Crisis index can give information needed to safeguard real economy

By Liu Zhiqin Source:Global Times Published: 2013-11-6 23:18:05

Illustration: Peter C. Espina/GT

Illustration: Peter C. Espina/GT



Since the end of the debt crisis in the US not long ago, many people's nerves have eased for the moment.

But experts are still considering what lessons should be learned and how the next round of the debt ceiling, to be discussed again in March, should be dealt with. These lessons are particularly acute for China, the world's largest holder of US debt.

China's banking system has been much criticized for its management problem and low efficiency, despite its successful growth over the past decades. But Chinese banks are playing an increasingly critical role in the global financial system.

China needs to build up fireproof walls and establish safety nets in order to safeguard its financial system and protect the real economy. These measures should be taken into account during the decision-making process in order to allow necessary reforms.

One measure could be to set up a special supervisory commission to monitor the chances of another domestic political crisis threatening the US ability to service its debt. Its main function would be to closely look at the potential risks within US political and economic decisions, and seek new chances of investment for Chinese foreign exchange to move to safer and more reliable sectors.

Another measure would be to establish a domestic "crisis index" which could help us discover the hidden risks in financial sectors.

This crisis index could include composite information from various developing countries, including China, Russia, India, South Africa, Indonesia, and Saudi Arabia, and also include details such as currency, raw material prices, interest ratios, social stability, inflation, and the securities market.

After analysis by experts, this could provide us with valuable information about where investment would be safest and which areas are most vulnerable to potential crisis.

Financing plays an increasingly critical role at all levels of the economy, and one which will only become more important over the course of the next decade.

Without the proper performance from responsible financing, it's impossible for the real economy to develop smoothly.

At the same time, the risks of financing are very tough to deal with, and potentially increasing. Their potential impact on the real economy should not be ignored.

A hypothetical crisis index could give decision-makers all the necessary information needed to avoid potential financial or economic chaos, as happened during the crisis of 2008. I think the most important lesson we can draw from the US debt ceiling crisis is that we should do everything possible to achieve our goals, and should strain all our efforts to avoid any invisible risks hidden and waiting for the worst time to detonate.

The author is senior fellow at the Chongyang Institution for Financial Studies, Renmin University of China, and former chief Beijing representative of the Swiss Zuercher Kantonal bank. opinion@globaltimes.com.cn

Posted in: Viewpoint

blog comments powered by Disqus