THE INTERNATIONAL FINANCIAL CRISIS AND CHINA’S EXT.pdf

THE INTERNATIONAL FINANCIAL CRISIS AND CHINA’S EXTERNAL RESPONSE ZHENG Yongnian LYE Liang Fook EAI Background Brief No. 420 Date of Publication: 17 December 2008 Executive Summary 1. China has been inadvertently thrust into the political limelight as the global financial crisis unfolded. With the world’s largest foreign reserves of US$1.9 trillion, China has been perceived as a “white knight” or “savior” to stabilize the international financial system or to simply bail out the US economy. 2. Faced with such inflated expectations, China has been pro-actively working with other countries and international institutions to jointly explore ways to restore calm to world markets. Its leaders and officials have been in constant touch with their counterparts in other countries in this effort. 3. China hosted the 7th Asia-Europe Meeting (ASEM) Summit in Beijing and attended the G20 Leaders’ Summit in Washington and APEC Economic Leaders’ Meeting in Peru. These multilateral forums have had mixed results given the difficulty of coordinating actions across borders. Nevertheless, they show China’s readiness to work with the international community to find ways forward. 4. On a smaller scale, China has achieved better results. It was instrumental in the decision by the ASEAN plus Three countries at the 7th ASEM Summit to set aside about US$80 billion in foreign reserves to better protect their currencies against the economic uncertainty. Separately, China joined other G7 central banks in a rare coordinated interest rate cut. 5.