ingenuity and energy."Skip to next paragraph
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From a diplomatic view, the presidential praise and symbolism are examples of perfect "market timing."
China has risen to the main stage of world finance. In the past several months it has leveraged wealth amassed from more than a decade of double-digit, export-led economic growth and begun to eclipse Japan as East Asia's pivotal financial force, say analysts.
"The pendulum of pan-regional leadership has now swung decisively away from Japan and toward China," according to Stephen Roach, chief economist at Morgan Stanley Dean Witter in New York. "China's impact as an international economic power has never been greater," Mr. Roach adds.
Financially troubled East Asia is the biggest winner. In the past several months, Beijing has stood by a pledge to forgo a devaluation of its currency that could spark a flash fire of competitive devaluations across the region. It has won plaudits from Singapore to London.
While Beijing has held the line on its currency, Tokyo has dithered over reviving its huge economy and leading East Asian economies out of a downward spiral.
For a developing country, China's wields unusual heft. It has issued $30 billion in world equity markets, $7.5 billion last year alone, says Nicholas Lardy at the Brookings Institution in Washington. With Hong Kong, China holds $86.2 billion in US Treasuries, reports the Federal Reserve Bank of New York.
In a further sign of China's embrace with capital markets, state and semi-state mainland firms, including some tied to the military, have issued $7 billion worth of bonds denominated in US dollars, says Roger Robinson at the Center for Security Policy in Washington.
Finally, this past year China solidified control over Hong Kong. Because of the slumping economy and banking malaise in Japan, it has become the region's most dynamic financial center.
"These are strategic achievements by China," says Mr. Robinson. "Our capital markets are the big prize for its future 21st-century funding strategy."
The deepening involvement of China in world capital markets bolsters the president's highly controversial policy of "constructive engagement," say analysts.
In world finance, Beijing has apparently recognized that its interests are best served by cooperating according to multilateral norms. On money matters, China is now bound closer to industrialized democracies and to the ways of capitalism. "We might be seeing the emergence of financial deterrence instead of nuclear deterrence," says Jonathan Pollack, a China analyst at the Rand Corp. in Santa Monica, Calif.
But some US lawmakers and analysts believe that by ushering China into capital markets, Washington has handed it a potent weapon for a new kind of cold war - "conflict by capital." Mainland Chinese firms might try to defraud foreign investors. Or a cash-flush country like China could use its might to destabilize foreign markets and economies and wrest a strategic advantage.
"China could literally blackmail us by suddenly selling its holdings in US Treasuries and creating a crash in the [US stock] market," says Rep. Jerry Solomon (R) of New York, a former money manager and sponsor of a bill aimed at shielding US equity markets.