Illustration: Peter C. Espina/GT
The past decade has seen the lingering impact from the 2008 global financial crisis. Looking back, no country could have been immune to the crisis, which spread from the US to Europe and emerging markets and evolved from a liquidity crisis to one involving debt and currency.
As the world's second largest economy, China has also felt the pressure from the spreading risks over the past decade. We believe that China should learn four lessons from the financial crisis.
First of all, the crisis led to changes in the distribution of interest around the world. With global economic growth momentum declining, there are more intensified conflicts over interest distribution. As such, China should seek the maximization of its interests, but also needs to take a more long-term and strategic perspective into consideration.
The past decade shows that countries were inclined to make their policy choices based on their domestic needs, which often posed a challenge for the economic recovery of other countries and the world as a whole. It would be naive for China to believe that the existing rules will be effective forever and that overall interest can be achieved for various parties. The country needs to be prepared to take an active response to external risks, and to try to seize first-mover advantages while still holding onto its bottom line in the global arena.
The US, the catalyst of the crisis, achieved fast recovery due to its dominant place in the global market. China, however, should actively promote diversified development in terms of both the global economic order and international monetary system so as to have a strategic initiative for the future.
Second, China's policy of seeking steady progress suits the current times. To promote stability as a recovery foundation, it is important that China maintains long-term policy orientation to avoid unnecessary fluctuations.
It should also be pointed out that as financial crises vary, a single policy may not achieve the expected effect even if it worked in other cases. Given the past asset bubble, stock market crash and circuit-breaker incidents, it is clear that China's financial market is far from mature due to a lack of regulatory synergy and policy coordination, pointing to the need for financial regulatory reforms.
In addition, with economic risks influencing politics, political turmoil can disturb economic development. As China aims to solve its structural imbalance, income disparity, class solidification and other development problems, social stability will be the most important foundation for future economic growth.
Third, the existing economic theory and policy paradigm from developed countries may not work for developing countries like China, especially after the financial crisis. As such, China needs to develop its economy with Chinese characteristics by pushing forward the reforms in its economic system and mechanism in a steady and pragmatic manner.
In the meantime, the country should maintain an objective and sober attitude when embracing globalization. While globalization is undoubtedly a long-term trend for the world, it could stagnate or even go backward at a certain stage. Talk of trade protectionism has been on the rise since US President Donald Trump won the election last year. Recognizing the inevitability of a slowdown, stagnation or even regression in globalization, China should try to take the initiative in potential trade disputes and actively promote the integration of regional economic development and trade so as to protect its own interests and gain momentum for globalization in the future.
Fourth, during the 2008 financial crisis, credit collapsed due in large part to a confidence crisis. Confidence in China mainly lies in its economy, which, despite certain twists, remains on an upward trend. It may also come from the country's ongoing reform progress, which aims to facilitate China's transition into a consumption-led economy. Given the country's aging population and the rise of the middle class, consumption is set to become a major driver of economic growth and reforms will help accelerate the process.
The quick policy responses that have been made by China in the face of problems such as high levels of debt, excessive leverage, asset bubbles and growth slowdown, which are inevitable for a developing country, have also offered confidence in the country's ability to manage crises.
The author is head of ICBC International Research Limited. firstname.lastname@example.org