In a First, China Offers Thailand Financial Aid

China on Thursday said it will extend $1 billion in emergency credit to Thailand, demonstrating a new solidarity with its neighbors in charting Asia’s economic course.

By joining Japan and six other Asian countries in a rescue led by the International Monetary Fund, China showed it is willing to use its growing financial strength--and not just military might--to shape the region. At the same time, Beijing conceded that it can’t go its own way in economic affairs.

“Unstable finances in one region are harmful for everybody,” said Dai Xianglong, governor of China’s central bank. “This move is necessary.”

Until now, China rarely extended a helping hand beyond North Korea, Albania and a few other Communist states. Its unprecedented participation in an IMF-led effort may comfort neighbors unnerved by its growing military and economic power.

China has the financial clout to help Thailand, which this week committed to a $16-billion IMF package to help shore up its economy and financial industry.

At the end of July, China’s foreign exchange reserves, according to Dai, totaled $126 billion, second only to Japan’s $212 billion as of the end of June. Monthly trade surpluses averaging $3 billion this year and as much as $45 billion from foreign investors keep the coffers bulging.

In comparison, at the end of June, Germany’s foreign reserves totaled $74 billion; U.S. reserves totaled $33 billion at the end of May, according to the IMF data.

“It’s an extremely important step for China,” said Ken Courtis, chief economist for Deutsche Bank Asia Pacific. “It means China’s willing to assume a role of responsibility in the region.”

Only a few years ago, China wouldn’t have considered providing such help.

Zhao Haikuan, a senior researcher at the Banking Institute, under China’s central bank, said China opted not to join a $50-billion bailout of the Mexican economy three years ago. Now times have changed, he said.

“China’s economic strength is now much greater than a few years ago,” Zhao said.

Even with help from China and others, Thailand will have a tough time turning its economy around.

This week, Thai Finance Minister Thanong Bidaya and Bank of Thailand Gov. Chaiyawat Wibulswasdi signed an official agreement for the package and passed it to the IMF, whose board will vote on it Thursday.

The letter spells out what Thailand must do to get and keep about $16 billion in standby credit lines. Among other things, the IMF will require the government to cut spending and raise taxes.

Thailand will use the money to bolster its foreign exchange reserves, depleted when the government tried to fend off a devaluation of the Thai currency this year.

Granted, China decision isn’t about altruism. Hong Kong, Singapore, Malaysia and Indonesia are all among the top dozen foreign investors in China. Together, they account for more than two-thirds of the investment flowing into China.

Furthermore, China may one day need handouts of its own if its economy teeters. China already owes the World Bank about $28 billion, making it the international lender’s biggest borrower. It is likely to remain the largest recipient of international funds for years to come.