The bottom of the crisis and the way China's Choice

 Chen Zhiwu: Crisis and Solution of the bottom of the choice of China Chen Zhiwu
Sohu blog:
Now that the crisis is not completely over, many people are discussing the rise of a new Keynesian, the United States into a socialist market system, like the end of the topic. In fact, , this kind of talk in the last century, four decades has occurred, but also more challenging than it is now.
has released a lot of media data and indicators, so that the possibility of economic recovery uncertain. parties are China and the global economic trends, outlined a different picture. optimistic party to the shape and the How should we take? on related issues, the Chinese financial newspaper interview 40 members of the Forum, the Yale School of Management Professor of Financial Economics Chen Zhiwu.
Zhouhui Lan Cao Li of Beijing reported the salvation of the United States and worries

Century the prospects for recovery?
Zhiwu: From the data and signs that the U.S. economy is still in crisis, but the outlook is not as pessimistic. recently published U.S. financial system and concerns about the economy too far.
though logically, in order to increase everyone's confidence, the U.S. government assessment of the existence of suspected window-dressing; but in fact, since March of this year, all financial markets With a greater degree of recovery: the stock market rebounded by about 30%, the corporate bond market, the local government bond market, mortgage loans derivative securities, CDS and other markets have a substantial rebound. U.S. consumer confidence has also been a considerable degree of increase, from March to April picked up nearly 50%. of these data to determine that, in American society lasted for several centuries As in all the previous crises, such So far, American life has not fundamentally changed. This is established by the United States in the 1930s has a lot to the social security system. Although much of this crisis, many people have contracted the wealth of water, but the wealth A significant part of the future, as some people might shrink half of the pension, but at least have ten or twenty years, they will use the money. With the basic living guarantee future wealth loss and not immediately life on people's consumption and the impact of causing substance, so the American consumer, adventure and entrepreneurship, pick ourselves up again, soon will return to its previous condition. to the third and fourth quarter, the crisis After bottoming out in the United States, the rate of U.S. economic recovery will be faster �ȿ�³���� forecast.
The penetration of financial crisis to real economy concerns, how do you view this issue?
Zhiwu: U.S. auto industry's problem is a local problem. with or without the financial crisis, the U.S. auto industry also did not last long. a general the impression that the high level of manufacturing industry in China, most products can be manufactured in China. automobile industry has had 100 years of history, technology is relatively mature, so many developing countries to quickly catch up.
relative cheap labor costs in China, GM, Ford and Chrysler workers is very expensive, how can tell Zhejiang, Shandong, auto manufacturers do to compete? U.S. auto manufacturing as a sunset industry, in recent years has been Japan, South Korea's automotive companies squeeze, and now the Chinese, Indian car company to seize the market. This is America, the problems faced by the automotive industry itself, but allowed the crisis to accelerate the financial crisis manifested only, and does not indicate the financial severity of the crisis. and Obama spend so much taxpayer money to rescue GM, Chrysler and other companies, equivalent to taking the interests of American taxpayers to subsidize the Detroit auto industry workers, this is very unfair transfer payments, this result is nothing more than to be raised up out of the car company. Detroit's problems have more problems in American politics, not a systemic economic crisis ..
introduced a series of economic stimulus policies, will it laid for the future inflation risks?
Zhiwu: potentially serious risk. Now, China has worried about the pressure on the dollar, the next U.S. government treasury bonds a weaker dollar and inflation will rise. It appears that the U.S. government has not learned the lessons from this crisis, moral hazard problem will be highlighted. Recalling the history of the United States, we find: 1907, 1929, etc. several times compared to the financial crisis, the impact of financial crisis on the United States is not as serious, and worldwide influence is much larger than before, because financial globalization, the crisis spread to the world.
I do not support the implementation of the Obama rescue those radical policies, these initiatives will be a lot of people this should be the financial and economic crisis the opportunity to learn the lesson quickly away. bailout makes a market economy can play an important principle, the principle is forcing people to go through the frustration of non-rational behavior to correct. But the government's rescue radical behavior, greatly reducing the financial crisis and the impact on American society of the time, so that people did not receive due learned. Once the economy began to show signs of recovery, many acts of consumption and economic decision-making similar to the original will. the last century the crisis of 30 years after a generation of American society from becoming thrifty, saving, more conservative on economic policy, more afraid of risk; and after the crisis, the American behavior change does not happen too much.
Roosevelt proposed the New Deal did not save the U.S. World War II saved the United States, what do you think?
Zhiwu: Roosevelt's New Deal, including a lot of content, some of which government intervention in the economy and simple there is a difference. such as new legislation for the securities industry social security legislation, which are based on the establishment of a market economy as a whole to support the basic framework, it and the be beneficial. With the social security system, the market can be more freely, even in some cases, free exercise of serious consequences, the community also can get the safety net.
Roosevelt's New Deal is still a piece of content building roads, highways, these initiatives for the American society at the time of employment and future economic growth have played a catalytic role. Roosevelt's New Deal, the U.S. built many highways, which also makes the government wants to repeat the true meaning of Obama's New Deal very difficult. from the New Deal to the 1950s, the United States has built many highways and airports, these facilities are still working well so far, if we removed these airports and roads reconstruction, American taxpayers will not agree. Therefore, the Austrian Bama The economic stimulus package does not include the construction of many highways, railways and airports and other infrastructure investment.
appears as the 1990s The structure and not the same as in Japan, Japan is still in bank as the main body, and the U.S. financial system already goes far beyond the era of the bank as the main body.
benchmark interest rate between U.S. banks is now close to zero, and Japan's the same, but the inflation rate around 2%, which means that real interest rate of about -2%. The state should maintain a few months, because the banks and other financial institutions to enlarge the functions of credit is still restrained. banks do not grant too many loans, not because banks are reluctant to lend, but because of business concerns for the future not to borrow money. but as long as confidence in the economy of a recovery, will increase the tendency of corporate loans, banks and other financial the company will also increase the tendency to expand credit. As a result, the Federal Reserve monetary policy will gradually increase the space.
on the experience of Japan in the 1990s, people have a blind spot, that is really on the rise of Chinese manufacturing manufacturing as the main challenge of the Japanese economy. People always think that Japan experienced in the 1990s, the recession is caused by monetary policy, and future of the United States will be repeated Japan's experience. But in fact, Chinese companies experienced in 1980 -1990 era reforms, the Japanese were a threat to many manufacturing, Japan's export markets are being replaced by China. Meanwhile, China and Japan's economic model and the structure was too similar to the Chinese population, the advantage of low labor costs, Japan in the 1990s makes it very difficult recovery, coupled with the ability of the Japanese economy in transition to as the United States, therefore entered a long recession.
so I do not think the U.S. will repeat the experience of Japan in the 1990s, but if China does not transform its economy, it is possible to repeat the Japanese experience to some extent.
and non-financial innovation is
There are many accusations leveraged, you believe that this crisis will fundamentally change the U.S. financial market situation?
Zhiwu: there will certainly be some impact, banking and finance industry in the future will be subject to more regulation. But Bank leverage point of view, the leverage of European banks, Bank of America to be higher than many of the former about six or seven times, and the latter as the highest leverage Lehman Brothers, Morgan Stanley investment bank, announced last July data about 30 times, and now have dropped to more than tenfold, to reach two-thirds of the degree of leverage. The financial crisis is easing, the U.S. banking industry might be to restore some leverage, but may not return to the original level. On the other hand, many people left the Wall Street opened his own company, will increase the number of financial companies. Once stabilized the financial markets, hedge funds, private equity funds like the leverage of financial institutions will soon rise, even back to the original level.
the pattern of U.S. financial markets will not change much, which is mainly determined by the demand side. financial deepening after the development of transaction risk, increasing the risk of default, regulators will re-enact some rules to regulate the financial market behavior. The reason why the United States not only failed to stop financial crises financial development, but to continue to deepen because of the persistence of financial needs, and with the economic structure and income changes reinforced the dependence on the financial and securities markets. this is no exception. as long as people need to cross time and space allocation of income or risk, financial transactions has been in demand. There are so many on the market of financial derivatives, not financial practitioners in the virtual play, because there is a real need exists. In addition to the basic idea that all the derivatives market is outside the stock market bubble, there is no need for this idea is a manifestation of the financial markets do not understand .
example, the U.S. housing mortgage loans and the supply of credit funds, why the great interest rates low? This, of course, and level of development of derivative securities inseparable. derivative securities market to different market participants according to their own reconfigure the preferences of the risks and benefits structure. spread risk through derivatives trading, banks and various financial institutions will be able to take more risks, so that they can provide more capital, better able to withstand risk, so they requested lower rate of return. Many people would say, not result in an increase risk of the transaction? Yes, but the question is how to do better, not to negate the financial deepening. The truth is like an electric shock will be starting a dead but still power.
> Zhiwu: I think in the future for a long period of time, China's financial sector as the main bank still. Over the years, Chinese enterprises listed in Hong Kong and the United States, which allow people to see that the American capital markets to provide capital capabilities, and the capital provided by banks and the nature of the very different capacity, the bank did not give entrepreneurs and future entrepreneurs realize the expected means of income. to see the benefits of capital market development, China A shares and H shares market will have great development space, fund management industry will be further developed as the main bank will be some changes in the financial system. Of course, this change is gradual, it will take time.
rather than words, China's banks are in the current financial crisis hit not too great, it makes a lot of people draw the wrong conclusion that strict control is to allow banks to survive the only way. In fact, the Chinese banking industry has been Since the control too much, and the U.S. banking industry is another extreme. For China, the future need to further open the space for financial innovation, in order to change the current mode of operation of the Chinese banking system. Now some of the major commercial banks in China more than 90% of its revenue from interest rate, the interest rate the central bank to give them, does not mean that the viability of a strong bank. And the U.S. banks, the deposit and lending interest rate than the rate of total income 10%. Therefore, the Chinese banking reform still has a long way to go.
market-oriented reform of China's economic power is the source of
Since the judgments of the external economic environment is inconsistent, the economic crisis makes people worry about China's economic growth in the external power dissipated, then the future of the main driving force of economic development in China where they come from?
Zhiwu: These concerns are very justified. For China for so many foreign reserves and investments in the United States, especially in March, the Fed has bought so many bonds and other types of bonds, from an economic point of view, if a government through its Ministry of Finance to issue bonds at the same time by the central bank to buy these bonds, the operation of the process entirely in printing money, so countries, including China, the U.S. monetary and financial policy risk. So, in March China's reaction is very strong and very it should be.
domestic demand, of course, is to supplement the lack of external demand, an important way, but the Chinese system, as long as the Chinese economy is still state-owned enterprises, state assets led, economic growth will still depend on manufacturing, industrial infrastructure and investment to pull. domestic demand continue to rise in the short term, but ultimately can not replace exports as the long-term driving force of China's economic growth. And, I think, the next U.S. economic recovery will soon provide a new export to China demand for space. U.S. economy may be to determine the recovery time and speed of China's economy is an important indicator.
people are familiar with the fact that: a high savings rate in China, but in fact is not the private sector savings rate. Chinese Folk the level of savings rate with other countries in Southeast Asia is similar to the rate of growth in the years mainly by saving the government and corporate savings. In particular, the savings of state-owned enterprises, increased rapidly in recent years, because the vast majority of the profits of state-owned enterprises and paid no dividends, they leave the money to do investment, investment funds outside the bank. And the investments of these enterprises, most industrial projects, to bring production capacity continues to grow.
from the perspective of income distribution, business property and assets appreciation of the flow of revenue and not private. state-owned enterprises and private income and wealth gap between the further deterioration of the several adverse effects. in China's economic structure, the appreciation of state assets and state-owned assets of enterprises income does not reflect household consumption to the people, the investment budget to go. This is a long time, China's domestic demand, limited growth potential for an important reason.
Therefore, despite the current export-led model has almost run out, but the institutional arrangements determine China's future they must depend on exports. Moreover, the United States to take these economic incentives, China's manufacturing industry may also benefit from faster. From March to April, the U.S. consumer confidence index turned 50%, exports to China industry, is a very important and positive change. If the upward trend in consumer confidence to continue a few months, China's export enterprises will be a corresponding increase in orders. But if this give up the reforms, continuation of the export dependent economy, worth the wait. The financial crisis should make more people aware that this model is not sustainable. Therefore, the policy makers in the implementation of the stimulus package, but also need to focus on the fundamental institutional and structural reforms.
The rise of Keynesianism, the United States into a socialist market system, like the end of the topic. In fact, this kind of talk in the last century, four decades has occurred, but also more challenging than it is now .1930 and 1940s, the Soviet Union and the United States engage in competition, while the Western capitalist countries of the Great Depression, the other side of the Soviet high-speed economic growth, the challenge of the market economy is even more convincing speech that since then, many countries are scrambling to carried out the socialist and state-owned economy; but by the 1970s, due to the losses of state-owned enterprises, many countries have experienced financial crisis; in the 1980s, almost all countries have carried out privatization, reversing a series of World War II collectivization, the state-owned economic development initiatives.
market, privatization continued for about 30 years. Now I do not think that people could even such a short memory, such a crisis to let people back into before and after World War II, thinking the go. In particular, many people opposed to China is advancing under which market-oriented system, that the government control of the economy better. I think the reason why China in the past 30 years, such rapid economic growth, just is the result of market reform. Over the past three years, China itself is a lot of direction toward the market, the government put economic affairs as much as possible to the market. market-oriented growth in the past 30 years is a fundamental causes and drivers . Since China's economic rise by the market reform, and why today we are not working but that the market, the Government should be more intervention? Are we going to reverse the economic growth in the past 30 years? It just shows these people to China in the past 30 years of economic growth is not understood. market-oriented reforms and globalization in China opening up to the changes brought about so much, growing so fast that many people simply do not understand the reasons behind would still be able to enjoy a market economy benefits. This in itself shows how wonderful ah market.