Asian and European leaders will look to China at a summit starting on Friday to help shore up a global economy described by President Hu Jintao as grim.
The unusually frank assessment by the Chinese leader underlined the timeliness of a two-day Asia-Europe Meeting (ASEM) of 27 EU member states and 16 Asian countries that had been shaping up as a staid, staged talking shop. “The current world economic situation is grim and complicated,” Hu told Indonesian President Susilo Bambang Yudhoyono ahead of the summit, Xinhua news agency reported.
The two days of formal ASEM sessions in Beijing’s Great Hall of the People are set to be a regimented march through an agenda covering economic cooperation, climate change and development. But meetings on the sidelines were already clarifying what leaders want other countries to do -- and plan to do themselves -- to seek an escape from an economic slump.
On Friday morning, the ASEAN group of Southeast Asian states agreed at talks with Japan, China and South Korea to upgrade a long-established $80 billion web of currency swap lines among central banks in the region. The purpose is to allow a country plunging into a foreign exchange crisis to rapidly call up financial firepower by swapping its currency for those of its neighbors.
The aim would be to sell the borrowed money in the foreign exchange market to stem pressure on the currency under attack and so avert a repeat of the meltdown that plunged several countries into deep recession during the 1997/98 Asian financial crisis.
Asia has fared better during the latest bout of turbulence on global markets. ASEAN’s leaders expressed confidence that the group’s financial sector remained “solid and sound.” “Nevertheless, precautionary actions are needed to send a clear and unequivocal signal that ASEAN is resolute and better prepared than 10 years ago when the financial crisis hit the region in 1997,” ASEAN in a statement after pre-summit talks late on Thursday.
Governments worry that banks, markets and currencies throughout the region will come under pressure as global economic conditions worsen. South Korea, even though it has $240 billion in currency reserves, had to unveil a $130 billion bailout package for its banks on Sunday. “Leaders at the meeting shared the need of stepping up regional cooperation to cope with the global financial crisis and to coordinate policies,” South Korea’s presidential office said after the meeting with ASEAN that endorsed beefing up the swaps scheme.
The group agreed to complete that task by the first half of next year, but diplomats said the devil would be in the detail of the strings to be attached to activating the credit lines. Thailand has proposed a parallel plan for Asian governments to pour part of their vast holdings of currency reserves into a $200 billion fund to buy shares, facilitate trade and build up infrastructure in the region. A working group of finance ministry and central bank officials would look at the details next month, Philippine Foreign Affairs Secretary Alberto Romulo told Reuters.
China, which would have to make the biggest contribution to a common pot, was lukewarm about the idea. “I think China, Japan and South Korea will together explore how to further strengthen cooperation with ASEAN,” Foreign Ministry spokesman Liu Jianchao told reporters late on Thursday. Japanese officials said the Thai plan was just too vague, as was an idea floated last week by Philippine President Gloria Macapagal Arroyo for a $10 billion fund to buy bad debt and recapitalize banks around the region hit by the financial crisis.
ASEAN, which groups Cambodia, Malaysia, Indonesia, Singapore, Vietnam, Philippines, Laos, Thailand, Myanmar and Brunei, is not alone in looking to Beijing for leadership.
The European Union wants China, with the world’s biggest hoard of currency reserves and the world’s fastest-growing major economy, to help shape global financial reforms and tackle the economic imbalances at the root of the present turmoil. The global financial meltdown is injecting a sense of urgency into a summit of European and Asian leaders that gets under way in China’s capital on Friday.
For a start, the EU wants China to agree to join a financial crisis summit in Washington next month that President George W. Bush has convened. “I very much hope that China gives an important contribution to the solution of this financial crisis,” Jose Manuel Barroso, president of the European Commission, the EU’s executive arm, said on Thursday. “I think it’s a great opportunity for China to show a sense of responsibility.” Chinese spokesman Liu would say only that his government was “actively considering” attending the Washington summit.
EU Commission President Jose Barroso set the tone early, saying “unprecedented levels of global coordination” were needed to deal with the crisis. “It’s very simple: We swim together, or we sink together,” Barroso said Thursday at a Beijing news conference ahead of meetings with top Chinese leaders.
French President Nicolas Sarkozy has pledged to use the ASEM meeting to persuade Asian nations to sign up to a plan to redraw the rule book for international capitalism, calling for a global system of regulation.
Chinese Foreign Ministry spokesman Liu Jianchao echoed the need for changes to the current system. “We need to explore the possibilities of reforming the international economic structure ... (to) stabilize the international financial markets, and ensure the stable operation of the international economy,” he said. (Reuters)