| A striking phenomenon of the 21st century has been the rapid development of greater numbers of emerging markets. In line with the trend of deepening economic globalization and the transfer of the international division of labor, emerging markets have formed economic development roads and modes with unique characteristics and are making themselves important drivers of the world’s economic growth.
To better participate in global economic management will not only benefit China’s own economic development but will also help the world in recovery from the current economic crisis.
How to read the profound changes happening in global economic patterns? How can China be more helpful? Recently, People’s Daily interviewed Ba Shusong, Deputy Director of the Financial Research Institute at the Development Research Center of the State Council.
People’s Daily: Chinese policymakers at the Central Economic Work Conference said “the world economy is likely to resume growth in 2011, though uncertainties loom large.” How do you view this?
Ba Shusong: This shows China’s enhanced confidence in global growth and also its vigilance to possible risks given the European debt crisis and the vulnerability of the U.S. economy.
Through the global efforts to struggle out the crisis, the mid and long-term trends in the world economy have changed and striking features have emerged. The world economic structure is in an adjustment period, world economic management system is undergoing changes and emerging markets are moving upwards. These are the external economic environment facing China in 2011 and farther away in the future.
People’s Daily: In the face of the influence of the extensive global financial crisis, how are countries coping with it?
Ba Shusong: In 2010, the global economy experienced a shorter economic cycle. On the whole, the global economy is showing mild recovery. A preliminary estimate has set world economic growth for 2010 at more than 4.5 percent with 60 percent coming from emerging markets. China is expected to contribute 20 percent, while the G3, namely the United States, the European Union and Japan, will generate 25 percent. During the crisis period, the economy in developed countries is growing sluggishly and the new, major driving forces are coming from emerging economies, including China. Emerging markets might tighten monetary policies to combat inflation and curb asset bubbles under strained sufficiency in liquidity and a low interest international currency environment.
People’s Daily: The doubts about a “double dip” in the global economy remain. Does Chinese policymakers’ judgment of “the world economy as likely to resume growth in 2011” mean a double dip?
Ba Shusong: Globally, the world economy is regaining lost ground and downside risks have moderately eased, but doubts are growing over the prospects for developed countries and there are several major reasons.
First, job creation currently lags far behind economic growth. Developed economies and emerging ones are recovering at different speeds. The sharp contrast between developed countries’ quantitative easing (QE) and the emerging economies’ monetary tightening is becoming one of the major destabilizing forces of the global market.
Second, the pace of recovery of financial markets and the real economy also differs. Financial markets can be invigorated via massive money issuance, but if the money issued does not flow into the real economy, instead remaining in the financial system, it will take longer for the real economy to recover. That’s the current problem with the U.S. economy.
Third, structurally, the current growth of the world economy is also different from the pre-crisis growth trend. The potential growth rate of the world economy will be at a lower level and is unlikely to return to pre-crisis growth levels in the short run. Therefore, current economic growth may come to stability at a new but lower balance level, but this does not mean the global economy remains in the recession cycle.
People’s Daily: This is why we often say, “uncertainties loom large” about global economic recovery.
Ba Shusong: The judgment of “uncertainties loom large” also reveals this reality: Currently, developed economies and emerging economies are at different stages of their economic cycles. The developed countries are still fighting deflationary forces while the emerging ones are striking hard against inflation. Global monetary policies in 2011 will diverge into developed countries’ QE and emerging countries’ monetary tightening. The United States, the euro zone and the emerging markets are set to put in place different monetary policies in 2011.
U.S. policymakers will decide the pace of QE2 and the necessity of future rounds of QE, according to the recovery level of their real economy, the consumer price index, consumption rate and corporate activities. The euro zone is expected to carry out fiscal adjustments according to the expansion and controllability of debt risks, focusing on the containment of fiscal risks and preventing deeper, debt-crisis based ones. It is also likely to adopt QE when necessary. In striking contrast, emerging economies like China will, under restrictions brought about by diversified liquidity, and also an international currency environment of low interest rates, tighten their monetary policies to combat inflation and curb asset bubbles.
The “start-up stage” and “realization period” for China’s participation in global economic restructuring during the 12th Five-Year Plan
People’s Daily: How do you understand “imports will be the key to macro economic balance and economic restructuring”?
Ba Shusong: One lesson learned from the financial crisis is developed countries must weaken their reliance on excess consumption as a source of growth. Instability in the world economic recovery has also enhanced the need for structural adjustment. In the future, developed countries will be required to encourage savings and expand exports to prop up the growth of the real economy, and refocus on the manufacturing sector to redress trade imbalances. For emerging markets, it is necessary to widen consumption and imports to rebalance their macro-economies.
China’s Central Economic Work Conference also stressed the importance of bolstering imports and pledged to allow imports to play a bigger role in economic restructuring. This means boosting imports will be the key to the country’s trade balance and economic rebalancing.
For the United States, which is the source of the financial crisis, the essence of trade imbalance is the imbalanced internal economic structure. To optimize its economic structure, there is a growing need to repair the balance sheets of households, enterprises, financial institutions and the government, as well as boost savings rates. On the whole, global economic restructuring demands in-depth adjustment in different economies. China will also take part in the global economic rebalancing, during its 12th Five-Year Plan (2011-15).
People’s Daily: How do you understand the “global economic management system has entered the period of reforms”?
Ba Shusong: In the wake of the financial meltdown, the international community is pushing forward reforms of the global economic management system, which emphasize both fairness and equality, by improving current frameworks and structures. A new and more effective system should be able to reflect changes in the global economic landscape and also help erect defenses against future crises. There has already been some progress in global economic governance reflecting emerging economies’ growing strength and prompting developed nations to speed up their internal restructuring. Meanwhile, as a basic principle, the IMF is also considering setting numeric targets for trade surpluses, exchange rates and foreign exchange reserves to rein in various countries.
Another change in the global economic management system is a shift of power to emerging economies. Developed economies are less likely to fulfill their pre-crisis potential growth rates, even though they are back on the path of recovery. Emerging markets face some downside risks as well, but they will maintain a relatively rapid pace of growth and become a significant driving force in the world economy. |
