(China Daily)
Updated: 2008-01-31 11:08

[The author Yi Xianrong is a researcher with the Institute of Finance and Banking under Chinese Academy of Social Sciences.]

Since the start of the year, news stories causing concern have appeared around the world.

The United States is seeing an increasing negative influence from the subprime crisis on its financial market. Stock markets around the world have seen dramatic ups and downs in the last week while the Chinese stock market has also fallen. Heavy snowstorms have hit many parts of China causing huge damage to the economy.

Many say the Chinese authorities should reconsider the tight monetary policy currently in effect.

Their concern is not baseless for the economic situation in and out of China does not allow for too much optimism. Capital markets around the world are stumbling. China and the US are also seeing a narrowed difference in their interest rates.

However, these facts are far from adequate for the Chinese authorities to change the tight monetary policy.

Many world market analysts believe the US economy is entering a recession because of the subprime crisis. But it is still too early to make this judgment.

Admittedly, the subprime crisis has hit the US economy badly, but its negative influence is unlikely to pull the US into recession.

The real serious problem in the US economy is the rapid devaluation of the dollar. The depreciation has lowered the purchasing power of individual consumers who buy commodities priced in US dollars. It has also driven up the prices of major commodities on the international market.

As a country whose imports exceed its exports every year, the US finds its imports much more expensive now and this could severely affect domestic consumption.

But the fundamentals of the US economy have not been changed, so it might be able to shrug off the subprime crisis as long as the US dollar stops its slide.

At the same time, the Chinese economy is still in high speed growth and it has been so for the past three decades. This growth momentum could carry on for next three decades because the Chinese economy still has great potential for further development.

China has a huge economic disparity among different regions and among different sectors. This disparity, long viewed as a disadvantage, could be turned into a force driving the economy forward under proper guidelines by the authorities.

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