For emerging Asian nations, holding a higher-level of foreign exchange reserves and domestic saving rates would serve as an effective means to cope with an economic crisis. This was also a dose prescribed by the International Monetary Fund (IMF) after the Asian financial crisis. As a precondition for extending economic aid to crisis-stricken Asian nations, the US-dominated IMF demanded these countries adopt a tightened financial and monetary policy along with raising rates, cutting budgetary deficits and increasing international reserves. Emerging Asian economies, including China, adopted such policies after the 1997 Asian financial crisis to improve their capability to stave off economic risks. There is no reason to blame these countries for doing so.
Also, China's widening trade surplus has been mainly attributed to the international labor division and the change of international trade patterns. It is also a result of the ever-deepening global industrial division, a process dominated mainly by the US-led developed nations in the era of globalization. Over the past two decades, developed countries have basically succeeded in transferring some low value-added manufacturing sectors to developing countries, increasing their own dependence on the latter for manufactured goods. In the accelerated transfer of global manufacturing sectors, China particularly became an ideal destination due to its labor and price advantage. In addition to being home to moving manufacturing industries from economically developed countries, China has also become a destination for manufacturing units transfer from some emerging nations. This tendency has further contributed to the country's expanding trade surplus in recent years.
China's surplus with developed countries is also closely related with the strict barriers imposed by these technologically developed nations. The country's fast-growing economy in the past decades has created a great demand for hi-tech products. As part of the technology blockade, some developed countries, however, have laid down some insurmountable barriers on the export of their hi-tech products to China, adding to their trade deficits with the country.
Thus, it is not difficult to conclude that the main cause of the huge US trade deficit lies in its own economic structure and macroeconomic policies. And its wrong economic polices and improper market monitoring are the primary reason for the current financial crisis. Any attempts to shift the responsibility to other countries reflect the inability to develop the right attitude for seeking solutions. It would also vitiate the atmosphere in the global battle against the crisis.
The author, Zhang Jianhua, is a director with the People's Bank of China. This is an excerpt from of his article published in People's Daily on Wednesday.
(China Daily January 16, 2009)