The most important role China can play on the international stage is to deal with protectionism and global imbalances, while domestically China should use public expense to bolster domestic demand, said Stephen King, Group Chief Economist of HSBC.
"I think the first thing China can do as other countries should be doing is to fight against protectionism, or its many forms," King told China Daily."That means not just from a trade perspective, but also protectionism from capital perspective."
Avoiding protectionism is one of the key issues that should be addressed at the upcoming G20 summit, King said, as continuation of the past 30 to 40 years of globalization depends on the free flow of trade and capital across the border.
"If those flows dry up, not just trade flow but also capital flow, it will be damaging to the global economy, and it is particularly damaging to some of the emerging markets, including China," King said.
As each country tries to defend its own interests in a worldwide economic downturn, signs of protectionism can be detected in many different shapes and sizes.
The second thing China needs to do, according to King, is to have a frank discussion with the US about the global imbalance.
"In fact, global imbalance has made some kinds of indirect contribution to the crisis; for instance, the distortion to capital market pricing which has contributed to the scale of the financial crisis," said King.
And at this moment, it is clear that China is still playing an important role as a source of consumer demand within Asia.
China's exports will not do very well for the time being because demand from other parts of the world has fallen. That's why the rebound of the economy in China becomes especially important, as what China loses in exports could possibly be gained back on the domestic infrastructure front.
"The policy to help stabilize the Chinese economy, at the same time, also has advantages of minimizing or reducing the scale of global imbalance, which is a good thing for both China and the other parts of the world," King said.
China enjoys significant advantages compared with other countries, with a huge range of public sectors and infrastructure projects taking place here.
Although many forecasts suggest that activity will be stabilized in the second half of the year, King said HSBC's forecast suggests that such activities stabilized at a very low level, and therefore he does not expect an immediate return to business as usual.
"Even with stabilization, it means we need quite a while to return to the condition that global economy enjoy two or three years ago," King said.
(China Daily March 27, 2009)