China has led post-cri­sis global eco­nomic re­cov­ery

Global Times - - Biz Comment - By Li Chund­ing The au­thor is as­so­ciate re­search fel­low with the In­sti­tute of World Eco­nom­ics and Pol­i­tics at the Chi­nese Academy of So­cial Sciences. bi­zopin­ion@glob­al­

Ten years have passed since the last global fi­nan­cial cri­sis, which orig­i­nated from the US sub­prime mort­gage cri­sis and quickly spread world­wide. To­day, the global econ­omy is still grad­u­ally mak­ing its way to a full re­cov­ery. Look­ing back, China not only sur­vived but also of­fered some light in the con­text of a gloomy global eco­nomic sit­u­a­tion by be­ing a new growth en­gine for the world. Credit should be given to the coun­try’s step-by-step eco­nomic re­forms, es­pe­cially the eco­nomic struc­tural trans­for­ma­tion and open­ing-up since the 18th Na­tional Congress of the Com­mu­nist Party of China (CPC).

The fi­nan­cial cri­sis ex­ported by the US deeply af­fected the world econ­omy and the Chi­nese econ­omy, as it re­sulted in the slow­down of ex­ter­nal de­mand and eco­nomic growth rates. One di­rect im­pact on China was the ex­port down­turn. China’s eco­nomic growth used to be driven mainly by ex­ports. The US and EU have sig­nif­i­cantly re­duced their im­ports and China’s ex­port growth rate has plum­meted from a 20 to 30 per­cent range to neg­a­tive growth.

At the be­gin­ning of the fi­nan­cial cri­sis, along with de­vel­oped coun­tries China also im­ple­mented ac­tive fis­cal poli­cies such as a 4 tril­lion yuan ($586 bil­lion) eco­nomic stim­u­lus pack­age and loose mone­tary poli­cies. At the same time, other poli­cies such as ex­pand­ing do­mes­tic de­mand, ur­ban­iza­tion and launch­ing in­fras­truc­ture con­struc­tion projects strongly stim­u­lated the econ­omy.

At first, these mea­sures were ef­fec­tive, and China sur­passed Japan to be­come the world’s sec­ond-largest econ­omy. But the stim­u­lus also brought side ef­fects. Loose mone­tary poli­cies and ac­cel­er­ated ur­ban­iza­tion made the hous­ing and fi­nan­cial mar­kets tar­gets for hot money. Soar­ing hous­ing prices and ex­ces­sive in­no­va­tion with fi­nan­cial in­stru­ments cre­ated bub­bles. On the fis­cal side, lo­cal gov­ern­ments is­sued their own stim­u­lus poli­cies, lead­ing to over­ca­pac­ity prob­lems. Too many re­dun­dant projects and a buildup in lo­cal gov­ern­ment debt be­came prom­i­nent is­sues.

Since the 18th Na­tional Congress of the CPC, the gov­ern­ment has sought to ad­dress these prob­lems amid the new nor­mal for China’s econ­omy. Trans­for­ma­tion of the eco­nomic struc­ture and a new round of re­form have brought fi­nan­cial cri­sis so­lu­tions to a deeper level and have helped in keep­ing the Chi­nese econ­omy vig­or­ous.

Chi­nese trade com­pa­nies have been en­cour­aged to en­hance their in­no­va­tion abil­i­ties and to pay more at­ten­tion to the added value of their prod­ucts. In the last year, the pro­por­tion of me­chan­i­cal and elec­tronic prod­ucts in China’s ex­ports has in­creased, while that of pri­mary prod­ucts such as re­fined oil and coal has been de­creas­ing. The “Made in China 2025” plan has also helped in driv­ing this up­grad­ing of do­mes­tic in­dus­try.

The na­tion’s sup­ply-side struc­tural re­form is key to trans­fer­ring from a high-speed growth model to one based on high-qual­ity growth, while also re­duc­ing over­ca­pac­ity, cool­ing down the over­heated hous­ing mar­ket and delever­ag­ing. An in­crease in fi­nan­cial reg­u­la­tion and su­per­vi­sion is also be­ing im­ple­mented to tackle risks.

China has also launched a new round of re­form and open­ing-up, which will con­tinue to sup­port glob­al­iza­tion. One noteworthy as­pect of this has been the con­struc­tion of free trade zones such as the one in Shang­hai. Free trade agree­ments with more coun­tries such as the up­graded China-ASEAN Free Trade Area have also boosted bi­lat­eral and mul­ti­lat­eral eco­nomic co­op­er­a­tion. Mean­while, the Belt and Road ini­tia­tive of­fers a new op­tion for the world to come to­gether. China will now be more open in mul­ti­ple sec­tors in­clud­ing fi­nance and man­u­fac­tur­ing.

The 2008 fi­nan­cial cri­sis put pres­sure on the Chi­nese eco­nomic re­form pro­gram, but the mea­sures adopted to ad­dress the cri­sis were ba­si­cally suc­cess­ful. As the re­forms go deeper, they will pro­vide lon­glast­ing fuel for the Chi­nese econ­omy.

In the last 10 years, the do­mes­tic econ­omy has be­come ma­ture. The gov­ern­ment has ac­cu­mu­lated cri­sis man­age­ment ex­pe­ri­ence and strength­ened its macroe­co­nomic con­trol abil­i­ties. China has grown into a vi­tal force in global eco­nomic gov­er­nance. With­out ex­port­ing a cri­sis or con­duct­ing pro­tec­tion­ism, China has led the global eco­nomic re­cov­ery and acted as a re­spon­si­ble ma­jor eco­nomic power by sta­bi­liz­ing its do­mes­tic econ­omy and solv­ing its own prob­lems.

Il­lus­tra­tion: Luo Xuan/GT

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