Chinese premier says Asia will escape repeat of 1997 crisis


By Jamil Anderlini in Beijing

Li Keqiang, China’s premier, believes Asian economies will not see a repeat of the 1997 Asian financial crisis as a consequence of the market turmoil raging in countries such as India and Indonesia.

Writing in Monday’s Financial Times, Mr Li said the talk of an end to the ultra-loose central bank policies of the US had taken a toll on equity and currency markets throughout the region, leading to fears that Asia could face a crisis similar to that in the late 1990s.

“In my view, Asian countries have learnt lessons from their past experiences and significantly enhanced their capabilities to fend off risks,” Mr Li writes. “China is confident that Asian countries are now better placed to cope.”

He said flexible exchange rates, stronger foreign exchange reserves and various bilateral financial agreements meant that most Asian economies were much better able to handle external shocks than they were in the late 1990s.

The withdrawal of so-called quantitative easing by the central banks of developed countries, particularly the US, and the large capital outflows from emerging economies that would result was a key topic of discussion at the G20 heads of state meeting in St Petersburg last week.

On the eve of the summit, India, Indonesia and South Korea all warned about the spillover effects of monetary policy changes in the US – in particular the plan to “taper” the unprecedented monetary support provided to financial markets since the 2008 financial crisis.

China also weighed in on the opening day of the G20 meeting, saying it hoped the US would be “mindful” about the effects of its domestic economic policies on developing countries.

Other countries that have seen their currencies drop in recent weeks include Brazil and Turkey, Thailand, Malaysia and the Philippines, which have encouraged parallels with the late 1990s Asian crisis when southeast Asian currency collapses sparked a market meltdown.

With its strict capital controls and a currency that is tightly pegged to a basket of currencies, China has not been directly affected by the market turmoil in neighbouring countries.

“The market turbulence in emerging economies, especially in India and Indonesia, has made the renminbi a centre of stability,” said Liu Ligang, chief economist for China at ANZ bank.

After slowing for nine out of the last 10 quarters and notching up a disappointing year-on-year growth rate in the second quarter of 7.5 per cent, the Chinese economy has shown some signs of picking up in the last two months, thanks in part to a more positive outlook in key export markets in Europe and the US.

In August, Chinese exports rose 7.2 per cent from a year earlier, compared with an increase of 5.1 per cent in July, according to government figures released on Sunday.

Chinese imports rose 7 per cent from a year earlier, a slowdown from the 10.9 per cent rise in July.

Indicators for investment and factory output will be released on Tuesday but official and independent purchasing managers’ indices showed activity bouncing back strongly last month from persistently weak performances earlier in the year.

“Observers ask whether China’s economic slowdown will lead to a sharp decline – or even a hard landing – and whether our reform programme will be derailed by complex social problems,” Mr Li writes in the FT. “My answer is that our economy will maintain its sustained and healthy growth and China will stay on the path of reform and opening up.”



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