UK, China react to US crisis

UK opposition Conservative Party Leader David Cameron made on Tuesday an emergency call on British parties to "stick together" and find ways to handle the economic crisis.

Cameron suggested placing the national priority at the moment to ensure a stable banking and financial system amid the deteriorating financial situation in the US following the overnight US rejection of a historical rescue plan.

The defeat of the $700B bail out proposal by the US House of Representatives on Monday has seen its effects on stock markets across the world.

The Dow Jones saw its largest one-day plunge in its 38-year history and the Nasdaq index dropped 9.1%, with markets in Asia and Europe also suffering heavy losses.

Though some revised plans could surface on Thursday for further discussion, it is feared that a domino effect might occur. As a result, banks around the world will see their assets fall, and more businesses will go bust. Individuals cannot escape this influence and some have cast doubt over capitalism.

In contrast, there is no immediate official response to the latest development of the US crisis in China, as the whole country is celebrating the National Day which falls on Oct. 1.

At the overnight National Day Reception to celebrate the 59th anniversary of the founding of New China, Premier Wen Jiabao said that 2008 has been an extraordinary year for China's development.

Premier Wen mentioned the snow and earthquake disasters, along with China's success of hosting the Olympics and completing its 3rd manned mission into space. However, he did not touch upon the recent milk scandal, which has heightened worldwide attention to made-in-China food safety.

Premier Wen emphasised last week in the US that "confidence is more important than gold and currencies" during a discussion with key figures from the US financial circle about the crisis in America.

Among the few reports on China's reaction to the economic problems in the West were comments by Qiao Xinsheng, director of the Social Development Research Institute at Zhongnan University of Economics and Law, based in Hubei, capital of central China's Hubei Province.

Facing the US crisis, the Chinese government feels unable to help, Qiao said. However, he strongly suggested that the Chinese government should readjust its financial policies, and solve problems facing Chinese banking companies.

"Efforts should be stepped up in China to restructure the assets of banking institutions," he warned, "Otherwise, China's financial markets will repeat what has happened in the US ."

The number of small and medium-sized banks is on the rise in China. However, they are financially fragile, and any bank run could lead to a chain reaction in China's financial markets, he said.

The Chinese government should be on high alert rather than ignore the situation and watch the burning fire as a bystander, Qiao warned.

After Lehman Bros filed for bankcruptcy protection, Bank of China, the leading Chinese bank engaged in overseas businesses, expressed confidence and ability to reduce any effects brought about by the Lehman Bros event. The bonds that Bank of China holds from Lehman Bros amount to 0.01% of the bank's total assets and 0.19% of net assets.