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Is China Asia’s Stabilizer?

BEIJING: All eyes this week were focused on President Clinton’s summit meeting with President Jiang Zemin. Although disagreements between the two men over human rights aroused the most notice, a deep, surprising harmony about Asia’s financial crisis was also on view for those who cared to look. For while every currency in East and Southeast Asia was devalued recently (some more than once), China’s currency, the RMB, remains steadfast. Indeed, as Japan’s economy flounders, America -- like most of the world -- praises China’s emergence as a force for stability in the chaos of Asia’s regional economy.

But can China sustain this "contribution" to regional stability and still take care of its national interests? Across the Pacific, people fret about the RMB’s continuing stability. Such fears are unjustified, for it is in China’s interests to keep the RMB from depreciating, particularly given China’s current external conditions. Because of its large trade surplus ($40 billion in 1997) and increasing foreign exchange reserves ($139.9 billion, equal to 15% of GDP) China is struggling against the pressures of the RMB’s appreciation, rather than depreciation.

Since Asia’s crisis broke out, China has suffered a sharp decrease in exports to Southeast Asian countries, but has enjoyed increased exports to other markets, such as America and Europe. In the first quarter of 1998, for example, exports to the US increased by 24%, and exports to European countries increased by about 30%. As a result, China’s exports in the first quarter of 1998 increased by 12.8%, its trade surplus was $10 billion, up 56% compared to the same period last year.

This May China did suffer its first monthly fall in exports, by -1.5%. But China’s imports decreased by even more, dropping 2.8%. So a trade surplus remains, and foreign exchange reserves continue to grow, and now stand at about $150 billion. From a purely technical point of view, China is well able to maintain the exchange rate unchanged.