In Southeast Asia, Thailand is one of the first countries to declare its intentions to intervene in the economy as the global financial crisis worsens. Finance Minister Suchart Thadathamrongvech said that the government will recapitalize its banks if the effects from the US financial crisis spill over to Thailand. Even though Asian banks are stronger in capitalization, Minister Suchart revealed that he was personally warned by the Asian Development Bank (ADB) president Harahiko Kuroda to be vigilant in monitoring if the crisis spreads beyond Europe.
The Thai government will also speed up budget allocations to rural areas such as the SML fund for villagers as a means of boosting the grassroots local economies to stimulate consumption to combat the slowdown in private investments and export revenue in 2009. The Thai government has also requested for US$500 million to US$1 billion loans from the World Bank and ADB for mass transportation and logistics projects.
Many in the world, including the US, are hoping that China can help to shore up the global economy and thus its currency stability is crucial. To meet expectations that China would be a stakeholder in rescuing the global economy, China announced a 4 trillion yuan (US$877 billion) stimulus package to stimulate growth and help avert a global recession. This package is about 1/5 of China’s US$3.3 trillion gross domestic product in 1997.
This move is taken less than a week in the second week of November before Premier Wen Jiabao travels to Washington for talks with global leaders to manage the global financial crisis. This move was instituted to indicate that China can help to stabilize the world economy and boost domestic demand through aggressive fiscal policies. The distribution of the funds involved spending 100 billion yuan for low-rent housing, infrastructure construction in rural areas and building roads, rail lines and airports in the urban areas; Beijing will also approve tax deductions for purchases of fixed assets such as machinery to reduce companies’ expenditure by about 120 billion yuan while stimulating investments and the central bank in China has cut its interest rates three times in two months, reducing the one year lending rate to 6.66% by the second week of November 2008.
All these are done in the hope of making up for export decline and loss of manufacturing contracts due to deteriorating conditions in the developed countries; and to combat sagging domestic consumption including its waning property market as well as to reduce the stockpile of unsold new cars which is the highest in four years in September 2008.
Some East Asian governments are already doing strategic thinking to look at the post-crisis period. They argue that, having been conservative and consistent in delivery of economic performance, East Asian governments need to utilize the current period of economic crisis to augment themselves and look for new opportunities. The strategy, it seems, is not to be complacent and mock the perceived Western-inspired crisis or switch completely to caution and pessimism that can restrict future economic growth. The trick is also to be vigilant for sudden downturns while keeping an eye out for good investments.
China for example is quietly spending and shoring up its financial assets in the UK stock markets. Ever since January 2008, the British blue chip index, the FTSE100, has fallen nearly 19% by the first week of September 2008. But the People’s Bank of China, the PRC’s secretive central bank’s agency the State Administration of Foreign Exchange (SAFE), started to accumulate approximately US$22.7 billion worth of shares in British industries.
With four global offices in New York, London, Hong Kong and Singapore, SAFE is now ranked amongst the top 25 investors in the London stock market. This sum that is spent in the UK represents only a small portion of China’s US$1.7 trillion of foreign exchange holdings, each month this sum of money increases by approximately US$80 billion . SAFE is authorized to accumulate stakes of up to 1% in a long list of FTSE100 and some FTSE250 companies; SAFE as a whole will move 5% of its portfolio into shares (US$85 billion) and transform it into one of the largest sovereign wealth funds I the world but making up only one month’s reserve accumulation in China.
Bloomberg, "Beijing accnounces $877 stimulus plan" dated 10 November 2008 in Today (Singapore: Today), 2008, p. B1.
The Daily Telegraph, "China's quiet $23b splurge in UK Stock market" dated 8 September 2008 in Today (Singapore: Today), 2008, p. B2.
Chaitrong, Wichit, "We will act if it spills over" dated 17 October 2008 in The Nation (Thailand: The Nation), 2008, p. 11A