|
|
 |
 |
 |
 |
   |
CHINA BUILDS A WALL--BUT WILL IT HOLD?As imports flow in and capital out, Beijing returns to protectionismChinese leaders had enough trouble plugging the dikes along the overflowing Yangtze River this summer. They may be fighting even bigger floods now. The Asian economic crisis is causing tidal waves of cheap imports to wash into China. At the same time, money is flowing out--$20 billion last year, and probably much more in 1998. The two phenomena are related: Imports are putting pressure on Beijing to devalue the currency to make Chinese exports cheaper. And people and companies inside China that fear devaluation is inevitable are moving money out. All this adds up to a massive challenge. Chinese officials are enacting protectionist measures to stave off devaluation as long as possible. These include cracking down on unauthorized currency trading, supporting prices in such areas as steelmaking, petrochemicals, cars, and televisions, and erecting new barriers to imports and foreign investment that threaten local industries. The Chinese are gambling that good old-fashioned state controls can blunt the worst effects of global capitalism and keep the bulk of China's enormous savings inside the country. It's a very Chinese idea: wall yourself off from the world and rely on domestic demand and public works to pull you through. But this time it may prove impossible for a country whose huge export industries are so in synch with the global economy. Already, the whispers in China's bazaars are that a devaluation of the yuan in 1999 is inevitable. In Beijing's silk market, the yuan is 8.9 to the dollar--7% less than the official rate--as average Chinese convert their savings into dollars, smugglers buy up hard currency, and trading companies try to get their hands on foreign exchange. Beijing University economist Song Guoqing predicts an exchange rate of 12 yuan to the dollar by 2000. ''It's a losing game. They can't stop it,'' says Song. But they can try to postpone it. In late September, the powerful State Council cracked down on unauthorized foreign exchange dealings. The mandarins want banks and companies to stop spiriting money out of the country and to repatriate overseas earnings rather than sock them away in some foreign bank. Beijing announced that companies had until Oct. 1 to bring back the money or face punishment. OPEN THE SPIGOTS. Meanwhile, the Chinese siphon off foreign reserves further by paying in dollars for the smuggled oil, cars, and other goods and commodities flooding the country. These cheap imports are ruining business for local state-owned producers, which are struggling to unload stockpiles of goods worth close to $500 billion. Although authorities can't stop smuggling, they want to halt steep discounting that might put weak companies out of business. So China imposed ''voluntary'' minimum prices on 15 industries to blunt the impact of imports. Of course, propping up Chinese industry means that state- enterprise reform must be put on hold. Beijing is also encouraging banks to open the spigots. And it has shelved plans to clean up dud loans. ''These days, no one is talking about bad debt,'' says Beijing University's Song. Foreign companies are also getting pinched. China State Power Corp. intends to stop imports of small-scale power-generation equipment--a blow to General Electric Co. and Siemens. Provincial telecom operators must now buy locally made telecom equipment when possible, rather than imported stuff from Nortel, Lucent Technologies, and NEC. And an internal government circular in September suggested a ban on foreign participation in telecom services. Such participation is technically illegal, but until now authorities looked the other way while companies like Sprint, Siemens, and Deutsche Telekom skirted the rules. A ban would put millions of dollars of investment at risk. Chinese authorities should beware of scaring off foreign investment at this crucial moment. Export growth is fading, as is domestic consumption. ABN-Amro Asia in Shanghai forecasts economic growth a full point below Beijing's goal of 8% this year. With that target a minimum to keep absorbing new workers into the workforce, anything less means increasing ranks of unemployed. ''China is not as attractive [for investment] as before,'' says ABN-Amro's Jim Lam. But China needs growth--and it needs the outside world to achieve it.
By Dexter Roberts in Beijing
|
Updated Oct. 1, 1998 by bwwebmaster
Copyright 1998, Bloomberg L.P.
Terms of Use