Nouriel Roubini had a syndicated column yesterday that painted an awfully bleak picture of the outlook for the global economy. He sees precious little prospect of growth coming from the advanced economies of Europe and the U.S. So can China pick up the slack, and help drive a global recovery? That’s the question I addressed on last night’s episode of Dialogue on CCTV News, along with fellow guests Charles Liu, CEO of Hao Capital, and LiYong, assistant chairman of the China Association of International Trade. You can watch the program by clicking here.
The answer I gave is that China certainly can drive a global recovery — but not by using its mountain of foreign exchange reserves to bail out the developed economies. To the contrary, the best thing it can do is draw down on those reserves to buy imports and invest productively abroad, rebalancing the global economy, giving deficit countries the opportunity to earn their way out of debt, and boosting the buying power and standard of living of average Chinese citizens. It makes little sense for China, a developing country, to be tightening its own belt in order to lend the trillions of dollars it earns to enable consumers in far wealthier countries to keep buying what it produces. It makes far more sense for the Chinese to finally realise the full benefit of their hard work and accomplishments, and use that pent-up, untapped demand to drive a much-needed global turnaround.
Whether this will actually happen or not, I’m not so confident. It will require a dramatic change, not just in China’s economy, but in the very way Chinese policymakers have come to define certain economic factors – such as a cheap currency, or ever-growing trade surpluses — as “good” or “bad.” One silver lining to the U.S. debt ceiling crisis has been to shake Chinese confidence that the endless accumulation of official reserves is necessarily a “good” thing for China. “Rebalancing” is not quite as much the dirty word it was until recently. But will that be enough to overcome entrenched interests and perceptions, and convince the Chinese that growth is not a zero-sum game? And can it happen soon enough to matter?
By the way, here are a couple of links to some previous appearances on Dialogue, over the past couples of weeks, that I was negligent in posting. Last Monday I was on by phone talking about China’s latest inflation figures. The previous week, I was on talking about the debt ceiling compromise in the U.S. The week before that, I was discussing efforts to negotiate a peaceful resolution to conflicting territorial claims in the South China Sea, and the nature of the U.S. interest in this dispute. Apologies for not posting these links sooner, but I think you’ll find the discussions are still fairly timely.