Eastward ho!

The surprise US-Japan bid this week to prop up the yen has cheered markets around Asia and beyond and the congratulations are pouring into Beijing. What is revealed is something everyone has known but not seen clearly demonstrated so far: China8217;s global financial clout. US intervention comes after days of perplexing inaction even as the collapsing yen threatened to trigger off a second, more severe round of financial turmoil in Asia and, in turn, buffet emerging markets in Eastern Europe and Latin America as well as the industrialised world. China played its cards adroitly, spurring Washington to mediate by signalling effectively that the alternative would be depreciation of the Chinese currency with all its consequences. That message was received loud and clear in western capitals and acted upon in Washington and Tokyo. Until this point, the US had been dodging its own responsibilities by putting the whole onus of bailing out Japan on Prime Minister Ryutaro Hashimoto even though his fiscal and reform effortswere evidently failing.

About two years ago when Beijing put up a million dollars to help bail Thailand out of its crisis, it was the first sign that China was assuming some of its responsibilities as the second largest economy in the region. The decision not to devalue the yuan despite steep currency depreciations among Asian competitors was taken as evidence of the Chinese economy8217;s capacity to absorb knocks and Beijing8217;s statesmanship. The process confirmed China8217;s status as the sheet-anchor in Asia even as the Japanese economy, reaching a full-blown recession, was seen as the destabilising factor. The question, once the yen hit an eight-year low against the dollar, was how long the yuan would hold out. The primary aim of China8217;s planners is to prevent a slowdown of economic growth from the 8.8 per cent achieved last year. But a strong yuan meant slower export growth followed by signs of lower GDP growth this year and a setback to reform of cash-guzzling state sector enterprises. Rising unemployment andsocial unrest which other Asian countries are witnessing are real prospects in China as well when its economy contracts. But if Beijing let the yuan fall, Hong Kong and then the rest of East Asia would be certain to follow suit and the repercussions would be felt back home again and worldwide. At any rate, that was Beijing8217;s argument and the US Treasury secretary has bought it and indicated further intervention, if necessary, to bolster the yen.

There may be antidotes to the Asian flu. But when China sneezes, the rest of the world catches a cold. It is unlikely Beijing will be satisfied with this demonstration of fact when President Clinton visits next week. There are other rewards it will look for. One could be early membership of the WTO. It will be difficult, however, to claim concessionary terms any longer. Having confirmed its role as a major economic power, perhaps, it will be invited to join the G-8. How long the yuan holds up is still a wide open question. But next week in Bejing, it will be Clintonkowtowing, not Jiang Zemin.