When Dragons Purr

THE recent Annual General Meeting (AGM) of the World Bank and the IMF belonged to China, or at least that was the intention. China planned to use the first major international event in Hong Kong since the transfer of power to boost its case for membership of the World Trade Organisation (WTO). The Chinese leaders, who made their first visit to Hong Kong since the handover, also wanted to show themselves as responsible members of the international community, keeping to their commitments to the territory, respecting the principle of "one country, two systems".

Even though Hong Kong is now part of the last remaining great Communist nation, it is still a model of capitalism. A statue of Sir Thomas Jackson, an early manager of what is now one of the world's largest financial institutions, the Hong Kong and Shanghai Bank, is the only one in the central square. In the skyscrapers which tower over that square, banks are still free to operate in an unrestricted financial market. The underground railway, modern and highly efficient, is run by a private profit-making company, so are the trams which trundle through the city and the ferries which crisscross the harbour. The crowded pavements and walkways, the stores and the stalls testify to Hong Kong's prime preoccupation—shopping.

The Chinese were so determined to demonstrate the difference between Hong Kong and the Mainland that they even allowed two pro-democracy demonstrations outside the Conference Centre where the meeting was held. They were, I have to say, small and tame affairs by Indian standards.

Inside the conference hall, Zhu Rongji, vice-premier of the State Council of the People's Republic of China, and number three in the hierarchy, presented the acceptable face of Chinese Communism, or at least the face acceptable to the World Bank and to commercial bankers too. He explained how the just concluded 15th National Congress of the Communist Party had carried the economic reform programme forward.

The next target is to be the state-owned enterprises, many of which Zhu Rongji, an economist himself, admitted "are not doing well and are faced with serious difficulties". After the speech, Zhu Rongji answered questions with an openness and humour not usually associated with the Chinese leadership.

In spite of the high-level Chinese presence—premier Li Peng also spoke—journalists decided the best story of the meeting was the slanging match between Malaysian prime minister Mahathir Mohammed and American currency speculator George Soros. In his speech, the Malaysian prime minister blamed the Southeast Asian currency crisis squarely on speculators like Soros and described currency trading as "unnecessary, unproductive, and immoral". He wanted it to be declared illegal, and announced his country would limit it to financing trade. Soros, speaking the next day, castigated Mahathir's proposal to ban currency trading as "so inappropriate that it does not deserve serious consideration", and called the Malaysian prime minister "a menace to his own country".

But perhaps the Chinese leadership was not entirely unhappy that the spotlight turned away from them. Zhu Rongji said it was "unreasonable to make excessive demands on China" before admitting it to the WTO because it was a developing country. He found an unexpected ally in Soros who, speaking of the currency crisis, attacked the view that free-markets are self-sustaining and market excesses will correct themselves. He listed five deficiencies in the global capitalist system, none of which developing countries like China and, of course, India would disagree with.

The American delegation, which was lobbying for liberalising the financial services trade, didn't appreciate Soros saying he was not entirely in agreement with the prevailing opinion that the domestic financial sector should be opened to international competition. That wasn't exactly the line IMF officials were pushing either, but then the currency crisis did have its compensations for them.

One of the more extreme interventions in the AGM came in a video message from the Nobel Prize winning free-market guru Milton Friedman who suggested the best thing the World Bank and the IMF could do was to disappear. The more the World Bank urges the advantages of foreign commercial investment in developing countries and the IMF preaches the virtues of globalisation, the more they undercut their traditional roles as an investor and a force for economic order. The Southeast Asian currency crisis has reinforced the necessity for someone to maintain international financial stability, and undoubtedly helped the IMF win its battle for increased quotas at Hong Kong. One of the deficiencies in globalisation Soros listed was "the uneven distribution of benefits". That surely leaves a role for World Bank finance.

The Hong Kong meeting was undoubtedly a setback to the votaries of laissez-faire economics, and slowed down the drive towards free markets in financial services. But it would be a mistake for the Indian Left, for the swadeshi movement on the right, for the Bombay Club, or for all those politicians and bureaucrats anxious about losing their control of the economy and all the rewards that go with it, to think the currency crisis and the Hong Kong meeting justified them. Nobody, least of all the Chinese leaders, was calling for a return to government-controlled economies, or protectionism.

On my return from Delhi airport, my taxi had a puncture and I found my home shrouded in DESU darkness. Inevitably I thought of the dead-hand of the bureaucracy which had left Delhi so far behind from the city I had just come from, capitalist Hong Kong. There, the public transport system is so good you never need a taxi, and there is enough electricity to air-condition walkways.