Apr 1, 1998

ASIA: AS JAPAN STUMBLES, BEIJING BIDS FOR LEADERSHIP

Beijing, Mar 31 (IPS/Antoaneta Bezlova) -- China is making a powerful bid for Asian leadership, at a time when South-east Asian tigers are licking their wounds and mighty Japan stumbles toward lacklustre growth. 

Proof of this will be seen at the second Asia-Europe meeting in London this week, when China will emerge as an important player, largely unscathed by the region's financial crisis and acquiring more of the credentials of a regional bulwark. 

"China has got two years of breathing room till Asia recovers from the crisis," said Denis Fred Simon, general manager of Andersen Consulting, China. "If everything goes under the script of (premier) Zhu Rongji, we may see the emergence of Asia led by China rather than led by Japan." 

Already, regional analysts are drawing key contrasts between China and Japan that boost Beijing's stock. 

China has unveiled major economic restructuring, while Tokyo is seen to be moving too lamely. In the same way, Beijing's assurance that it would not devalue its currency, the yuan, has been seen as crucial help for ailing South-east Asia, while Japan has come under fire for not importing enough from the region.

In London, China's Zhu, who took office in mid-March, is expected to try and win international support for his country's bold reform package and recognition for its firm pledge to keep the yuan stable.  

Zhu, viewed as a no-nonsense reformer, already caused a stir during his first televised press conference last month, by saying that a key goal for his term in office will be to ensure that China keeps its economic growth at 8% and the yuan remains stable amid Asia's weakened currencies.  

"This is our objective and we must achieve it for the well-being of China and for the sake of Asia's prosperity," he said.

Mindful of how tremendously difficult this task is, Zhu felt obliged to make even more solemn pledge: "No matter what is ahead, a landmine or an abyss, I don't have any misgivings and hesitation. I'll blaze my trail." 

China's decision not to join the wave of currency devaluations that has swept the region since July 1997 comes at high cost. Keeping the yuan stable against other Asian producers with depreciated currencies makes mainland products more expensive in comparison to those from its neighbours.  

Already, China's export growth this year is expected to drop to half of last year's 21 percent. That means China cannot rely on exports, one of its economic engines in the past, to keep the already-slowing economy buoyant. 

But whatever the economic cost, Beijing is taking full political credit for bearing it in the hope that this will refine its image in Asia and boost its international stature.  

Earlier this month, Dai Xianglong, China's Central Bank governor, said the mainland has achieved a great victory in minimising the impact of the Asian currency crisis for the sake of Hong Kong, economic stability in Asia and the rest of the world. 

"But, to achieve this objective, we must continue to endure pain and pay a certain price," Dai said. 

To battle the effects of the crisis, the government has designed a New Deal-style spending programme which experts say, will create jobs and boost the economy. 

Details of the package, which relies on massive public infrastructure spending, are reminiscent of Roosevelt's New Deal that rescued the United States during the Great Depression of the 1930s.  

In the next three years, the government pledges to invest $750 billion in highways, railways, water systems, agriculture and environmental protection. It hopes this will give the economy a new, supply-driven rather than demand-driven impetus. 

Quite a few economists wonder where the money for funding this programme will come from, and some call it an "infrastructure dream".

Indeed, the amount pledged is equivalent to about 80% of China's gross domestic product, or nearly triple its fixed-asset investment last year. Because the size of the proposed spending is mind-boggling, it has raised as much confusion as hope. 

Still, at the Asia-Europe summit, Zhu Rongji is expected to offer an alluring number of potential contracts to European bidders. He might also try to play up China's resolve not to devalue the yuan as a bargaining chip to assist the country's long-standing application for entry into the World Trade Organization (WTO). Last week China's vice premier Li Lanqing told the media that "China needs WTO as much as the WTO needs China".  

"It will be difficult for WTO as a world trade body to play its role without China, already the tenth largest trading country in the world," Li said.

Similarly, attitudes in Europe toward China seem to be positive and upbeat, as underlined by a new policy of the European Commission unveiled last week. The European Union has proposed to hold annual summit meetings with China in view of its growing leadership role in the world.  

Living up to its new image as a major international player, Beijing supports plans for a multimillion-dollar trust fund to help beleaguered Asian economies to restructure their banking sector. And by using its $140 billion reserves -- second only to that of Japan -- to win friends in South-east Asia, Chinese leaders also hope to counter Taiwan's recent diplomatic gains in the region.