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Time to play a bigger global role

By Wang Xu (China Daily)
Updated: 2008-11-13 11:58

China is expected to hear calls at the weekend's G20 summit for greater action to address the international payment imbalance that was widely seen to be the root cause of the financial crisis.

Even before the meeting, China announced a 4-trillion-yuan ($586 billion) economic stimulus package to expand domestic consumption to maintain sustainable growth at a time of export contraction.

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The move may represent a shift in the government's development strategy, which will rely more on the domestic market than overseas demand.

Economists said they also expect China to do more by leveraging its massive foreign reserve to help stabilize global financial markets.

The world's current account deficits, the broadest measure of the foreign trade pattern, hit a record of nearly 6 percent of global GDP in 2006-2007, about three times in the mid-1990s, estimated Morgan Stanley Asia Chairman Stephen Roach.

The United States, which has played a major role on the deficit side, had a current account deficit of $738.6 billion in 2007, equivalent to 5.3 percent of its total output. Meanwhile, China, with a current account surplus of $371.8 billion, is now the major factor on the surplus side of the global imbalance equation.

China, along with other nations with a huge surplus, spent the lion's share of its ballooning foreign exchange reserves buying US Treasury bonds, which in turn funded the US fiscal deficit.

Economists say export-led developing economies should move together to get domestic demand to fuel their own growth and China, now the world's largest surplus economy, can play a leading role in this.

As overseas demand continues to fall and export growth is likely to drop into negative territory in 2009, top policymakers have repeatedly pointed to the domestic market's potential to cushion the impact of the global economic downturn.

The 4-trillion-yuan stimulus plan is largely designed to boost domestic consumption.

Still, analysts say the nation could also do more to help stabilize the global financial system.

"Given the Chinese economy's great dependence on international trade, it is absolutely in the nation's best interests to make sure that the international monetary order does not collapse, because otherwise China's exports would be dramatically affected," said Chen Zhiwu, a professor of economics at Yale University.

"Therefore, China should offer help to countries in financial distress and be an active player in the current global rescue efforts," said Chen.

China's central bank has joined with other nations to lower interest rates in recent weeks, a move expected to help restore confidence in the global economy.

"To conquer the financial crisis we need coordinated global action that includes the establishment of a fair, just and ordered global financial system," said Chinese Premier Wen Jiabao during a telephone conversation with his British counterpart Gordon Brown.

Wen also said China will continue to implement a series of measures to expand domestic demand and try to maintain stability in the economic, financial and capital markets.

China's stable and sound economic growth is a major contribution to global growth, he said.

Brown called on China and oil-rich Middle Eastern nations to fund the bulk of an increase in an IMF bailout fund.