China's traditional development strategy emphasises export growth and foreign direct investment inflow, and this has led to an expanding trade surplus and the accumulation of those huge foreign exchange reserves. If we want to improve the resiliency of the Chinese economy, we should put more effort into stimulating domestic demand, investing more in human capital and building stronger social safety nets.
THEWORLDTODAY.ORG NOVEMBER 2008 PAGE 6 CHINA AND THE ECONOMIC CRISIS He Fan, CHINESE ACADEMY OF SOCIAL SCIENCES, BEIJING Cold Wınter i A butterfly flapping its wings in N THE SECOND HALF OF LAST YEAR, WHEN THERE WERE already clear signals that a severe financial crisis was New York may eventually cause a coming which would trigger a domino effect in storm in Beijing. Well, how about international financial markets, China watched from a distance. Many officials and scholars remained quite a devastating tsunami in New York? optimistic, but this was naive. They were misled by In the last month, the world has the popular ‘decoupling’ thesis which claimed that developing countries like China are decoupled from the United States watched the American financial economy and could achieve robust growth independently. This optimism seemed quite legitimate. China’s gross crisis unfolding day-by-day. domestic product (GDP) growth rate reached a historical Ripples from Wall Street spread to high at twelve percent last year. Who would believe such a huge, fast-growing economy, already boasting double-digit each corner of the global economy. growth for five years and probably poised to become the When this financial tsunami finally locomotive of the world economy in the near future, would come to a sudden stop? hits China, should we expect the Last year, there were already unnoticed cracks in the ice. China’s exports have grown annually by more than twenty earth to shake and a collapse of the percent since 2000. Exports have become an important Chinese economy? factor. Last year, almost a quarter of China’s GDP growth | INDEPENDENT THINKING ON INTERNATIONAL AFFAIRS THEWORLDTODAY.ORG NOVEMBER 2008
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