Fixed exchange rates for the yuan and other Asian currencies and soaring foreign reserves in the region may spark a financial crisis such as the one in 1997 that brought recessions to several Asian nations, the Asian Development Bank said.
Asia's foreign reserves outside Japan rose 18 percent to US$1.3 trillion last year as the region's central banks bought US dollars to protect export-driven economic growth, the bank estimated in its annual Asian Development Outlook.
That's adding money to Asian economies that "might lead to unbridled domestic credit expansion and possibly create the conditions for a new Asian financial crisis," the ADB said.
Economic growth in the region excluding Japan may rise to 6.8 percent this year, from 6.3 percent last year, the bank said.
"The further accumulation of reserves risks domestic costs that could exceed benefits in terms of competitive exchange rates and credit rating upgrades that we've seen so far," said Robert Subbaraman, senior economist at Lehman Brothers Japan Inc.
"There is the risk that some countries may end up like China where there is too rapid credit and money growth," Subbaraman said.
The ADB report echoes warnings by the World Bank and International Monetary Fund last week that an overheating Chinese economy -- rapid growth followed by a sudden slowdown -- is a risk for economic growth across Asia and also suggests that China would benefit from greater currency flexibility.
"While originally the accumulation of reserves reflected the prudent behavior of policy makers, increasingly, however, it appears to be fueled by speculative market behavior stemming from rigidities in many of the region's exchange rates," the bank said.
The ADB said Asia's foreign reserves are mainly held in US dollars and Treasury bills that may lose value as the dollar depreciates.
"It may be an opportune time to reassess the policies underlying the large accumulation of foreign exchange reserves in the region," the report said.
China being a key driver of trade growth within Asia, overheating of investment in the country "could have repercussions on export trade in many other Asian countries," the report said.
"Over the longer term, over-investment would result in a capacity overhang which would adversely affect the region."
China's policy makers also face challenges including reducing bad debts in the banking sector and restructuring state-owned enterprises. Successful handling of these, the ADB said, is "extremely important" for regional growth.
The bank's report noted that economies of Asia, excluding Japan, overcame uncertainties caused by the war in Iraq, high world oil prices, slow recovery in developed economies and an outbreak of the SARS virus to grow 6.3 percent last year.
China became the single largest export market for economies such as South Korea's, Hong Kong's and Taiwan's, and a major export destination for countries in Southeast and South Asia.
"Intraregional trade will remain a major driver of growth in developing Asia over the next two years," the ADB report said. "Economic fundamentals of the region are strong."
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique