Is Chinese premier Wen Jiabao right to say that the credit crisis will have a negligible impact on China because its banks have limited involvement with global capital markets?
'We are confident that we can maintain the stability of Chinese financial markets,' says Jiabao in a statement on the Chinese foreign ministry website. He adds that the biggest contribution China can make is to keep its economy growing in a stable and fast manner. Quite So.
Assuming that the Chinese haven't been playing in the derivatives market or investing in 'toxic' US mortgage-backed securities, a systemic collapse of China's banks seems unlikely, especially as the country is sitting on hundreds of billions of dollars in foreign exchange reserves.
But comments from the ministry of commerce, quoted in the official Xinhau news agency, should be treated with more scepticism. A spokesman says: 'many Chinese export products are daily necessities, so we don't think that a slowdown in major economies will cause a sharp fall in demand for these products.'
Really? But western consumers have been huge buyers of Chinese finished products that include furnishings, furniture, toys, clothing and sports equipment. The truth is that Chinese industry, and employment, are going to suffer in the looming global recession as China's customers in the west rein back on spending in a way that will soon become painfully obvious.
