In his column in Cai Jing magazine, Huang Yi Ping, chief economist for Citigroup Asia Pacific, writes that "the sky will not fall even if growth is lower than 8%." He assured readers that China's government is determined to keep growth above that level and is capable of making that goal.
However, he questions why the government's stimulus package does not focus on consumption. "We can't expect to solve trouble by investing in infrastructure every time. Ten years ago, China needed a lot of infrastructure, but today our infrastructure is even better than many developed countries. The focus should be on people's lives, the quality of growth and [ways] to make ordinary people richer."
Some scholars have offered detailed suggestions on how to boost the Chinese people's disposable income. Chen Zhiwu, a finance professor at the Yale School of Management and a visiting scholar at Chang Kong Business School in Beijing, said the government should give tax drawbacks to subsidize the low- and middle-income households, individuals and farmers; increase China's investment on healthcare, education and social security with the goal of making people more secure and willing to release savings; facilitate a trading market of rural land use rights; and take bold actions to cut taxes on enterprises and individuals.
Toyota Underscores Japan's Woes
As the rest of the world comes to grips with the global financial crisis, Japan, the world's second-largest national economy, is suffering too. Wharton's Allen says Toyota's first money-losing quarter underscores the severity of Japan's economic problems. Not only are Toyota and other Japanese companies facing a slowdown in demand from China and the U.S., but investors are seeking safe haven in the yen. As the yen rises in value, Japanese exporters suffer even more in the global economy.
In addition, Japan faces political uncertainty. Its third prime minister in three years is already facing a lack of confidence in the polls. "The last three prime ministers have been disasters," says Percival. "The few actions they took have been strange and bizarre. And it looks like the prime minister will change again, which makes Japan's ability to deal with the situation more complicated."
Allen says Japan's economic future is troubled. "But on the positive side they have been dealing with these problems for 20 years and they have come through it without huge damage. So this society is resilient and the economy is resilient. It will be difficult for them, but not terrible."
In a way, Japan is especially relevant in today's global economic crisis because of its experience with a sharp economic decline and struggle to revive in the 1990s -- often referred to Japan's "lost decade." Its policy makers tried a variety of fiscal and monetary stimuli that may provide clues to how today's global economic leaders should approach the current problems.
Wharton management lecturer Adrian Tschoegl worked for six years as a macroeconomist at a Tokyo investment bank during that country's economic rise and fall. "That's when I realized that most forecasts of complex political and economic events are valueless," says Tschoegl. He says he made some good calls and some bad calls when he was working in Japan, but came to believe that in today's complex, interrelated global economic system, it is nearly impossible to predict the true impact of one policy action or another.
"We can come up with some ideas and a range of forecasts and some information about the risk of what is out there," he says, "but the reality is that all sorts of things can come out of nowhere and suddenly hit you."
When governments attempt to enact policies to respond to economic problems, it is hard to tell what will happen one or two steps forward as policies and market forces begin to interact, he adds.
"The problem is that very often the best thing to do is to simply not do anything," says Tschoegl. "But no politicians can bring themselves to stand up here and say, 'We don't have the faintest idea of what to do, and right now we're not going to do a damn thing.'"
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