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Expert's View
Special> Coping With the Global Financial Crisis> Expert's View
UPDATED: May 17, 2009 NO. 20 MAY 21, 2009
Back to Reality
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The devastating global financial crisis stemmed from the corruption of the U.S. property market and a wide range of financial derivatives that were devised based on home mortgages. The world's financial institutions have been hit hard, with some going bankrupt. To avoid such financial catastrophe in the future, Fan Gang, Director of the National Economic Institute, called on business people nationwide to focus more on real industries instead of blindly pouring money into financial and service sectors. He made a speech at a forum on the global financial crisis and China's economic development. His edited speech follows:

The financial crisis taught us an important lesson that we should get down to real business, and no longer underestimate the strength of real industries.

When trying to make a profit in a fast-changing economy, there is nothing wrong with Chinese companies investing in financial and service sectors, but investment in the two areas must be proportional with real industries like shoemaking or iron and steel manufacturing.

China is still a developing country and should stick to that proportionality. It would be a trap if we blindly engage in building a so-called high-level service industry to compete with the United States or other developed countries.

Take Iceland, for example. The service industry used to account for 90 percent of its GDP, while the other 10 percent came from fishing. After the country went bankrupt during the financial turmoil, its prime minister called on citizens to fish more.

Many Chinese entrepreneurs look down on the shoes and socks they make. They tend to believe financial advancement brings more wealth.

But they fail to realize that as long as everyone has to wear shoes and socks, shoe and sock manufacturing is going to be a profitable business.

The criteria for a good company do not depend on what it makes but on how much money it earns. Shoes and socks made in Italy are always top sellers.

Likewise, we always need steel and cement, unless we can live in an architectural sketch designed on a computer.

Recently, overseas newspapers like The New York Times and the Financial Times have published articles emphasizing the importance of manufacturing. They warned entrepreneurs not to ignore manufacturing or pursue financial achievement heedlessly.

Real industries bring less money in a slow and stable fashion; the financial industry can provide huge windfalls but involves more risk.

If an iron and steel manufacturer goes under, it can always sell its remaining assets like factories and manufacturing equipment. But financial companies can vanish in just one day.

The economic structure is decided neither by the government nor scholars, but is shaped by market supply and demand. Entrepreneurs should adjust their investment strategy based on the lessons they have learned from this round of financial meltdown.

The world economic recession is expected to last at least three or four years. The financial fallout has had a huge impact on the real economy, which will take even longer to recover.

The biggest lesson we should learn is that we must go back to the real economy and build up wealth step by step.



 
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