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Making Joint Efforts to Drive Structural Reform and Working toward a Desirable Future of Global Development
2017-02-13
By Li Wei
Research Report Vol.19 No.1, 2017
Three unexpected incidents have happened over the course of global development since the financial crisis in 2008. First, the difficulty in global economic recovery has exceeded expectations. After the financial crisis, many believed the global economy would bounce back and regain solid growth within a relatively short period of time. However, in the wake of the turmoil in the US, a debt crisis emerged in Europe and some developing economies fell into recession. To date, the global economy has yet to see anything to significantly drive growth. Second, there have been an unexpected number of people consistently voicing their opinions against globalization. Since the 1970s and 1980s, globalization has strongly driven global economic development, and it was believed that nothing would ever turn this trend around. But since 2008, many countries have been delayed in getting their economies on track to recovery. Moreover, the imbalances between countries and between different groups within the same country that had previously been covered over by accelerated growth have now become more and more prominent. Such conditions have led to an even greater cry against globalization. Third, the political landscapes of certain countries have experienced unexpected changes. Faced with slow global economic growth and the wave of anti-globalization, people are looking to politicians, especially in developed countries, to make rational, correct choices in an effort to propel globalization and revive the global economy. However, the Brexit, the constitutional referendum in Italy, the results of the US presidential election, and the current situation with the elections in France and Germany took many by complete surprise. Such political changes show that politicians who try to implement rational policies to drive globalization will face more and stronger resistance. In general, more and more such originally highly improbable “black swans” are materializing. What is even more disquieting is that if this state of affairs continues, things that were once black swans may become a norm of “gray rhinos” (such as geopolitical conflicts).
Faced with the challenges brought on by uncertainty, should we sit by idly to just watch what happens, or should we take the initiative to strategize and act, shouldering our rightful responsibility to break through this destructive siege and work toward a new and glorious path of development? The latter is clearly the proper choice.
History shows that when faced with difficulty or challenges, the decision to be proactive or passive yields differing outcomes. By taking proactive measures at a time of uncertainty, people can lower the probability of the occurrence of undesirable incidents and increase that of desirable ones by eliminating disadvantageous conditions while creating advantageous ones. China has ample experience in this aspect. During the difficulties state-owned enterprise development confronted during the mid-1990s, we did not advocate the idea of some scholars to simply stand aside and allow the enterprises to implode. Instead, we proposed a three-year plan and the formulation of The Decision of the Central Committee of the Communist Party of China on Major Issues Concerning the Reform and Development of State-Owned Enterprises as a way to save them. This created a new opportunity to establish a strong foundation for these enterprises. Without the proactive reforms taken at that time, we would not be witnessing the success of these enterprises today.
Careful planning is the key to a proactive approach. As the saying goes, “Preparedness ensures success; unpreparedness leads to failure.” There is always a degree of uncertainty with economic and social development, but such development is not without patterns of regularity. If the global economy is to overcome current difficulties, the long and short terms must be considered in coordinating developmental strategies.
It is certain that countries must integrate the need to resolve the deep-seated structural imbalances that development currently faces within the new political circumstances and environment, and in this way come up with plans for future development. In these times of the constant advancement of science and technology, the continual decrease in the costs of communication and transportation, the steady expansion of industrial segmentation worldwide, the extensive developments in international trade and investment, the daily increase in the trans-border flow of industrial elements (such as resources, capital, labor, and information), and the immense deepening of economic and social ties between nations, the fates of people in every country have become much more closely linked than at any other time in the past. That is to say, the effects of strategic choices made by each country, whether beneficial or harmful, resound further than they ever have. Thus, as a nation plans its future development (especially for nations that already have strong influence in the world), it should properly handle three things: the relationship between its own development and that of other countries, the relationship between its own development and the prosperity of its own people, and the joint development of all members of humanity. After the financial crisis hit, some of the governments of major economies launched intense quantitative easing policies. This led to the appreciation of exchange rates for other countries, which in turn caused them to lose their competitive edge regarding exports. It also led to overflow around the globe: a large amount of capital flowed into emerging economies, causing the stock and real estate markets of such countries to be stuck in a constant state of instability. In recent years, some larger countries have begun to gradually ease off on their QE policies and have started working toward raising interest rates. As a result, other countries are now faced with the prospect of falling into a further stage of recession. But when developing countries fall into economic trouble, this negatively affects developed countries. In today’s globalized world economy, the economies of developed and developing nations are by no means untied: to a high degree, they share the joys and pains of prosperity and failure. According to the IMF, for every one percentage point drop in the economic growth of developing nations, the economic growth of developed nations decreases by 0.2 percentage points. ...
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