Loan Crisis Tipped To Spook China
The Age
Tuesday August 5, 2008
OPENING China's economy to the world will be a slower and even more politically fraught project than previously thought, thanks to the US housing crisis.
As finance ministers and representatives met for an Asia-Pacific Economic Co-operation (APEC) forum at Langham hotel in Southbank, one of the forum's business advisers told BusinessDay that the current financial crisis emanating from Western economies proffered a poor case for financial deregulation."I think it will set back financial services deregulation in some very important parts of the world, particularly in China, for the foreseeable future," said Mark Johnson, co-chairman of APEC's business advisory council.Loans given to US borrowers with poor credit histories have been failing en masse for more than a year, leading to slower economic growth around the world.Mr Johnson compared the cost of the crisis, which spread around the world through highly complex financial instruments developed to disperse risk, to the cost of the terrorist attacks of September 11, 2001."I have been thinking about whether, when you think about the cost of Osama bin Laden and what he cost the US economy, whether a bunch of PhDs from MIT haven't cost the US a whole lot more," he said."We in the West have argued that markets are better at allocating capital efficiently and we've been listened to - sometimes politely and sometimes not so politely. Now the West's model ... is in a state of turmoil, some would say disarray."Certainly, some emerging economies are not going to run some of the risks (they might have) and you will see much tighter regulation for a period of time."Mr Johnson, who is also chairman of AGL and of Macquarie Infrastructure Group, said that if the current turmoil discouraged China from establishing more market-based institutions, it would impede the development of carbon reduction schemes such as emissions trading markets."One of the reasons that we in the West argue for this model is that it is easiest to get price mechanisms with market signals, which is going to be the basis of our own carbon trading system," he said. "If China goes very slowly on that they may not have a compatible market-based emissions system as soon as we would like them to have it."The two-day APEC forum, opened yesterday by federal Treasurer Wayne Swan, is aimed precisely at "structural reform" within member states' economies. Finance sector reform and the development of domestic markets should fit neatly into its mandate.Mr Swan lamented the death of the Doha Round of multilateral trade talks, a forum seeking international, rather than intra-national, reform."While we may not have succeeded this time around, achieving significant global trade and investment liberalisation in the future is not only possible, it is imperative," Mr Swan said.
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