No short-term end to eurozone crisis
Updated: 2012-06-19 10:43
Vice-president of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce and guest economist of China Daily
It is premature to conclude that the crisis will be over soon. Actually as the saying goes, Rome wasn't built in a day. The sovereign debt crisis is an accumulated result of the West's past economic development model.
Before the crisis, we used to admire the service sector's large share of the (Western) economy, usually above 80 percent. Now in time of crisis, we see the damage of high indebtedness and it is difficult for the service industry to generate growth quickly. It is the manufacturing sector that is really powering growth and improving productivity. Now I see slight hope for the EU to restore its resilience, unless a major technology revolution emerges and ramps up productivity.
I prefer austerity measures because boosting the economy simply by pumping in massive liquidity may tackle the problem over the short term, but its side effects are hard to bear - namely, increasing inflation and the expansion of debt.
I think China has done a lot for the economy, of which economic growth and growing trade are of prime importance. Last month, China's imports grew 12.7 percent over the same period of last year. China's growing imports from the West helped them a lot.
I think the impact of the eurozone woes on China is mainly reflected in external demand. In this sector, unlike other experts, I think its impact is limited.
The euro debt crisis unfolded in the past year, but China's trade in 2011 grew 22.5 percent to hit $3.64 trillion. Compared with weakening external demand, domestic factors, like the rising labor and raw material costs, pose a bigger threat to China's exports.
China has already taken several steps to counter weakening demand, such as reducing some consumer goods tariffs. I think generally China should expand its imports, with moderate growth in consumer goods.
There is concern that as the eurozone debt crisis deepens, there may be an exodus of European capital from China. At present, I think this is unlikely. I think we should not worry too much about foreign direct investment. China's current situation differs greatly from 30 years ago when we were cash-strapped. Compared with money, advanced equipment and technology are more urgently needed.