dollar or renminbi.

An alarm to China

In fact, the problems bothering Viet Nam also exist in China in varying degrees, so the economic crisis in Viet Nam arouses disquiet among economists over the economic development of China.

"If the Vietnamese economic crisis further expands, it is likely to spread to other countries, and China may be infected," said Cao Honghui, head of Financial Market Research Office of the Institute of Finance and Banking of the Chinese Academy of Social Sciences (CASS). In his opinion, as with Viet Nam, South Korea and Thailand are experiencing record inflation highs in the last seven and 10 years respectively, and inflation in Indonesia has also surpassed 10 percent. If these emerging economies are confronted with the same problems as Viet Nam, it will be impossible for China to escape alone.

According to Cao, the most likely problem is that the hot money withdrawn from countries like Viet Nam may flow to China, making it more difficult to strictly control excessive liquidity.

The People's Bank of China, the country's central bank, has launched a circular, requiring banks and other financial institutions to pay close attention to capital flows of foreign capital accounts and prevent an inflow of hot money.

A report released by China International Capital Corp. Ltd. says that among emerging Asian economies, China has the most stable economic situation and its foreign exchange reserve is the largest in the world. With improving fiscal conditions, it has ample fiscal revenue and the banking system is being perfected. However, once neighboring emerging markets are in turmoil because of inflation, the crisis may influence China in three aspects.

First, China's financial market will inevitably be affected and companies listed overseas will be directly influenced. Second, in terms of foreign trade, the demand for Chinese goods will decrease since increasing uncertainties in the financial market will strike the confidence of investors and consumers, and reduced economic growth and devaluation of local currencies will make imported goods more expensive. Furthermore, the devaluation of currencies of other emerging markets will also affect China's exports. Third, as for investment returns, the devaluation of currencies in Viet Nam and other emerging Asian economies will decrease returns of renminbi-valued Chinese investment in these countries, and an increase of local interest rates, prices and wages will also increase operation costs.

In spite of worries and vigilance, some research institutions still deem that the economic crisis in Viet Nam is unlikely to inflict a substantial impact on China.

In a research report released on June 10, Goldman Sachs says that since China has sufficient financial strength and a strong position of international payments, the infection risk of economic turmoil from Viet Nam to China will be limited.

A Bank of China report released on June 17 indicates that the possibility is still low that Viet Nam would trigger a wider Asian financial crisis and that the influence of Vietnamese economic crisis on China is limited. According to the report, China can draw the following lesson from the crisis: controlling inflation should be the top priority. The report also points out that China cannot solve the problem of domestic inflation through renminbi appreciation and only governmental cooperation can fundamentally solve the problem of imported inflation.

Aid proposed

"China should offer loans aid to Viet Nam and promote cooperation among East Asian nations to guard against financial crisis via a regional currency cooperation framework," said He Fan, researcher at the Institute of World Economics and Politics (IWEP) of CASS.