Wall Street's woes are not over yet, as U.S. banks continue to tighten lending terms for the nation's consumers and businesses. Worries are bubbling nowadays that a recession, following Hollywood movies and fried chicken, may become the latest export from the United States to the world. So how should China and other emerging markets counteract the fallout from the crisis? What can we learn from the financial debacle? Justin Yifu Lin, Vice President and Chief Economist of the World Bank, discussed these matters at a recent international forum in Beijing.

China's countermeasures

As Premier Wen Jiabao told us, steady growth will be the most significant contribution of the country to the world economy. A booming Chinese economy would have buoyant demands for resources and commodities, thus propping up the exports of other countries. China's growth rate for next year might ease to 8-9 percent, a slight drop from the double-digit rates seen in past years, but it's still a rosy figure compared to the world average. Although the United States has lobbied hard for closer cooperation with China on crisis countermeasures, the country's focus will remain at home.

The financial contagion is less of a shock to Chinese financial institutions with little exposure to U.S. subprime products. But as the U.S. economy drifts into recession, its imports from China may go on a downward spiral.

When it comes to heating up the economy, fiscal stimulus, such as tax breaks and infrastructure spending sprees, would work better than easing monetary policies already in place. But the best vehicle to offset softening export growth would be spurring the consumer market, which has great potential to unleash. Efforts should be made to improve social insurance to add incentives for consumption. Moreover, rural markets should not be ignored. It's imperative for the country to increase rural income so as to foster rural consumption.

Buying into Wall Street?

I don't think it's a good time now for China to snap up the beaten-down shares on Wall Street. The country is still quite capital-strained on per capita average despite a nearly $2-trillion foreign exchange reserve. As a result, the limited capital should go to more important purposes, such as purchasing scarce resources or key high technologies to facilitate domestic industrial upgrading, which could best serve the country's interests. It's not our strong point to manage Wall Street financial institutions. Even the savvy Wall Street managers failed, not to mention the inexperienced Chinese.

Emerging market woes

The domino effect of the financial chaos is rippling through emerging markets that are more vulnerable to financial turbulence. They are running the risks of dwindling exports and foreign capital pulling out to cover losses at home, which spells disaster for the fragile economies.

In defense, emerging market countries first should put in place counteractive programs to prevent a collapse of their banking systems. Meanwhile, expansive fiscal policies and lax monetary policies should also be leveraged to cushion a blow to their economies, such as interest rate cuts and infrastructure investment increases.

China is less likely to see that happen since it has sufficient foreign exchange reserves and keeps a stringent handle on its capital account.

Lessons from crisis

First, asset bubbles must be kept at bay since they are usually the catalysts for crises. Second, it's necessary to balance financial oversight and innovation as both hold the key to the healthy development of the financial system. Third, more help should be given to developing countries that are less resilient to global downturns.