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___________________________________________________________________ > > > S T R A T F O R > > THE GLOBAL INTELLIGENCE COMPANY > > http://www.stratfor.com > ___________________________________________________________________ > > 28 June 2002 > Common "Chinese Dollar" -- Serious Proposal or Political > Rhetoric? > > Summary > > A series of statements about currency is emanating from China -- > from the suggestion of a common currency for the mainland and > Taiwan to floating the yuan to creating an Asian currency system > centered on the Chinese currency. With many of these appearing > little more than wishful thinking, it raises the question of > whether Beijing's rhetoric is simply that of a government nearing > a highly sensitive political transition or if these reveal the > unfolding of a new Chinese policy -- one that could spell the end > of centralized, one-party rule. > > Analysis > > China floated a trial balloon June 28 positing a common Chinese > currency for the mainland, Taiwan, Hong Kong and Macao that > eventually could evolve into the core of an Asian common > currency. An article in the official People's Daily suggested the > formation of a "Chinese dollar" following the pattern of Europe's > common currency, the euro. The optimistic 10-year plan could lead > to the creation of an "Asian dollar," which could protect the > region against currency fluctuations and economic crises, > according to the report. > > China's common currency proposal is obviously a non-starter, > given that Taiwan would lose all economic independence if it > acceded to the plan. Yet in some respects, it is a logical > extension of a dual-track Chinese policy intended to bring about > the peaceful integration of China and Taiwan and to reassure its > Asian neighbors that China's economic growth is not a cause for > alarm but a force for regional stability. > > With China heading for one of its biggest leadership shakeups in > the five-decade history of the People's Republic, the question > that arises is whether the statements reflect simple posturing or > in fact reveal new and unfolding economic and political policy. > > In the People's Daily article, four benefits were put forward for > the formation of an integrated Chinese currency. First, China's > financial reforms could be guided by experts from Hong Kong and > Taiwan, stabilizing the Chinese economy and strengthening the > common system. Second, Hong Kong would gain a much broader market > for its products and services. Third, Macao's vital tourist > industry would be boosted by the more convenient single currency. > The fourth and final benefit would be for Taiwan, which would be > able to use the scale of China's economy to resist "external > financial attack." > > Although on some level, these are logical arguments, they > overlook the central issue: that of Taiwan's political autonomy. > Despite rapidly growing economic ties between Taiwan and the > mainland, Taipei is still intent on remaining at least de facto > independent of Beijing. The same argument seems to supersede > another mainland proposal for economic ties with Taiwan. A > spokesman for China's Taiwan Affairs Office said earlier this > week that Beijing is ready to open the so-called three direct > links with Taiwan -- as long as they are treated as domestic > business affairs. The three direct links are mail, trade, and air > and shipping services directly between Taiwan and China rather > than through Hong Kong or other nations. > > The spokesman said the key reason for the "domestic" label would > be to avoid allowing foreigners to take over the shipping routes, > as even with Taiwan and China's WTO entry, the United Nations > allows countries to retain the rights to coastal transportation, > fishing and commerce for its own business. Like the proposal for > an integrated currency, this too avoids the question of Taiwan's > sovereignty -- or rather it automatically assumes Taiwan is part > of one China, something Taipei is steadily moving away from. > > Beyond Taiwan, however, China is trying to project an image of > economic magnanimity to all of Asia. Beijing has been campaigning > hard to convince its Asian neighbors that China's economic growth > does not challenge their economies. By floating the idea of a > giant Chinese economy anchoring Asia amid a sea of financial > instability and foreign pirates bent on "financial attack," > Beijing seeks reshape the perception of China as an unscrupulous > giant bent on economic conquest. > > Building on this, China has taken the initiative in promoting the > formation of a free trade zone with the Association of Southeast > Asian Nations (ASEAN), basically suggesting to it that since > China's growth is inevitable (if not unstoppable), they may as > well come along for the ride. More tactically, Beijing is footing > much of the bill for linking peninsular Southeast Asia into China > via rail -- opening up the trade flows and giving ASEAN > physically easier access to China's markets. > > China's attempts to soften its image among its neighbors, > however, are proving only minimally effective. Beijing sees > itself as one of the last standard-bearers for the creation of a > multi-polar world, one that allows China to set its own domestic > political and economic policies without concern for what > Washington may say or do. Yet the United States is by far the > more economically, politically and militarily dominant power. And > everything China does to narrow the gap -- be it through economic > restructuring or buying Russian submarines -- only leads China's > near neighbors to be more certain that Beijing harbors regional > aspirations of glory and power. > > Beijing's recent statements, then, raise an important question. > Is China simply tossing out rhetoric during the run-up to the > leadership change, or is it seriously preparing for a major shift > in economic and political policy? > > There are other actions Beijing is taking that appear to be a > continued move toward liberalizing the economy, which in turn > means less centralized control for Beijing or the Communist > Party. China is opening foreign-exchange rights to domestic and > some select foreign banks and is considering changing investment > rules to allow foreign firms to invest in China in yuan, rather > than foreign currencies. At the same time, financial officials > repeatedly have suggested that the yuan is moving toward > convertibility. > > Allowing the yuan to float free, or even within a broader band, > would erode Beijing's control over national economic policies. > This in turn could have drastic consequences for Beijing's > ability to control social instability, particularly if market > forces trigger even more rapid rises in unemployment or drastic > fluctuations in China's currency. > > But if the fluctuations failed to materialize, Beijing could move > the yuan toward a more regional and even international currency - > - giving China much greater political leverage and an ability to > counter the United States. This would of course require the > continuation of China's phenomenal (if not entirely believable) > growth rates -- something Beijing would have to be very sure > about to risk the internal destabilization should they > miscalculate. > > If China's leaders truly believe that Beijing is on an > unstoppable climb up the global economic ladder, then the short- > term risks to stability can be countered by the long-term gains > in international political and economic influence -- and by the > ability to establish China as the other pole of the global > system. With the transition of power near, however, the current > round of rhetoric, and some of China's actions, may fade away as > the new leaders begin consolidating power in 2003. > ___________________________________________________________________ --------------------------- ANTI-NATO INFORMATION LIST ==^================================================================ This email was sent to: [email protected] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84x2u.bacIlu Or send an email to: [EMAIL PROTECTED] T O P I C A -- Register now to manage your mail! http://www.topica.com/partner/tag02/register ==^================================================================
