Economic powers holding the core status of the international monetary system can certainly endure current account deficits for a long time, but continual deficits in the current accounts of these emerging economies will definitely lead to economic and financial crisis. Highly praising the domestic demand-driven model in India and excessive criticizing of the adverse impact of China's trade surplus actually fall into the trap of accepting some longstanding mistaken ideas regarding international liquidity.
In the last 10 years, the international payment risks have been largely ignored, but the adverse impact of continual trade surplus and huge foreign exchange reserves were exaggerated. The most important reason for this is that the total international liquidity volume has been growing remarkably on the whole. According to my estimations, in 1995, the global foreign exchange reserves accounted for 26.3 percent of total imports by all world countries. The proportion rose to 28.9 percent in 2000 and 60.2 percent in 2012. However, such a huge international liquidity is to a great degree unevenly distributed among different economies. Therefore, the speedily rising proportion of foreign exchange reserves against total imports by all countries does not mean the risks of international payment crisis have diminished. Considering that global capital flow is growing even faster during this period, the risk of an international payment crisis should never be ignored.
When its economic growth is dropping drastically or is likely to drop, a country with a current account surplus that is highly dependent on exports usually will not face conflicts regarding policy targets and does not need to worry about measures such as curbing inflation. However, a country with a current account deficit will lose this advantage. For this reason, different emerging economies will have varying degrees of freedom when it comes to choosing policies that ensure stable economic growth, widening the gap among different emerging economies in development trends.
While hazy weather is sweeping the country, environmental protection topics will certainly attract great attention. However, we must be very prudent and even vigilant when faced with propositions to reduce coal consumption rapidly and drastically. This is because technology for the clean utilization of coal has made marked progress, and emission standards can be sufficiently met by shutting down small power plants and supporting their larger counterparts.
Moreover, the proportion of coal in the world's total energy consumption has increased nearly 2 percentage points in the past decade, and developed countries such as the United States and Germany are no exception. As the world's largest manufacturer, trading nation and power generator, China produces and consumes half of the coal in the whole world. If China blindly reduces coal consumption, it will just offer a good opportunity for oil and natural gas exporting countries.
Anti-corruption is undoubtedly the topic in the past year that has aroused the most attention and extensive public support. But every coin has two sides, and the anti-corruption campaign could also have some negative side effects on the legitimate consumption and service sectors. If policymakers are inattentive and act rashly, this impact could potentially be disastrous and even damage supporters of the anti-corruption campaign.
For example, while a crackdown on the sex trade in Dongguan, Guangdong Province is correct, the legitimate industries and the overall image of the city must not be tarnished.
Dongguan is a leading manufacturing city in the world and an important international trade city. With more than 11,000 manufacturing companies and numerous trading companies, Dongguan inhabits a very important global position in the industries which manufacture IT products, furniture and other commodities. In 2013, the trade volume of Dongguan-originated products totaled $169.03 billion, rising 6.5 percent year on year, even surpassing the foreign trade volume of most world countries.
In the course of the crackdown on the sex trade, Dongguan's image has become something of a laughing stock. Whether the jibes aimed at the city were for fun or ill-willed in intention, Dongguan's real economy has been unfortunately affected. Anti-corruption campaigners would do well to take heed of this city's example going forward.
The author is an op-ed contributor to Beijing Review and a researcher with the Chinese Academy of International Trade and Economic Cooperation