Caught up in the whirlwind of the global financial crisis since last October, governments worldwide have rushed to adapt to the drastic economic changes that have occurred both in their own countries and internationally. Anticipating that this year may witness heavier storms, Wang Jian, Secretary General of the China Society of Macroeconomics under the National Development and Reform Commission, warned about some trends in China's macro-control efforts in 2009. Edited excerpts of his interview with China Securities Journal follow.

Heavier storms still to come

We should watch out for the trend of over-optimism among some domestic experts who have claimed that the global financial turmoil is basically over. I think a heavier blow awaits the global economy in the first half of 2009 when the real economies of developed countries melt down one after another following the bursting of the financial bubble. The debt-dependent, over-leveraged U.S. economy lost momentum after the financial market crashed, as U.S. consumer spending before the crisis was largely bolstered by securitized products covering mortgages, car loans and credit card debt. A large number of U.S. companies will run out of cash and go out of business if they do not obtain bank loans this year. This in turn will give a second shock to the stumbling financial market and cause it to collapse. The economic crisis will last at least five years in the United States and spill over to countries all over the world. China will not be able to handle it if we, assuming that the biggest storm is over, do not prepare for the worst-case scenario.

Inflation pressure remains

World inflation has eased since the third quarter of last year largely because of plummeting commodity futures. From July through October, the U.S. dollar gained strength, while international investors were selling off dollar assets. After a successful exit, international investors took an interest in commodity futures in order to ride out a further crisis. The price hikes in international oil and gold futures since the middle of last December serve as an example. If the prices of international commodity futures bounce back in the first half of this year, China will face inflationary pressure again in the fourth quarter when economic growth may regain its momentum thanks to a string of stimulus measures. Unaware of this trend, China will have to renew its anti-inflation efforts and will not be able to safeguard its economic growth against the backdrop of a worldwide economic recession.

Capital exodus

China has been regarded as the best destination for international capital until now and has served as a safe haven for investments that exited the U.S. and EU capital markets amid the crisis. Of the golden BRIC countries, China still sees its foreign exchange reserves growing while the other three-Russia, India and Brazil-are all troubled by depreciating currencies or international capital outflows. If the government allows the Chinese currency to depreciate in order to boost exports and continues to cut interest rates to spur economic growth this year, the chances for international capital to make a profit here will diminish, and an exodus of international capital will be unavoidable. However, a large portion of foreign capital in China now is not speculative "hot money" in the property and stock markets. To avoid international capital outflow, it is a better idea to increase tax rebates for a range of export items rather than allowing the currency to depreciate for the sake of stabilizing exports.