The remedial policies taken by various countries in the wake of the financial crisis have helped relieve part of the pressure on the global economy. Vigorous economic indexes indicate that the dreadful financial chaos has gradually been clearing up. But Wang Zili, Vice Chairman of the Graduate School Committee of the People's Bank of China, reminded entrepreneurs and policymakers that the global economy is still far from a total revival. He published an article in People's Daily Overseas Edition. Edited excerpts follow:
Let's first take a look at the U.S. economy, because it is still the growth engine for the world economy. The U.S. Government's generous cash aid to financial institutions pulled many Wall Street giants out of a quagmire. Good news came in succession that consumer confidence had resumed and the pace of economic slowdown had slowed. But people nonetheless felt vaguely uneasy: Where is the new growth engine for the economy? How can the unemployment situation be improved? What will be the real driver of consumption recovery?
The financial crisis seems to have subsided for the time being, but it mostly has been prompted by a readjustment in accounting principles, not a real boom in company profits. A book number recovery cannot be sustainable, because it is vulnerable to the shrinking credit market and volatility in the financial market. It would be a total joke if anyone calls it a recovery without a visible improvement in the above-mentioned markets.
The financial outlook is not optimistic on the European front, either. The unemployment rate has been running high for the past three quarters, while the gross industrial output of the 27 EU countries slipped once again in April, which was down by 21.6 percent year on year. The European Central Bank had warned that the prolonged recession in the euro zone would weaken its stringent banking system, which in turn would prove to be an obstacle for the area's growth next year. The vicious recursion will blind the dawn of an end to the crisis.
Now let's go back to China. The recently announced May economic figures presented both good and bad news. The good news is that many macroeconomic indexes have showed signs of revival, while the bad news is consumer and producer prices continued to fall year on year. Plus, electricity output and exports are still in low gear.
A comprehensive analysis of the abovementioned figures leads to the conclusion that China's real economy is still lingering in a deflationary period with enormous downward pressure. On the other hand, the whole financial system is trapped in an impetuous liquidity expansion aura with distinctive stagnation features. It is the result of aggressive monetary expansion, which has jacked up property prices but has had limited effects on spurring real economic growth.
More noticeably, the abundant liquidity squeezed from the real economy is most likely to flow into the stock and property markets, which might eventually spark a fictitious economic bubble. This is because social investment cannot find a way out by investing in the real economy.
The Chinese economy should find a new growth engine. The fake stock and property market boom can only trap it in a cul-de-sac. Therefore, we should remain conservative about an economic revival. Higher hopes could just disappoint us more. In addition, the capital market is quickly recovering ahead of the real economy, which makes me less optimistic about an immediate economic boom. |