Dr. Qin Xiao, Chairman,
China Merchants Bank

China, like much of the world, is breathing a sigh of relief that economic disaster has been averted. Better than expected macro economic data are driving growing optimism.

But government officials and businessmen should not delude themselves. Going back to pre crisis ways would be a serious mistake. We still have an unbalanced global economy.

US consumers consume too much and save too little.
Chinese consumers prefer to save. Premier Wen said last month that our recovery “is not steady, solid and balanced.”

Privatization of China’s housing market has contributed to the development of consumers, and urbanization of 20m a year powers consumption. But, I am not satisfied with the process We need to establish a credible national safety net.

Stock and property bubbles are dangerous.

Compared with pouring money into the economy, draining money from the economy is a much tougher job for central banks.

The dilemma is that if we tighten monetary policy, there could be a “second dip” next year and another asset bubble occur.

I do not believe quick fiscal stimuli are good for China.

We should not fear a moderate slowdown.

China must shift from loose money to neutral.

There is growing concern that temporary stimuli evolve into permanent government control of the economy. The Chinese government should continue to loosen its grip. Prices, especially of energy but including water and food, need to be freed further. The currency needs to be liberalized. Privatization needs to move ahead. China needs freer markets, not more state control.

Finally, protectionism is a worry. Recent actions are small in terms of the value of the goods involved.

But even imposing symbolic protectionist measures to keep domestic interests happy is a dangerous strategy.

Both the US and China must resist domestic pressures to restrict trade or risk igniting a wider trade war.

Protectionism poses real threats to the global economy and we must be sensitive to changes in US trade policy, as US policies will largely define the future of globalization.