Opinion

A more dangerous phase?

(China Daily)
Updated: 2010-05-08 11:40

The brief but breathtaking plunge of the Dow Jones industrial average by almost 1,000 points on Mary 6 may turn out to be largely a result of unjustified investor panic. Nevertheless, possibility persists that the Greek debt crisis may not only morph into a European crisis, but can also become global.

The market anxiety has helped shed much needed light on the fragility of the global recovery. If global leaders do not respond quickly, the world economy may enter a more dangerous phase than the international community has anticipated.

A broad-based global recovery led by emerging economies since later last year has been fueling optimism, even though sovereign debt problems have become obvious in some countries.

If the world economy really expands at the fastest pace since 2007 this year, policymakers should pat themselves on the back for essentially borrowing and spending their way out of the worst global recession since the Great Depression. Yet the escalating debt crisis in European Union (EU) countries indicates otherwise. And the market panic, though exaggerated, shows that investors are increasingly skeptical of the feel-good forecast.

Though an 8.7 percent GDP growth in 2009 has enabled the Chinese economy to survive the most difficult year this century more robustly than others, China's policymakers have been cautious enough to regard this year as the most complicated one.

Maintaining the growth momentum and preventing asset bubbles used to be at the heart of the complexity of China's economic policies. Now, the widening debt crisis in EU countries is adding significantly to the complexity of international cooperation and coordination to prevent a renewed global crisis.