May 12th, 2009 | People's Daily Online China's model or the US', which is more effective in coping with the financial crisis?
Since the out break of the financial crisis, governments around the world have launched various measures to either relieve the issue or try to recover from it as early as possible. Although the entire world remains in crisis, people have already started to discuss other countries’ economic models, with a popular view emerging that China’s economic model is significantly different from those applied by the US and the West. Some people even believe that the two economic models represented by China and the US are already in competition.
The current focus is on three main aspects of China’s economic model. The first is the Chinese model’s resistance to the financial crisis. Without a doubt, this financial crisis has exerted different levels of influence on different economies.
China’s economy has been deeply affected, however, compared with Western economies or even those of Japan and the “Four Asian Tigers”, China has displayed a relatively strong resistance, which is apparently related to the unique economic model China has adopted since reform and opening-up.
The second are the methods and means China adopts to cope with the financial crisis. Although on the surface, no substantial difference exists between the methods adopted by China and other countries, those adopted by China have so far proved more effective than those adopted by the governments of Western countries. Some signs have already appeared that the Chinese economy is beginning a trend towards recovery while Western countries have begun to experience negative growth. Currently, few countries can hold as optimistic an attitude towards their own economy as China does.
It should be noted that China’s optimism and confidence has its own objective basis. To cope with the financial crisis, the US and other Western governments have only financial leverage but not economic leverage to turn to, while the Chinese government has both. In addition to its financial leverage, China also has economic leverage at its disposal, to which full play can be given through its giant state-owned sector. Moreover, the US and most Western governments are operating with a financial deficit, while the Chinese government enjoys a sound financial state. It is reasonable to say that China is one of the few countries in the world with money at its disposal.
The third aspect is the role China will play in the new international financial order. Like all previous major crises, this crisis will surely lead to a reconstruction of the existing economic and financial system. In the past, the Western world was the creator of systems, while other countries were passive participants. In the future reconstruction of the economic and financial system however, it will be impossible for the Western world to monopolize everything. Instead, emerging economies in countries such as China, India, Brazil and Russia will surely participate in the reconstruction process. It is possible to reach this conclusion because China’s huge economic scale will surely play a very important role. In this respect, people urgently want to be educated on China’s cognition of the future order, as well as its expectation regarding its own position in the future system.
Recently, more people are showing a strong interest in the Chinese model. Many developing countries are learning from China’s model, while developed countries feel uneasy because they are wondering whether the Chinese model will replace the Western development model.
However, since the exact nature of the Chinese model is unclear, it is very important to summarize it. The Chinese model reflects a variety of aspects such as politics, economy and society. From an economic perspective, the Chinese model can be referred to as a multi-layer or mixed economic model. The concept of “mixed” here differs slightly from its routine usage.
This concept generally refers to the mixed ownership model of the Chinese economy. “Mixed” here not only refers to ownership, but also includes many other aspects. Although ownership is certainly very important, the “mixed” concept also refers to the balance between various types of ownership. Furthermore, the concept encompasses the balance of opening-up to the external market versus domestic consumption, as well as the balance between the role of the government and the market on the economic arena.
In the current economic downturn, China’s socialist market economy model is demonstrating both its advantages and its disadvantages. In any case, the Chinese model is still in the process of developing. If China can learn enough lessons from the financial crisis, it will be beneficial for the development of this model.
Scholars at home and abroad are currently discussing whether the financial crisis can transform the Chinese economic growth model. In my opinion, establishing social systems through social reform is the key to reforming the Chinese model, thus ensuring the sustainable development of the Chinese economy.
The financial crisis has undoubtedly provided China with great opportunities for carrying out social reform and establishing social systems. Consequently, there is a pressing need for China to continue improving its mode of development amid the economic downturn. At present, efforts should be made towards expanding domestic demand and establishing a consumer society, which are its top priorities.
It is indisputable that both carrying out social reform and establishing social systems are tenacious battles. For all countries practicing market economy, an excellent set of basic social systems have so far served as the system foundation for ensuring its market activities and social stabilities. China has to make a lot more efforts in this area.
By Zheng Yongnian, Director of the East Asian Institute, National University of Singapore