For­get the cyn­ics — fi­nan­cial sta­bil­ity to go on

China Daily European Weekly - - Comment - By LU­CAS J. DIB The au­thor is a vis­it­ing scholar at the Fu­dan De­vel­op­ment In­sti­tute at Fu­dan Univer­sity. The views do not nec­es­sar­ily re­flect those of China Daily.

Those try­ing to un­der­stand the sound­ness of the Chi­nese econ­omy and its fi­nan­cial in­sti­tu­tions can be di­vided into two cru­cial in­ter­pre­ta­tive “groups”: The first one has been pre­dict­ing an im­mi­nent eco­nomic crash (that never comes); the sec­ond one, mod­er­ate, fore­sees a forth­com­ing stag­na­tion process.

Both have failed in their fore­casts. What else do they have in com­mon?

They blame the in­creases in the credit pro­vi­sion and its mis­match with the nom­i­nal GDP growth af­ter the 2008 global fi­nan­cial cri­sis for the so-called ills in the Chi­nese econ­omy. They are crit­i­cal of the role of State-owned en­ter­prises as strate­gic driv­ers to fos­ter and un­der­pin de­vel­op­ment, and say the SOEs are less pro­duc­tive and prone to re­source mis­al­lo­ca­tion.

Both have crit­i­cized the Chi­nese po­lit­i­cal ap­proach, al­beit this very same sys­tem has lifted out of poverty more peo­ple than in any other coun­try, while many of the so-called lib­eral democ­ra­cies haven’t been able to im­prove the liv­ing stan­dards of their peo­ple at the same pace as China.

And most crit­ics have nei­ther fore­shad­owed a fi­nan­cial cri­sis due to the mount­ing pile of debt that has been pour­ing from de­vel­oped coun­tries’ cen­tral banks post-cri­sis, nor could they an­tic­i­pate the 2008 fi­nan­cial crash.

Half-truths merged with mis­in­ter­pre­ta­tion could scale up ru­mors and desta­bi­lize eco­nomic and po­lit­i­cal sys­tems, and make it even more dif­fi­cult for de­vel­op­ing coun­tries to catch up with their more ad­vanced coun­ter­parts, as has been the case with those that blindly fol­lowed the Wash­ing­ton Con­sen­sus.

Thanks to re­form and open­ing-up, China suc­ceeded in build­ing a unique po­lit­i­cal and eco­nomic sys­tem with Chi­nese char­ac­ter­is­tics. China never suf­fered a fi­nan­cial cri­sis as the United States did. The Chi­nese sys­tem has an in­ter­nal in­tel­li­gentsia that reg­u­larly im­proves its mech­a­nisms while com­bin­ing a cer­tain dosage of reg­u­la­tion with op­ti­mal use of macroe­co­nomic, fis­cal and mone­tary poli­cies ad­dressed to un­der­pin the real econ­omy and fi­nan­cial sta­bil­ity.

China has four of the world’s top six com­mer­cial banks, thanks to a long process of build­ing cap­i­tal ad­e­quacy, and cre­at­ing as­set man­age­ment com­pa­nies with debt re­struc­tur­ing man­dates and new fi­nan­cial prod­ucts. It also has the largest (and prof­itable) ex­port-led ap­pa­ra­tus, which gen­er­ates a ro­bust as­set po­si­tion for the Peo­ple’s Bank of China, the cen­tral bank, ac­cord­ing to the In­ter­na­tional Mone­tary Fund’s as­sess­ment of re­serve ad­e­quacy.

Be­sides, China has con­tin­u­ously fa­cil­i­tated the im­prove­ment of in­sti­tu­tional and hu­man re­sources and per­fected its guide­lines and reg­u­la­tions. It has also helped es­tab­lish two new mul­ti­lat­eral fi­nan­cial in­sti­tu­tions, the Asian In­fra­struc­ture In­vest­ment Bank and the BRICS New De­vel­op­ment Bank, in or­der to al­le­vi­ate the fis­cal bur­den on de­vel­op­ing coun­tries. And it has come up with bold and in­no­va­tive pro­pos­als, fos­ter­ing in­no­va­tion, ad­vanced pro­duc­tion and the in­te­gra­tion of goods, ser­vices and cul­tures, which could be­come turn­ing points for a new and in­te­grated global era.

To un­der­stand China, there­fore, one has to first re­spect its unique­ness and avoid ide­o­log­i­cal prej­u­dices that aren’t proved by em­pir­i­cal ob­ser­va­tion. The “one size fits all” ap­proach has been proved wrong, for it doesn’t con­sider de­vel­op­ment as a wide range of points along a con­tin­uum with mul­ti­ple de­grees in a con­stantly chang­ing world. As­sess­ments and poli­cies need to be at an op­ti­mal point between a coun­try’s stage of de­vel­op­ment and char­ac­ter­is­tics, and the global trend.

It’s also nec­es­sary to re­al­ize that the world is not a di­chotomy (poor ver­sus rich; or West ver­sus East). In­stead, we share a com­mon destiny and agenda, which re­quire joint en­gage­ment to achieve sus­tain­able de­vel­op­ment, im­prove­ment in liv­ing stan­dards and fi­nan­cial sta­bil­ity.

China, like any other coun­try, has its own chal­lenges. True, China has huge re­forms to re­al­ize and dif­fi­cult tasks to per­form. But thanks to its re­li­able in­sti­tu­tions and able lead­er­ship, it can achieve these do­mes­tic goals while play­ing a de­ci­sive global role. If China main­tains its sound fis­cal bal­ance, and con­tin­ues to im­ple­ment in­no­va­tive and stable poli­cies, it is not go­ing to be shat­tered by a cri­sis or eco­nomic stag­na­tion. In­stead, it will be ready for a new de­vel­op­ment stage.

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