China must be urged to act responsibly by Yomiuri Shimbun Daily Yomiuri | 17 Jan 2005 http://www.yomiuri.co.jp/newse/20050117wo81.htm In November 1975, Japan, the United States and four European countries held their first summit meeting on the world economy at Chateau de Rambouillet, an old castle on the outskirts of Paris that is used by French presidents for vacations. The six countries, which were leaders in many sectors ranging from currency to trade, confirmed that they would all cooperate for the first time in history toward rebuilding the world economy, which had fallen into its worst postwar recession due to the autumn 1973 oil crisis. It was a historic meeting for Japan, which had been on the path of economic reconstruction since the devastation of World War II. Thirty years after its defeat in 1945, it was accepted as a major player in the world economy, then led by the United States and a few European countries. Another 30 years have passed since that first summit meeting. We have ushered in a new year that sees the world economy burdened with such risk factors as a sharp decline in the value of the U.S. dollar, soaring oil prices and a negative rebound from China's overheated economy. === World economy growing According to the World Bank, many countries last year saw economic growth higher than average growths registered in the 1980s and 1990s, while the world economy posted a 4 percent growth for the first time in four years. Although the world economy is projected to slow down to 3.2 percent growth in both 2005 and 2006, due to such factors as volatile high oil prices, the bank said this year could be a starting point for the world economy to realize long-term stable growth, thanks to structural reforms and expansion in free trade. The best-case scenario amid such a moderate slowdown in the world economy is for countries to realize stable, domestic demand-led economic growth while going ahead with structural adjustments in such areas as state finances and employment. But non-economic factors still have the potential to damage the world economy--factors such as the Iraqi situation, international terrorism and speculative funds trends. It is important to improve the ability of the world economy to manage risk and secure sustainable, stable growth. Japan must assume an active role in this task. We need to work harder to promote, under the auspices of the World Trade Organization, a new round of multilateral trade talks, which have entered their final stages; to reinforce the functions of the International Monetary Fund; and to build a safety net for East Asian currencies and foster the Asian bond market. === Accelerate FTA negotiations It also falls to Japan to accelerate negotiations toward the conclusion of bilateral free trade agreements centered in East Asia. The greatest change now impacting the global economy is the rapid rise of the Chinese economy. The Chinese economy is year-by-year catching up with the industrially advanced countries of Japan, the United States and Europe at an ever-accelerating pace. The amount of China's annual trade will certainly be shown to have surpassed that of Japan to become the world's third-largest last year. In terms of gross domestic product, the country became the world's 7th-largest in 2003. There are even estimates that 10 years from now, China could surpass the United States, currently the country with the largest amount of trade. The Chinese economy has up to now been praised, as it has been one of the major engines driving the expansion of the world economy. Recently, however, concerns have arisen that in a rebound from excessive investment and production, the Chinese economy might slow down, dropping China's domestic economy into chaos and having a negative impact on the world economy. For Japan, which continues to deepen economic ties with China over a broad range of interests, including bilateral trade and investments, the impact on its economy could be huge. === China needs soft landing The biggest challenge China faces now is to realize a soft landing into stable growth. Chinese policy-planning authorities have visited the Finance Ministry and the Bank of Japan frequently since autumn. Japan has been forced to learn some bitter lessons as a result of the bursting of the bubble economy and policy mistakes. We should be able to help China formulate a policy that will lead to an economic soft-landing by teaching it these bitter lessons. Crude oil prices, which are still quite high, also pose a great threat for importer countries such as Japan. The high oil prices stem partly from a lack of capacity to pump oil in oil-producing countries and partly from the uncertainty surrounding the situation in the Middle East. But they have more to do with the impact of the rapid increase in oil consumption by China. The country has become the second-largest oil consuming country, next to the United States, with the increase in oil it consumed from a year earlier accounting for one-third of the world's entire increase in oil consumption. China must try to control its oil consumption. The rapid rise of the yen and the euro against the dollar will also decrease the chances of stable growth in the economies of Japan and Europe. The increases in the United States' fiscal and current account deficits, which lie behind the rapid decline in the value of the dollar, could send U.S. stock prices sharply down and long-term interest rates higher. === Yuan pegged unfairly By pegging the yuan currency at a rate to the dollar far lower than its real market value, China has held down the export prices of its products on a U.S. dollar basis and driven up exports, sending the U.S. current account deficit higher. Since late last year, both Japan and the United States have urged China to revaluate the yuan to the dollar. The two countries should help China devise a system to implement the revaluation smoothly by helping the country fend off the shock such a measure could cause. China, which joined the WTO three years ago, is moving ahead with opening its markets. But it continues to control the import of certain raw materials, while its protection of intellectual property rights is inadequate. There has been an uncountable number of cases concerning the unauthorized use of trademarks and patents held by companies in Japan, the United States and Europe, and their brand- name goods are frequently copied. Japan, the United States and European countries must persevere in their efforts to persuade China to strictly observe WTO rules and bring the country into the world's free trade system. China is expected to be invited to attend a meeting of finance ministers and central bank governors of the Group of Seven major industrialized economies in February and a summit meeting of the major powers in July. A summit meeting of the Asia-Pacific Economic Cooperation forum and a ministerial meeting of the Doha Round of multilateral trade talks are scheduled for late this year. Japan, the United States and European countries must urge China to act like an "economic power with responsibility" through this series of talks. ------------------------ Yahoo! Groups Sponsor --------------------~--> What would our lives be like without music, dance, and theater? Donate or volunteer in the arts today at Network for Good! http://us.click.yahoo.com/TzSHvD/SOnJAA/79vVAA/NJYolB/TM --------------------------------------------------------------------~-> �������������������������������������������������������� This is ZESTEconomics. Post economics-related articles and event info to [email protected] If you got this mail as a forward, subscribe to ZESTEconomics by sending a blank mail to [EMAIL PROTECTED] OR, if you have a Yahoo! 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