As government planners and economists in China have agreed that the key to maintaining economic stability in the stormy sea of the global financial crisis lies in the rapid expansion of domestic consumption, they may find it helpful and inspiring to re-read the writings of the late economist John Maynard Keynes.

Credited for helping to save capitalism from itself in the Great Depression, Keynes contended that governments could spend their way out of a recession. In his tome "The General Theory of Employment, Interest and Money" published in 1936 at the height of the depression, Keynes theorized that governments could avert a down spiral by pumping money into the economy.

Keynes' basic idea lost favor in the 1970s when inflation was seen as the biggest threat to economic stability around the world and good governance was defined by budgetary discipline. But the fallout of the credit crisis in the US that is pushing the world into a recession has forced world leaders to take a crash course on lessons of the Great Depression.

As heads of the G20 nations are scheduled to meet on November 15, there are already talks about establishing a new global financial and economic order that is similar in spirit, if not in letter, to the 1944 Bretton Woods Agreements, of which Keynes was an architect.

In this so-called second Bretton Woods conference, China, the world's largest emerging economy, will no doubt play a significant role in hammering out a new framework of global financial reform. In the past several months, Chinese leaders have reiterated that maintaining China's stable economic growth is the country's biggest contribution to keeping the global economy from capsizing in the "financial tsunami."

But tumbling global demand is threatening to push the export-driven Chinese economy into a vicious down cycle, marked by falling investment, rising unemployment and evaporating asset value.

As overseas orders begin to dry up, many enterprises in China, especially those in the capital-intensive steel and heavy machinery sectors, are cutting back production to save cost. Many small- to medium-sized manufacturing enterprises in the Pearl River Delta region are laying off workers or downing their shutters. Economic reports circulating in Hong Kong estimate that millions of workers in that once-booming light industrial region will lose their jobs in the coming months.

Major ports in the Yangtze River Delta region have reported a sharp drop in cargo handling.

Unsurprisingly, many mainland enterprises have posted sharp falls in earnings for the first three quarters of 2008. The expectation of more news of depressed earnings from the corporate sector has drained investors' confidence and no trader would be bold enough to hazard a guess as to how far the index is going to fall.

What seems to concern economists most is the falling property prices in many cities around the country. This has set off a rush by developers to recoup cash by selling pre-completion apartments in newly started projects at below-market prices. In so doing, they may have set in motion a price spiral that could result in a market crash.

Against such an economic backdrop, consumers have every reason to further tighten the purse strings to prepare for the expected hard times. Only the government can marshal the huge savings in the domestic banking system through issuing of bonds and other debt instruments to stimulate economic growth.

Keynes' tome may be convoluted and incomprehensible in parts, but it's still worth reading in these uncertain times.

(China Daily October 27, 2008)