Building a new economic order
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Before we talk about our role in a new economic order, we have to achieve consensus on what the new economic order will look like after the financial crisis.
The best strategy is balance and compromise, according to ancient Chinese philosophers. Even a good thing will turn bad if it is overdone.
First, it's the balance between saving and spending. I always tease my American friends. I say, "You guys borrow tomorrow's money and spend that today; we Chinese save today's money for tomorrow. That's why you have a financial crisis."
Actually, I think we need to strike a balance between saving and spending. Easterners should save less and spend more, while the Westerners should save more and spend less. Then, we will achieve a better balance.
We have to balance domestic demand with exports. Countries in the East have to change their economic growth model, from export-oriented to domestic consumption-oriented.
This is not an easy transition however, as the most important thing is to increase the purchasing power of the people. In this case, we need to do a lot of things, including raising employees' salaries and other benefits. We need to build up credit systems so as to raise the purchasing power of the people.
People say the easiest way is to just let the renminbi appreciate. I don't think so, because the consumer goods portion of our imports accounts for less than 20 percent. Increasing the exchange rate only affects international purchasing power. What we need to do is increase the domestic purchasing power.
We also need to balance financial innovation and financial supervision. As you know, financial derivatives represent a double-edged sword. On the one hand, they can mitigate financial risks. On the other, they can be used as a tool for speculation.
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