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The following article was published in our article directory on September 13, 2010.
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Global rebalancing trap

Article Category: World Affairs

Author Name: xia zihui

Period after the crisis of global rebalancing remains elusive us. About 10 years ago in the summer, I, as originally proposed, chief economist at Morgan Stanley, an unbalanced world needs a large-scale integration. My global rebalancing is the key topics: the world's savings level is different, how to integrate them. I hope that the U.S. can increase savings, investment and exports, and "Love saving" of Europe and Asia to stimulate consumption through access to new growth engine. The result is: the unsustainable current account balance will be reduced.

Skeptics argue imbalance is not the day of. Some people even think that the global savings imbalance is the world's ultimate consumers and emerging producers (with China as the axis of development in Asia), the new symbol of symbionts, this partnership is new, it will is permanent. In the period of time, the sound proved to be correct. Whirlpool in question, the world started trying to maintain this imbalance. But the result, it has almost fallen into the abyss.

2008 to 2009, perennial financial crisis is obviously a manifestation of growing global imbalances since. In the U.S., over-consumption to the extreme, a record, accounting for 71% of GDP, U.S. net domestic savings rate (households, businesses and government departments, the total savings after adjustments) for the first time in 2008, dropped to negative and in 2009 continued to decline. Therefore, the U.S. current account deficit widened to 6%. At the same time, when China becomes a leader in pan-regional growth, Asia is also caught in the last century, reshaping the economic crisis, so that China surpassed Japan to become the world's biggest savers.

Now, the global economy has been a dangerous imbalance in the increase in betting on a high price to pay. After the aftershocks of the crisis is likely to increase in demand of major economies stagnating in the next few years. Japan for decades in the doldrums may occur in other countries. Due abundant assets and debt bubble that developed countries could repeat the Japanese experience. For the United States, particularly because of its excessive consumption of cultural traditions, excessive debt, low savings, lack of employment, including of course dependent on the bubble of American families are now facing many years saving. Europe began to explore indebted fiscal consolidation program, which will impede economic growth for several years.

Asia in the past 10 years has changed greatly. This helps in two crises (1997 to 1998 Asian financial crisis and the 2008 to 2009, the global financial crisis) in the transition. During this period, Asia has been positive action to protect myself from the financial crisis - has a lot of foreign exchange reserves, from the end of the century less than one trillion U.S. dollars to upgrade to 5 trillion dollars in 2008. Strategically speaking, this strategy is wise. It provides a new buffer to the Asian financial instrument, in essence, is readily available self-insurance funds, which could successfully for the unexpected global shocks provide a buffer.

However, developing Asia has done is not enough. It does not get rid of export oriented De Jingji growth model, the export-oriented growth model Duiqi economic advancement, Zhe yes its a long time since the characteristics of the economic development, the Foreign Zai Zhe Yi Jia Ju demand patterns of dependency - an increase of the Di Qu export share of GDP, the proportion of 35% from the end of the century to grow to 45% after 10 years. This allows these areas at a disadvantage in post-crisis situation - more than ever dependent on external demand. Unfortunately, just as export-oriented growth engine of Asia's urgent need for external support, to combat the financial crisis on the developed economies can not provide exactly the support of external demand.

Asia needs to beware of a new disturbing complacency. We should not assume that after a major crisis and crisis recovery has been successfully solved the shackles of economic growth. After the aftershocks of the crisis (first the U.S., now in Europe) is an alarm, heavily dependent on external demand in Asia should take the problem seriously. We can not indulge in today's recovery - a rebound in more policy stimulus is due to temporary rather than internal energy, most of this rebound effect is due to savings rather than innovation brings. This challenge is most evident in China.

As major economies in East Asia is able to embark on the road rebalancing, China will play a role in success and failure. China's private consumption accounts for only 36% of the gross domestic product to changes in consumer-oriented economy in China will benefit greatly. However, if China failed to consumer-oriented economic changes, it will be for developed countries beyond the crisis deeply affected by weak external demand.

This change in China I am very confident, is preparing a "12 5" plan developed around a series of policies to promote consumption, including plenty of funds to build a social security net, raise rural incomes, leading to create a service more jobs. Therefore, in the next five years, China's economy is expected to account for the ratio of consumption to rise 45% this point I am not surprised.

But this is only forecast the future, there is always an exception. Meanwhile, according to the status quo, the long-awaited global rebalancing is only just beginning. Western countries, the economy is down, probably in the next few years or so. Only when the Asian support of 35 million consumers, we can guarantee the global economic growth in Asia to provide a new source.

All this may lead to the extension of the global rebalancing, this extension is painful. Also between East and West may lead to disturbing and dangerous trade friction, the West to take measures to protect the beleaguered workers in the East trying to reduce poverty and to absorb surplus labor.

If the world could not face up 10 years ago, determined to re-balance, today, these challenges will become even more urgent. When the imbalance is ignored, the big crisis arose. My biggest worry is: the imbalance in the world can not have a second chance.

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