x Abu Dhabi, UAEFriday 28 July 2017

China relishes its new global role

Analysis: Beijing is the world's largest holder of US Treasury debt, amounting to US$696 billion.

A department store customer watches the annual address of the Chinese premier, Wen Jiabao.
A department store customer watches the annual address of the Chinese premier, Wen Jiabao.

China's parliament is the acknowledged rubber stamp of the people's republic, but each year an increasing number of journalists apply to cover its annual meeting in March. This year, 834 applied to report on the National People's Congress, a 25 per cent rise on last year. This is because the meetings offer a chance to observe the country's leaders up close, but this year's meeting is more attractive as many countries are looking to cash-rich China to help rescue the world economy.

At the end of this year's congress, as is customary, Wen Jiabao, the premier, addressed the world press, but for the first time he told of China's concern about its enormous holdings of US Treasuries and called on Washington to guarantee their safety. "We have lent a huge amount of money to the US and, of course, we are concerned about the safety of our assets," Mr Wen said on Friday. "To be honest, I am a little bit worried."

Beijing is the world's largest holder of US Treasury debt, amounting to US$696 billion (Dh2.55 trillion) as of the end of December. Total holdings probably amount to $1tn if other US-dollar assets are included. The US, which plans to run a budget deficit of 12 per cent of GDP this year, wants China to continue buying its debt. The Secretary of State, Hillary Clinton, has said "it would not be in China's interest" if Washington could not finance deficit spending to stimulate its economy, because the two economies are so intertwined. But while China fears its US assets are at risk, it also knows it will probably trigger a substantial decline in those assets if it tries to sell its Treasury holdings.

If it continues to buy Treasury bonds it will increase its exposure, but if it doesn't support attempts to stimulate the US economy through lending, the economic downturn may become longer, more severe and more damaging to Chinese exports. The NPC session also illustrated China's global financial clout. The day before the nine-day session opened, Bloomberg quoted Li Deshui, the former statistics bureau chief, as saying Mr Wen would announce "a new stimulus package". The next day, markets rose in Shanghai, Europe and the US, but no package was announced.

Mr Wen said at the end of the congress that "rumours and misunderstanding set the world stock market on a roller-coaster ride". Mr Li denied having made the statement, but whether he did or did not the global turbulence the report caused showed the power China wields these days. China is trying to show the world it is a responsible power, able to keep its house in order while doing what it can to assist others.

The premier, at his conference, again affirmed the goal of 8 per cent growth this year while acknowledging it would be a difficult task. And while he did not announce another stimulus package, Mr Wen did say the 1.18tn yuan (Dh633bn) that is the central government's share of the 4tn yuan stimulus package announced last November, consists entirely of new money. He added that the government had sufficient "ammunition" and was ready "to put forward new stimulus policies at any time".

As for assisting other countries through the IMF, Mr Wen said that: "IMF member countries should shoulder responsibilities in accordance with their quotas." The US contributes 20 per cent of the IMF's capital, while China's share is 4 per cent. Clearly, Mr Wen was saying that if the world wants China to increase its contribution, Beijing will have to be given a stronger voice. The sense that China is poised to play a bigger world role was also conveyed by Yang Jiechi, the foreign minister, who also held a press conference after the congress. "The international influence, role and standing of China have visibly increased," Mr Yang said. "We have continued to make important contributions to world and regional peace, stability and development."

He cited two recent buying missions to Europe, including Germany, Switzerland, Spain and Britain, in which Chinese companies signed agreements worth $15bn. China has worked hard to raise its status, often declaring that it shares special global responsibility with the US. The financial crisis presents a chance for it to change the world balance of power and China is grasping it with both hands. After years of having been lectured by the US on topics such as human rights, free trade and religious freedom, China is relishing its new status, warning the US against the perils of protectionism and calling on Washington to behave responsibly in managing its assets.

The ball is now in Beijing's hands. At the coming Group of 20 leading and emerging economies meeting in London, the world's eyes will be on China. It is unlikely to fumble. * Frank Ching is a journalist based in Hong Kong