Promoting agriculture in times of hardship

Crisis should make U.S. do some soul-searching

Special Report:Global Financial Crisis

BEIJING, Feb. 2 -- China once again becomes the scapegoat for the ongoing global financial crisis. At a time when the U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S.. 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 U.S. under Washington's excuse of national security.

Without any better options to invest its enormous foreign reserves China had to turn to buying U.S. 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 U.S. 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 U.S. administration should undertake. Regrettably, the U.S. 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 U.S. 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 U.S. dominated International Monetary Fund's (IMF) economic aid plans to crisis-struck Asian nations. As a precondition for assistance, the U.S.-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 U.S. 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 U.S. 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 U.S..

Washington's policy of eluding responsibility would extremely dampen Asian nations' enthusiasm to continue to buy U.S. national debt.

(Source: China Daily)

Nationwide strike a test for Sarkozy

BEIJING, Feb. 2 -- France's first nationwide strike since the eruption of financial crisis occurred on January 29, or last Thursday. Hundreds of thousands of angry and fearful workers took to the streets to voice concern and worries for their sagging living standards and great dissatisfaction with the government bailout plans.

Interviews in the French media with representatives in the protesting areas show that people have been saddened by President Sarkozy's performance during his 20-month presidency. "The majority of people in France are disappointed with the way Nicolas Sarkozy has handled his duties at the Elysee Palace," according to a poll by LH2 published in the "Liberation".

Eight big French unions had called for the general strike, which had halted virtually all services. Relevant statistics indicate that more than 200 protests or demonstrations took place in France on January 29, and union leaders said approximately 2.5 million people took to the streets on that day.

All French trade unions held a general strike to defend jobs, reduce inequality, retain buying power and called for equality public services. Protestors came from public transportation, school, hospital and mail serves as well as from banks, courts, museums and theaters, and employees from private firms also pitched in. Moreover, retirees and old workers joined the youth to show up signs or slogans in their opposition to the government.

Why could such a large-scale strike take place in France? As the financial crisis has worsening the socio-economic environment in France, citizens are seized with panic and their pessimism spreads far and wide across the nation, according to public opinions. A more profound, in-depth reason is that many French have turned uneasy and dissatisfied with Sarkozy's reform program "seeking to break out of the institutional impasse."

Objectively, global financial crisis has indeed produced an immense, negative impact on the French real economy, and quite a number of enterprises in France have cut their employment and some of them even gone bankrupt. A total of those unemployed came to 2.068 million by the end of November 2008, according to statistics issued by late last Nov. An economic forecast slated to be released by the European Commission in mid February predicts France's economic growth could fall to -1.8 percent in 2009, and estimates the nation's unemployment rate at 9.8 percent this year and 10.6 percent next year.

Nevertheless, it seams that the French government is so focused on the bank bailouts and the auto industry bailout to the neglect of the "work, employment and purchasing power," which have much to do with people's livelihood.

On the other hand, new (reform) deals carried out ever since Sarkozy came into power almost two years ago have failed to let people see any hopes. Instead, they are attempted to undermine the state welfare system and deprive French citizens of their vested interests. So, critics say that French nationals have felt wary of or disappointed with Sarkozy's hasty reform measures. Hence, a kind of intrinsic, "anti-Sarkozy" sentiments have brewed and come to the fore.

In the face of strong dissatisfaction let off by millions of ordinary citizens during protests, the French government cannot remain unmoved or impassive. To placate angry protestors, Sarkozy voiced his readiness to listen to them and have "dialogue" with them. However, he neither "lost his taste for reform," nor would retreat from it. The president's office disclosed last Thursday that Sarkozy was expected to have a televised address on February 5th concerning the economic crisis and government actions to respond to it. He was also said to confer possibly with union leaders on the economic vitalization plan and reform policies for implementation in 2009. The plan was worked out previously by both sides rather than temporary arrangements made afterwards due to the recent surging strike.

Meanwhile, Prime Minister Francois Fillon would call a meeting of 23 ministers and the cabinet secretary on Tuesday to discuss an economic vitalization plan formulated in December 2008. And Patrick Devedjian, the newly-appointed French minister for Implementation of Economic Recovery Plan, disclosed that 1,000 projects covered by the plan would be launched shortly, and they are mainly related to infrastructures and industries to uplift the competitive power of enterprises.

Although the trade unions expressed their willingness to sit down and talk to the government, Bernard Thibault, the current secretary of the Confederation Generale du Travail (CGT), a French workers' union, nevertheless warned that another general strike cannot possibly be ruled out if the government does not work out substantial proposals and resort to concrete actions.

At the time when the French economy is plunged into a grave recession and complaints or resentment among people have soared to record levels, analysts acknowledged, strikes or protests can spread and even be turned into cases like recent "Greek youth violence" or "youth violence along Greek patterns", provided the French government does not take firm, resolute actions and communicate efficiently and effectively with common people.

By People's Daily Online and its author is PD resident reporter in France Li Yan

(Source: Peopledaily.com)

Int'l co-op prerequisite for global financial system reform

by Chen Wenxian

DAVOS, Switzerland, Feb. 1 (Chinese media) -- International

cooperation, not protectionism, is the precondition for global financial system

reform, world leaders and financial experts told this year's World Economic

Forum Annual Meeting, held here from Jan. 28 to Feb. 1.

FIGHT AGAINST FINANCIAL

PROTECTIONISM

During the five-day forum, participants sent a strong

message to combat financial protectionism. British Prime Minister Gordon Brown

warned that financial protectionism is a greater danger than trade protectionism

in the current world economic scenario.

Cooperation between major powers and global financial

institutions is vital to ensure a continued flow of credit to developing and

smaller countries, which are likely to be the biggest victims of the recession,

he added.

There is an implicit protectionism in what is

happening now, said Brown, referring to the moves of several countries to

restrict government funding for bolstering endangered banks to national

financial institutions and barring overseas operations from benefiting.

This is leading to the withdrawal of capital from

these institutions' foreign operations. "If this continues, what you will see is

a form of financial protectionism and financial isolationism," he said.

Developing countries, likely to suffer most in the

global crisis due to their still weak domestic financial sector, have already

seen a dramatic loss of capital, Brown added.

Meanwhile, German Chancellor Angela Merkel said the

global financial crisis may lead to the formation of a UN Economic Council, like

the UN Security Council, based on a global economic charter.

REFORM INTERNATIONAL FINANCIAL

INSTITUTIONS

Participants at the forum agreed that one of the

important steps for reforming the global financial system would be to rebuild

International financial institutions such as the International Monetary Fund and

World Bank.

According to Brown, new forms of international

institutions are vital to tackle future problems.

The IMF should take a greater role in heading off

crises and preventing them rather than dealing with the after-effects, while the

World Bank should tailor its operations to better deal with environmental

issues, he suggested.

However, it is not easy to strengthen international

financial cooperation and reform the global financial system.

Stephen Roach, chairman of Morgan Stanley Asia, told

Chinese media that a multilateral financial entity needs teeth.

"The problem is that there is no enforcement

mechanism, no penalties for bad behavior. Nobody wants to relinquish national

authority."

In an era of globalization, only international

financial cooperation and financial supervision can help establish a new and

effective global financial system, which has been agreed upon by both advanced

and emerging economies.

Last November's G20 Financial Summit in Washington

hammered out a blueprint for the new global financial system. The London G20

Financial Summit in April is expected to work out details for realizing that

goal.

REFORM FINANCIAL RULES

Current financial rules must be "fundamentally

revised" as they had deepened the global financial crisis, financial experts at

the Davos forum said.

Rules such as capital adequacy regulations and fair

value accounting were "well intentioned," but had proved to be inadequate, said

Stephen Green, chairman of the HSBC Group.

"Fair value accounting has added considerable

volatility to results, only part of which is economic, and the capital adequacy

regime has hobbled many banks with spiraling capital requirements just when

customers need them to be flexible with lending," he said.

These rules encourage banks to build up their capital

instead of lending money to their customers, which is against the efforts taken

by the governments.

So far, the U.S. and British governments have taken a

series of fiscal and monetary policies to push banks to restore lending. Central

banks in these countries have launched "quantitative easing" with an aim to

increase money supply in the market.

The financial system must also be less leveraged, the

experts said.

Improved risk management skills are required and

there must be an end to the "go for broke" incentive systems, both for traders

and for corporate chiefs, they said, adding that there should be limits on

"wild" derivatives with better and safer capital requirements.

According to them, banks in the future should clarify

their business and be put under strict supervision.

Alessandro Profumo, chief executive officer of

Italy's UniCredit Group, believes that banks in the future would specialize

either in commercial activities such as deposit-taking and lending or in

investment activities such as operating proprietary trading desks and

underwriting derivatives, not both.

Naked couple surprises diners in stroll

BEIJING, Feb.2 -- A couple treated open air diners to a 15-minute naked parade in Singapore, triggering both embarrassment and applause for a scene almost unheard of in the conservative city-state.

Pub manager Terence Chia told the Straits Times newspaper he saw the couple taking off their clothes Saturday night at a staircase in a block of flats in Holland Village, known for its popular nightspots.

"Then, clothes in hand, they coolly walked in their flip-flops toward the market," he said, adding when the couple did a U-turn a sea of spectators was ready and poised with cameras.

"There were more than 200 people and everyone was taking pictures," the newspaper Wednesday quoted Chia as saying. "Even women were busy clicking and people were cheering, whistling and applauding like crazy."

Police said the couple had been arrested and released on bail. If convicted under Singapore law, they could face a fine of maximum fine of S$2000 ($1,330), up to 3 months in jail, or both.

Protests are rare in Singapore and only made legal last year in a designated area called "Speakers' Corner," modeled on London's Hyde Park.

"They looked really comfortable walking down the street, which led to many curious stares," wrote blogger Leonard Tan. "Singapore is getting more and more exciting."

(Source: China Daily/Agencies)