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As China fights its way out of the financial downturn, the developed world, primarily the United States and Europe, is still reeling from the recession. Despite the divergence in levels of recovery, there are common lessons that need to be learned. The key point to any recovery will be to strike a balance within the established economic structures, said Cheng Siwei, Dean of the School of Management of the Graduate School of the Chinese Academy of Sciences, at the Global Entrepreneur Summit recently held in Beijing. Edited excerpts follow:
To ensure an economically secure future, we must first balance savings and consumption. After the financial crisis, Western countries may want to rethink their reckless spending habits and start to put more emphasis on saving. But for the Chinese people, they should do just the opposite.
Second, a balance between internal and external demand also needs to be made. In the old world economic structure, countries thriving on financial products, like the United States and the United Kingdom, borrowed money from countries dependent on physical products and resources, made money through financial leveraging, and then bought more from the latter countries. But in the wake of the financial crisis, the "de-leveraging" process of the developed countries will ultimately require export/resource-oriented countries to cut production, and result in a rebalancing of the different demands among different countries.
Third, we must rebalance financial supervision and innovation. Financial innovation can improve efficiency. Conversely, it brings more risks. Internationally, there are too many innovations and not enough supervision. But China lacks both innovation while the supervision it has in place is flawed.
Fourth, maintaining a balance between virtual economy and real economy will be essential to averting future recessions. The total value of the virtual economy of developed countries (which is composed of the value of stock markets and financial derivatives) stands at about $500 trillion, but the GDP of the world is no more than $60 trillion. The virtual economy is 10 times greater than that of the real economy, giving rise to tremendous risks. In the future, the developed countries should reasonably cut their virtual economies in scale, especially the financial derivatives. But for China, the virtual and real economy are developing in proportion, and both need more incentives.
Fifth, balancing economic growth and sustainable development should be a priority. We should not blindly pursue higher GDP growth, as we cannot afford the environmental, resource, and energy problems. We calculated the resource and environmental cost in 2005 was equivalent to 13.5 percent of GDP. If we continue to run after a higher GDP growth while ignoring environmental protection, sustainable development will be out of reach. At present, the global climate change is an impending problem, and can only be resolved by using new and environmentally friendly energy.
Last but not least, rebalancing economic globalization and regional integration will be necessary. We are familiar with the concepts of the North American Free Trade Agreement and the European Union. Both have grown to be paramount economic powerhouses in the world. But most recently, some have raised the flattering idea that China should assume the leadership responsibilities to save the world from the recession. But the Chinese GDP only accounts for 6 percent of the world's total, how could China possibly be the rescuer-in-chief? The economy of the United States accounts for 28 percent of the world, and the economy of the Association of Southeast Asian Nations contributes 20 percent. Before experiencing an overall economic revival in the world, the regional economies should pick up momentum and fuel the world economy at large. |
