The G20 finance ministers' and central bank governors' meeting in London in early September is credited with revealing the new direction of the world economy. In an article published in Securities Times, Wang Xiaoguo, Deputy Director of the Strategic Development Commission of the Securities Association of China, highlighted three new trends. Edited excerpts follow:

Judging by the information released by the G20 finance ministers' and central bank governors' meeting in London, the world economy has undergone some significant, qualitative changes.

The principal shift has been one from stabilizing the world economy to enhancing recovery. Rather, government aid is giving way to private investment—and major economic structures continue to undergo fundamental changes.

Enhancing recovery

A joint communiqué delivered by the G20 finance ministers stated that, "Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand. Financial markets are stabilizing and the global economy is improving."

According to figures from the Interna-tional Monetary Fund (IMF), by June 2009, G20 members committed a total of $11.9 trillion to economic stimulus measures designed to cope with the financial crisis. At present, the world economy has shown signs of recovery. After a 6.4-percent year-on-year economic decrease in the first quarter and a 1-percent fall in the second, the U.S. economy is expected to regain positive growth in the third quarter.

The Japanese economy, meanwhile, grew 3.7 percent year on year in the second quarter—the first sign of positive growth in five quarters. Similar optimism can be seen in Germany and France. But it is China that steals the show with a soaring 7.9-percent year-on-year gross domestic product growth in the second quarter.

The meeting offered an air of cautious optimism toward the economic recovery so far, and an agreement to undertake further actions to achieve additional sustainable growth.

The encouraging news indicates that the world economy has stabilized and posted growth thanks to the stimulus measures. However, this kind of stimulus-driven growth needs to be upgraded to sustainable, endogenous economic development.

Government retreats

The current recovery has mostly been generated by easy access to money. Macro-control theories have taught us that economic recovery should never be overly dependent on relaxed monetary policy, which can bring about increased demand only in the short term. Therefore, the meeting called for structural reform policies and proactive labor market policies as well as training and education to boost employment.

The exceptionally loose monetary policy led by U.S. Federal Reserve Chairman Ben Bernanke might trigger a vicious global inflation in the wake of the credit crunch. In the meantime, the proactive fiscal policy will inevitably squeeze out private investment, as much of the financial aid floods to government-controlled or government-invested programs instead of the private sectors of the economy.

This will ultimately lead to a market deficiency. Worse still, massive government spending will cause a huge budget deficit.