Call for joint financial cooperation

China and Japan, the two largest foreign-exchange reserve holders in the world, should join hands to ward off unfavorable fluctuations in a global financial market dominated by American and European currencies, a senior Chinese researcher said yesterday.

"China and Japan each has more than $1 trillion in foreign exchange reserves, they both spend a lot of the reserves buying American bonds and financial products and bear the risks and losses from the depreciation of the US dollar," Zheng Xinli, vice-director of the Policy Research Office of the Central Committee of Communist Party of China, said at the Beijing-Tokyo Forum.

China's foreign exchange reserves exceeded $1.8 trillion at the end of June, compared to $1.002 trillion in Japan. The weakening of the US dollar in the past year has stirred debates in both countries on how to keep the cash pile from shrinking.

Zheng said neither of the two Asian countries' currencies could enjoy the status of universal money, with the Japanese yen in the shadow of the greenback and the euro and China's renminbi not in a condition to be fully convertible.

Moreover, China and Japan were both "victims" in the Asian financial turmoil in the late 1990s as well as the ongoing US subprime mortgage crisis, he added.

"In the face of the impact from European and American monopoly capital and hedge funds, China and Japan should strengthen financial cooperation to resist the pressure from European and American currencies and safeguard financial safety and economic interests," he said.

For years, Asian economists have called for financial integration and even a common currency in East Asia to make the region more financially competitive. But the vision is far from being materialized given the big disparity in monetary and foreign exchange reserves policies in countries in the region.

One recent progress was that the finance ministers of 13 Asian countries, including members of ASEAN and China, Japan and the Republic of Korea - mostly victims in the Asian financial crisis in the late 1990s - agreed in May to pool at least $80 million for a foreign exchange reserves fund to address short-term liquidity difficulties in the region and supplement existing international financial arrangements.

Zheng said China and Japan, which account for more than 80 percent of the GDP in East Asia, should work together to push forward regional financial integration and the creation of a common currency.

He also said the two neighbors should work for an early start to negotiations on a bilateral free trade area which can add momentum to multilateral cooperation under the ASEAN+3 framework.

Source: China Daily