By Dune Lawrence
Oct. 24 (Bloomberg) -- China, the world's largest holder of foreign currency, will be pressed to get more involved in combating the global financial crisis at today's biennial summit of Asian and European leaders.
European Commission President Jose Barroso said he'll use the meeting in Beijing to press China to support new financial rules. Thailand will ask China to ease currency-conversion restrictions. Philippine President Gloria Arroyo wants China's backing for a regional bank-rescue plan. South Korea has suggested moving more quickly to create an $80 billion fund to shore up Asian exchange rates.
The Asia-Europe Meeting, known as ASEM, will include China's Hu Jintao, France's Nicolas Sarkozy and more than 40 other heads of state. It is the first summit of Asian leaders since bank failures, plunging stock markets and weakening currencies amplified fears that the world is headed for a prolonged economic decline.
China is seen as key to any global response because it has the world's fastest-growing major economy and $1.9 trillion of currency reserves, an amount larger than Canada's gross domestic product.
``As Asia's emerging economic power, China will likely try to mediate a consensus among the ASEM nations,'' said Kim Eun Mee, a professor of international studies at Ewha Womans University in Seoul. ``Other ASEM nations have been calling for China to take a more leading role.''
Given the crisis, this year's meeting may prove to be more substantive than past ones, said Phil Deans, a professor of international affairs at Temple University in Tokyo.
`Really Important'
``ASEM has the potential this time to achieve something really important,'' Deans said. ``If you can get the Asian and European economies singing from the same page the Americans will have to follow.''
The meeting is one of several in the coming weeks that will focus attention on China's response to the crisis.
President George W. Bush has invited leaders from the Group of 20 industrialized and developing nations -- including China - - to attend a Nov. 15 summit in Washington, 11 days after the U.S. presidential election. Finance ministers from the Asia- Pacific Economic Cooperation group gather in Trujillo, Peru, starting Nov. 6. APEC's heads of state get together in Lima on Nov. 22. The G-20's finance ministers and central bank governors convene in Sao Paulo beginning on Nov. 8.
`Emerging Power'
China already seemed to supplant Japan as the region's financial leader on Oct. 8, when it reduced its interest rate within minutes of cuts by the U.S. Federal Reserve and five other central banks. The Bank of Japan, with the lowest benchmark rate of any major economy at 0.5 percent, supported the move in a statement without participating in it.
Since then, Asian countries have either included Chinese leaders in their proposals on limiting the credit crunch's spread or made them the centerpiece. Thailand's request that China ease conversion restrictions on its currency is aimed at facilitating the pooling of reserves to create a $350 billion fund to protect the region's currencies and buy stocks and bonds, said Thailand's Deputy Prime Minister, Olarn Chaipravat, in an interview in Bangkok on Oct. 22.
``The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, relative to anybody, to be the rightful and anointed convertible currency of the world,'' he said.
China's Resources
Lessons from the Latin American debt crisis and Asian financial crisis are that mechanisms must be put in place rapidly to aid vulnerable markets, and China is one of the few countries with resources to play a leadership role, wrote Citigroup Inc. Senior Vice Chairman William Rhodes in the Financial Times.
Rhodes proposes the International Monetary Fund helping expand currency swap arrangements and establishing contingency funding facilities, with support from China and Japan.
China will be forced to take proposals from other Asian countries seriously, said Steve Tsang, a fellow in modern Chinese studies at St. Anthony's College, Oxford, U.K.
``If the region is financially destabilized, it will have more of an impact on China'' than the banking crisis in the U.S. and Europe, where a slowdown in consumer spending may choke off demand for Chinese products, Tsang said. China's 9 percent economic growth in the third quarter was its slowest pace in five years.
`Expecting Too Much'
``Everybody looks at the Chinese government and says it is doing extremely well by the current standards of the world,'' he said. ``I think we are probably expecting too much,'' suggesting he doesn't expect China to heed the region's demands.
Chinese Foreign Ministry spokesman Qin Gang yesterday expressed sympathy for the plight of poorer countries affected by the crisis.
``Developing countries are especially vulnerable to the financial crisis and their concerns deserve special attention,'' he said. Qin also said China took ``seriously'' Barroso's proposals to promote greater transparency in and regulation of the financial industry.
Global stock markets have plunged this year amid $660 billion in mortgage-related losses that have frozen credit markets and forced central banks to pump $2 trillion into bailouts for failing financial institutions. The benchmark MSCI Asia Pacific Index has plunged 46 percent this year to the lowest level since May 2004.
Asia faces a challenge in responding to the crisis because many of its heads of state are new to their jobs.
Japan, the world's second-largest economy, installed Taro Aso as its third prime minister in less than a year on Sept. 24; he faces national elections as soon as next month. The leaders of Thailand, South Korea and Australia all have been in office less than a year. New Zealand Prime Minister Helen Clark faces voters Nov. 8 and is behind in opinion polls. Malaysia's ruling party chooses a new premier in March.
To contact the reporter on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.net
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