China worried of financial contagion via Hong Kong

POLITICAL ECONOMY

China's vice premier says economy sound
China's economic situation is sound and the government is confident of sustaining stable growth and keeping inflation in check, state media reported Tuesday, citing Vice Premier Wang Qishan. "The overall economic situation in China is good," Wang, who is in charge of economic and financial affairs, told an investment forum in the coastal city of Xiamen in southeastern China, according to the China Securities Journal. China's economic growth slowed to 10.1 percent in the second quarter of this year against a backdrop of cooling global expansion. The economy grew by 11.9 percent in the whole of 2007. But Wang said despite difficulties including the May earthquake and other natural disasters, as well as weakening external demand, the economy was moving along as expected with some government fine-tuning. "We have taken a series of timely measures. With the macroeconomic controls, now the economy is developing as we expected," Wang said. "We are confident about and capable of overcoming the current difficulties and challenges to achieve our goal of maintaining stable and fast economic growth while curbing excessive increases in prices," he said. China is scheduled to release key economic data this week, including consumer inflation, fixed-asset investment, retail sales and industrial output.

by Staff Writers
Washington (AFP) Sept 8, 2008
Beijing is worried that an overly liberal financial system in Hong Kong could invite financial contagion into China and disrupt critical economic growth, a government economist said Monday.

"China today has a very unique situation -- it is one country with two financial systems -- the Hong Kong system is very open, very liberal, very efficient, very modern" compared with the Chinese system as a whole, said K.C. Kwok, a Hong Kong government economist.

"But at the same time, China is also very worried that if we gradually open up our system and Hong Kong being so open, financial market contagion -- if anything wrong happens in the outside world -- could be brought into China through Hong Kong," he told a Washington forum of the Carnegie Endownment for International Peace.

He said that managing financial risks and contagion was "a subject in many Chinese decision makers' minds.

"So there are huge opportunities but also there are various issues that we have to be very careful about," he said.

Hong Kong, known as a special administrative region of China, is Asia's leading wealth management center, housing some 80 fund management houses, including from the United States, Britain and Switzerland, officials said.

It is also witnessing an expansion of the Chinese yuan currency-linked business and is the first place outside the mainland with a yuan bond market.

Kwok said Hong Kong was maintaining "very high level of supervisory and regulatory standards" to check any contagion effects on China.

He also said that financial system liberalization was "quite a very sensitive subject" in China.

"If you talk to the Chinese decison makers and so on, they believe that the 1997-1998 financial crisis in Asia occurred because of the fact these developing countries liberalized their financial sector too early, before they can have a foundation," Kwok said.

The crisis, sparked by rapid currency depreciation, led to political and economic turmoil in the region, with the International Monetary Fund having to provide emergency funding to keep some economies afloat.

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POLITICAL ECONOMY

Walker's World: Britain's recession

London (UPI) Sep 5, 2008
Now the recession watch in Britain is getting really serious. Punch Taverns, the country's largest operator of pubs, a classic symbol of English life, has decided to scrap its dividend to shareholders after a drop in sales of more than 3 percent. The company blamed "challenging trading conditions."

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