February 4, 1998 | Commentary on Asia
For most of the past five years, China has been Rodney Dangerfield
in Washington -- "it just don't get no respect." But in the current
Asian currency meltdown, China's stance deserves everyone's
As recently as last October's Clinton-Jiang summit, doubt persisted in Washington that the United States could work with Beijing on the issues where its behavior was seen as "contravening international norms" such as human rights, nuclear-related exports and trade concerns. A few weeks ago this attitude changed. Deputy Treasury Secretary Larry Summers flew to Beijing to confer with China's top bankers on the Asian crisis and came away from his meetings saying that China's steady maintenance of a strong currency -- the yuan -- was "the most important contribution that China could make to stability in Asia."
China's currency policies mark a sea change in Beijing's view of itself in the international marketplace, and signal that Beijing has now become an economic power with global, not just domestic, responsibilities. Alone of the Asian economies, China has made regional stability its top priority -- at some cost to itself.
Last summer, when the Thai and Indonesian currencies crumbled, virtually every player in the Far East let its currency slide. Except China. The People's Bank of China stood firm, even tweaking the yuan's value up a tad. At the time, Beijing's central bankers had good reason to bolster the yuan. A strong yuan supported the Hong Kong dollar (which is still under speculative pressure) and improved the Beijing government's political position at home during the critical 15th Communist Party Congress in September.
When the going got tough after October's Hong Kong stock market crash (and Wall Street's own correction), the People's Bank could have been forgiven if it had tacked with the wind.
China's export growth was slowing and inward foreign investment dropping, each reason enough to let a currency slip a little. China also wrestles with restructuring its state enterprises into public stock companies, and it faces a serious banking crisis. A cheaper yuan would help retire bad debts, and a modest drop wouldn't risk public confidence. After the collapse of South Korea's economy in November, certainly no one would have blamed China for a devaluation. Indeed, international finance analysts in Hong Kong predicted yuan devaluations of between 5 and 10 percent, and pointed out that a strong yuan would damage China's already slowing export industries.
Instead, China's central bankers went on record supporting the yuan. At first, Asian reaction was tepid because, of course, central bankers all insist, right before a devaluation, that there'll be no devaluation -- it's standard practice. So, China's president, premier and premier-designate all made public and repeated commitments to no devaluation, staking their own political reputations on their ability to ride out the storm. These were bold moves by serious statesmen, but they got little enough credit for them in the world press.
Not all countries were so statesmanlike. Taipei's central bank, which was under much less pressure than China, and which controls the world's third largest foreign exchange reserves (after China and Japan), looked the other way as its stable New Taiwan Dollar lost nearly 20 percent. Taiwan's was a pure "competitive devaluation," done rather than let South Korean, Malay or Thai exports underprice Taiwan's in U.S. markets. (To be fair, Taiwan has belatedly moved to shore up the NT dollar after much arm-twisting by an angry Washington).
And just a short four years ago, China itself devalued the yuan with little regard for its economic ripples through Asia. In fact, some analysts say China's big 1994 devaluation snowballed into the competitive crisis that East Asian exporters face today.
Larry Summers himself is all too aware that maintaining the value of China's yuan will be hard. In talks with him recently, China's premier-designate told Summers the Asian currency crisis poses "severe challenges." But China is no longer a "regional" economic power looking out solely for its own interests. China has become a global economic, trading and now financial power with far broader responsibilities in the Asian economy than ever before. In the long run, it will be in China's interest to do its part to maintain currency stability in Asia, and its part is an extremely important one. It's time for Washington to come to terms with Beijing's new leadership role in the global economy and to give it more than just "a little respect."
John J. Tkacik, Jr., a former foreign service officer, is president of a consulting firm. Dean Cheng is an East Asia analyst formerly with the Office of Technology Assessment. He is also a Research Fellow in the Asian Studies Center at the Heritage Foundation.
Originally appeared in the Washington Post.