A comparative study of two financial crises
- By Liu He
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E-mail China.org.cn, October 17, 2013
8. Crises developed following their own cycles. Before the cycles were completed, the recovery did not come easily. Financial crises often start with economic depression, followed by breaking bubbles and soaring unemployment. A depressed economy may seek a political or military resolution. Amid a debt crisis-stricken Euro zone, and a war-torn Middle East, we ought to be fully prepared for greater risks during this financial crisis.
9. Only at the most difficult stage in a crisis will the most effective solutions emerge – often major theoretical innovations. In the wake of the Great Depression, the world nurtured the Keynesian Revolution. The solution to the current crisis may center around shrinking global demand as well as global mismatches of capital, technology and labor distribution.
10. Crises strongly call for redistribution, which results in major changes in the international economic order. Following this crisis, the focus of the world's development shifted to the Asia-Pacific region and the G20 came into being. The world powers are making great efforts to rebalance themselves in a fast changing world order.
In this sense, crises also have positive significance amid the damage they cause to productivity.
Three suggestions
1. Making full preparation for worst case scenarios. Through the comparative studies and in light of the worsening Euro crisis, we are convinced it is imperative to prepare for the worst while hope for the best. We ought to be ready for a sudden, external impact as much as for long-term structural change.
2. Seizing strategic opportunities and maximizing China's interest in the global framework. Prior to this crisis, expanding the overseas market and the influx of international capital made China the world's manufacturing center. But in the wake of this crisis, the world is experiencing insufficient demand and deleveraging, which has opened up a new opportunity for China as to make most of its domestic market in its contribution to global recovery.
3. Focusing on China's own business, and carrying out theoretical research. The studies have also shown that attending to China's own affairs regardless of the external environment is the fundamental policy to achieve peaceful restoration. China should follow the successful examples of other nations, and be wary of getting involved in international events.
The author is director of the Leading Group for Financial and Economic Affairs, and vice director of National Development of Reform Commission.
The article was translated by Chen Boyuan. Its original unabridged version was published in the No. 5, 2012 issue of Comparative Studies magazine.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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