Speech of CIC Chairman in Washington

(chinadaily.com.cn)
Updated: 2009-04-01 17:15

Second, apparently the financial crisis was caused by the burst of the asset bubbles, but the root cause is the imbalances of the existing global economic development model. The crisis reflects the unsustainability of this model and the genesis of the crisis lies in structural problems. Take the US for example: the US features over-consumption, high-leverage and a high-risk virtual economy. Of course, China has its own structural challanges.

Third, due to the above mentioned two characteristics, as well as the economic and financial globalization and macroeconomic imbalances, the depth and time span of the current global economic recession may well exceed a normal crisis, and the impact of the crisis on the financial stability and economic development may well go beyond previous estimations. The recovery from this economic recession would most likely be an L type, instead of a V or U type.

In the face of crisis, the major economies have taken unprecedented measures to address it, such as pumping liquidity into the market, lowering interest rates, rescuing domestic financial institutions and adopting various economic stimulus policies, which help to forestall the further spread of the crisis.

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Because the measures taken are mainly short-term oriented, which can only temporarily relieve the pain of economic recession instead of adjusting the economic structure from the perspective of long-term and healthy economic development, the policy measures may not be as effective as expected. According to the recent economic data, global financial markets have yet to resume normal functioning and the downward trend of the real economy has yet to be reversed.

Therefore, it is difficult to strike a balance between crisis response measures and structural adjustment. But, as the crisis worsens, consensus has begun to develop and the crisis response should also bring about opportunities for reform.

During the Asia Financial Crisis in 1998, the Chinese government adopted proactive fiscal policies and other crisis response measures, on one hand; and deepened economic structure reform, such as SOE reform, financial sector reform, housing reform, and entering the WTO on the other.

Through those measures, the economic viability has been enhanced and domestic demand has been increased. After this round of crisis started, as mentioned by Premier Wen Jiabao at the World Economic Forum, the Chinese government has acted in an active and responsible way, promptly introducing ten measures to shore up domestic demand and avoid rapid decline of the economy.

Meanwhile, China continues to strive to solve some existing structural problems. Seizing the opportunity of international economic structural adjustment, we have tried to accelerate the formation of an economic pattern which is mainly driven by domestic demand, particularly consumer demand.

For instance, the Chinese government will aggressively push forward the social security reform, increase basic retirement pension, unemployment insurance and work-related injury compensation of enterprises and strive to establish a basic medical care system covering both urban and rural residents in three years.

The objective is to promote consumption by addressing the root causes. Only by combining measures addressing short-term difficulties with strategies promoting long term economic growth, can we turn the crisis into opportunities.

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