China once again becomes the scapegoat for the ongoing global financial crisis. At a time when the US economic crisis continues to deteriorate, some American scholars claim the Asian nation should be held accountable for the once-in-a-century financial crisis.
Their groundless argument, however, was used by some politicians in Washington as a tool with which to shirk their own responsibilities. In an interview with the Financial Times on the eve of the end of his term, the former US Treasury Secretary Henry Paulson claimed the global financial crisis was partly caused by the high deposit ratio in emerging economies including China. He said such a financial policy had contributed to an aggravating imbalance in the global economy and emboldened US investors to buy high-risk properties.
It is completely a ridiculous conclusion both in time order and in causal relationship.
It is known that the US has suffered a deposit shortage for a long time. The individual deposit ratio in the world's largest economy once reached a decades-high 8.2 percent in 1982 under the Reagan administration's high interest rate policy to spur economic growth.
But the figure has since declined and remained at zero from the 1990s till now. Compared with their US counterparts who have long got accustomed to overspending, Chinese people have developed a tradition of savings since ancient times. Due to the growth of their incomes after the country's adoption of the reform and opening-up policy, bank deposits began to increase in China.
But for a long period, the country's high savings failed to push its foreign reserves to rapidly increase. On the contrary, the nation had long suffered a foreign reserve insufficiency until recent years.
China's foreign reserve growth has been mainly pushed by its trade surplus and investment from other countries, including that from the US. Due to its ever-increasing economic openness to the outside world, China has been considered by foreign enterprises as an ideal investment haven. As a result, the export by China-based foreign enterprises takes the lion's share of the country's total export volumes.
With the redundant foreign reserves in hand, mostly dollar-valued, what China should first do is to merge some foreign enterprises or to purchase desperately needed high-tech products from other countries. But both ran into a wall in the US under Washington's excuse of national security.
Without any better options to invest its enormous foreign reserves China had to turn to buying US treasury bonds. However, such investment has brought China almost a zero return as the Federal Reserves continuously lowered interests rates for the sake of economic stimulation.
There is no doubt that the large-scale inflow of foreign capital has offered important funds for China's economic development at certain times.
China's foreign reserve investment has also provided the US economy with similarly needed fund resources. However, due to its defective financial monitoring mechanisms, the enormous amount of fund from China proved to have been misused.
This is the responsibility the US administration should undertake. Regrettably, the US authorities did their utmost to shirk their own responsibilities instead of conducting some soul-searching into the country's problematic financial policies and instruments. This is a long-used practice by Washington in its dealings with other countries.
With the continuous dollar devaluation since 1972 when the Nixon administration decided not to peg the dollar to gold against opposition from its allies on the other side of the Atlantic, the wealth of these Western nations suffered a drastic shrinkage.
The similar practice was repeated by the US in the 1990s. To transfer part of its excess productivity, the world's largest economy began to move some unnecessary manufacturing and trade sectors to some Asian nations.
After the 1997 Asian financial crisis, some emerging Asian economies, including China, began to reinforce their foreign reserves and domestic bank deposit. This is a valuable lesson Asian nations learned from the 1997 crisis to beef up their capability to deal with a possible crisis.
In the Asian financial crisis, the US dominated International Monetary Fund's (IMF) economic aid plans to crisis-struck Asian nations. As a precondition for assistance, the US-led international body prescribed medicine for Asian nations, demanding them to adopt a tightened fiscal policy and raise interest rates. Also, they were urged to reduce financial deficits and increase international reserves.
The increased international and domestic savings by Asian nations after the 1997 crisis greatly helped raise their ability to fend off a financial crisis. However, some US politicians now blame such a strategy for the latest financial crisis.
By doing so, politicians in Washington are clearly taking an unwise step. Having been plunged deep into the economic crisis, the credit-starved US now badly needs foreign funds to aid its ailing economy and stock market. However, due to the contracting demand in European and American markets, Asian countries too have suffered a decline both in export and foreign reserves. This would dent their ability for capital export to the US.
Washington's policy of eluding responsibility would extremely dampen Asian nations' enthusiasm to continue to buy US national debt.
The author is a researcher with the Development Research Center under the State Council
(China Daily February 2, 2009)