Is it ready to offer the money? And will anyone take it?

There are no prerequisites for a large-scale crisis in the Chinese economy. An economic shock, let alone a recession, is unlikely in China because of its solid economic health and reliable protection from external risks.

Bad loans make up only 5 percent of Chinese banks' assets, which work mainly with the domestic market. The figure was 50 percent in 1997-1998, when Asia was hit by a severe financial crisis.

China's dependence on exports is not as heavy as it may seem at first glance. Officially, exports account for 37 percent of its revenues and seem to be the driver of the Chinese economy. But independent surveys by UBS and Dragonomics put its "true" export share at just under 10 percent of GDP. (See "An old Chinese myth," Economist, Jan. 3, 2008, and "Is China exports-led?" UBS, September 2007.)

It is internal investments, which account for 40 percent of GDP, that are the driving force of China's economy. Although part of them is channeled into export-oriented projects, the global financial crunch will not slow China considerably.

Chinese companies' foreign debts are not large, only $87.6 billion as of March 2008, and their domestic debts do not worry international economists. China's budget surplus was approximately 1 percent in 2007 and will be almost the same this year.

According to Arthur Kroeber, managing director at Dragonomics, an independent research and advisory firm specializing in China's economy and its influence on Asia and the world, the absence of structural problems makes a "hard landing" for the Chinese economy highly unlikely.

Even if it happens, the worst possible scenario for China will be one year of very slow growth and average annual growth rates of 6.25 percent to 6.5 percent for the next five years.

Kroeber thinks "a global slowdown -- if tempered -- could help China stage a soft landing for its breakneck economic growth." This means a fall in economic growth rates to 8 percent to 8.5 percent from the predicted 8.5 percent to 9.5 percent. At the same time, a decline in consumer activity in industrialized countries may have a positive effect on China's exports, with Western consumers opting for cheaper Chinese goods.

"Don't stick your head out"

Given its margin of strength and international reserves, China could have gained much more from energetic actions on the world market. But Chinese authorities seem unready for action, and the West is not eager to allow Chinese money in.

Evidence of this are the modest international achievements of the China Investment Corp., China's sovereign investment fund set up last year to manage as much as $500 billion.

In 2007 the CIC spent $3 billion to buy into U.S. investment company Blackstone Group and paid $5 billion for a 9.9 percent stake in Morgan Stanley.

As a result of the current crisis, the value of these two assets has plunged by at least two-thirds.

Several days ago, the Ping An insurance company announced the termination of a planned deal to buy a 50 percent stake in the Fortis banking and insurance group. Ping An, which holds a 5 percent stake in Fortis, has lost $2.3 billion due to the financial crisis.

China's losses from its foreign investments have shocked the officials who had made the "buy" decisions. The bureaucratic psychology is a powerful hindrance to investment decisions.

China's current skepticism is fueled by political considerations. The Western public and politicians are seldom happy with Chinese corporations buying into their companies.

The anti-Chinese propaganda campaign launched in the United States to prevent the China National Offshore Oil Corp. from buying the U.S. oil company Unocal infuriated China. No wonder the Chinese are now considering foreign projects in accordance with Deng Xiaoping's warning, "Cross the river by feeling the stones."

Seeking to keep its foreign transactions maximally secret, China is buying relatively small stakes, below the 3 percent threshold at which shareholdings are required to be disclosed.

The most frequent buyer is SAFE Investment, the Hong Kong-based subsidiary of the State Administration of Foreign Exchange, an arm of the People's Bank of China.

According to The Sunday Telegraph, SAFE Investment owns minority stakes in more than half of the FTSE100 companies, including Aviva, British Energy, Cadbury, the LSE, HSBC, Marks & Spenser, and Tesco.

China has spent over 9 billion pounds on the acquisition of minority stakes, ranging between 0.75 percent and 1 percent, in the United Kingdom.

Like Americans in the case of Unocal, the British wonder what the political motives for the Chinese implicit actions could be.

It is reported that SAFE Investment plans to spend $85 billion to purchase cheap foreign assets, the amount by which China's foreign currency reserves increase monthly.

But nobody knows what it is going to buy.

Gao Xiqing, CIC's general manager and chief investment officer, said in one of his infrequent interviews with Western media: "We are already getting too much, an almost unfair amount of attention. You know, the Chinese culture is being self-effacing -- try to hide yourself -- don't stick your head out for people to knock on."

U.S. financial sector's quiet reconstruction

China's foreign currency reserves are growing by $85 billion monthly. Since stability is the priority of China's national development, its currency system is unlikely to be reformed, and hence the People's Bank of China will continue to buy export revenues.

Also, China is unlikely to buy large chunks of foreign assets, for the above-mentioned reasons -- the extreme caution of Chinese officials and the probability of unfavorable political repercussions in investment destinations.

China therefore may continue to buy U.S. Treasury bonds or European government securities. This means that the reconstruction of the U.S. financial sector will be paid for by China. As of now, judging by the trade balance deficit, each U.S. citizen "owes" someone in China $4,000, and this situation is unlikely to change soon.

So far, the revival of the United States, the main export destination for China, suits Beijing.

(Alexei Yefimov is a commentator for RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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