How To Play The Summit

By Richard Hornik

In Beijing the first law of summitry is to make sure the world leader on the other side of the table understands that he is the supplicant, especially if that is not the case. When Richard Nixon made his famous journey to meet Mao Zedong in 1972, China was in a terribly weakened condition and most vulnerable to the military might of the Soviet Union. But Nixon, with Henry Kissinger leading the way, went hat in hand, grateful for just an audience with one of the great tyrants of the 20th century.

So as you read the stories that have emerged in the past week about how hard it will be for China to keep the value of its currency stable, bear in mind that these reports have appeared just before Bill Clinton's trip to China. Chinese officials, who have promised they will not devalue the renminbi, have started issuing veiled warnings that with the yen falling, staying the course may be problematic.

China has the only currency in East Asia that has not fallen in value in the past year. And no one doubts that if the renminbi did slip, that would launch the rest of the region into a new round of devastating devaluations. And Hong Kong, which has pegged its currency to the U.S. dollar for 15 years, would have little choice but to abandon that link, with possibly disastrous results for its stock and property markets. We got a taste of what that might mean for the U.S. and Europe at the beginning of last week, when global stock markets began cascading downward because of the weakness of the yen. The disarray in those markets coupled with China's complaints prompted the U.S. and Japan to intervene last week to prop up the yen.

But rewarding China for not devaluing is a bit like pleading with someone on a raft floating on gasoline not to light a match. A new round of devaluations would hurt Beijing just as much as its neighbors, since it would receive less foreign currency for its exports and might lose markets to countries whose currencies drop even faster than the renminbi. And it is not clear that the country would benefit from a devaluation. China's real problem is its domestic economy.

Fortunately, the leadership in Beijing understands that the problems lie with an inefficient state-owned industrial sector and a financial system overloaded with unrecoverable loans. The new Prime Minister, Zhu Rongji, has launched an intelligent series of programs that have begun reshaping the economy into one that could truly be a world player in a couple of decades.

But China wants that status now. It wants to be consulted on global economic matters, and most of all, it wants admission to the World Trade Organization. That is the not-so-hidden agenda that awaits Bill Clinton in China. More consultation with Beijing wouldn't hurt. But if the U.S. lets China into the WTO without insisting that Beijing abide by the same rules as everyone else, the entire global trading system could be jeopardized. Clinton should keep in mind that China needs us a good deal more than we need it.