Curb your enthusiasm

• Source: Global Times
• [08:05 November 06 2009]
• Comments

A counter window in a bank in Nanjing, Jiangsu Province.

 By Cong Mu

After two years of study and four years working in airline marketing in Singapore, Valerie Jia decided to return to China in July.

"There is a big difference from Singapore," said Jia, 28, now a '09 MBA student at the Shanghai-based China Europe International Business School (CEIBS). "Every day is new and exciting, full of new opportunities," she added, hopeful that the private sector will become an increasingly significant force for China's economy.

Despite the optimism of people such as Jia and China's 8.9 percent growth rate for the third quarter, the current economic recession is far from over yet, Chinese policymakers and Nobel laureates told a Global Management Forum held during the CEIBS' 15th anniversary last weekend in Shanghai.

Moreover, in order to achieve the country's long-range target of becoming high-income society, China has to take on a strenuous task of shifting growth model when global aggregate demand driven by American consumption is shrinking, some of the leading economists said.

Diminishing demand

"Both China and the US have benefited greatly from their trade relationship over the past decades, raising their people's income and living standards in the respective countries," Joseph Stiglitz, 2001 Nobel Laureate for economics, told the forum. Stiglitz was also appointed by the UN in October 2008 to lead an international panel of experts to study the causes of the current financial crisis and how to overcome it.

But the old model where China could produce whatever it wanted and the US, now its second largest trading partner, would buy most of it is broken, because Americans are starting to spend less and save more following the credit meltdown, Stiglitz said.

Over the past 30 years, developing countries have used their hard-earned trade surpluses to finance US consumers who should have saved but have lived beyond their means, he and other economists at the forum pointed out.

Though many US households have finally turned to thrift, their rising saving rate will still create a shortfall of $1 trillion on global aggregate demand, Michael Spence, another Nobel laureate, estimated, though in the short run, this decrease will be muted by fiscal stimulus and deficits in many countries.