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A protracted war against recession
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By You Nuo

The beginning of a new year is usually a time for saying all the good things, and for confidence- boosting messages. But since we are in the depth of a global crisis (and how deep it will be is still hard to gauge), and since no country can afford to make new mistakes, we had better be more realistic.

The year of 2009, or according to the Chinese zodiac, the Year of the Ox (or of the more auspicious bull, as the Chinese business people like to think) is unlikely to be a year of quick fixing and recovery. Instead, it is likely to mark only the beginning of a protracted war against a global recession.

It may be interesting to point out that it was another Year of the Ox, that of 1937, that marked out the beginning of a historic protracted war in China, to resist Japan's full-scale aggression. In comparison with that real war, I have full confidence to say that the war now facing China is a much lighter one.

I agree with the view of the New York University economics professor Nouriel Roubini, as aired in his recent interviews, that the US recovery, once it comes about, could be weak at the beginning.

A slow recovery can be a consequence of a lack of ready weapons, or guide books, that Henry Paulson, the outgoing Bush administration's treasury secretary, lamented about.

Indeed, people are unlikely to go back to their old business until they are provided with safe channels to deal with each. Banks are unlikely to resume their full services until there is a new framework for the global financial system.

Between now and then, government officials will have to work intensely, while many large funds and corporations, if not states, will fall and appeal for bailouts.

Let there be enough cool-headedness to ensure that these will be the world's main tasks throughout the year. Let China be duly prepared.

In 1938, Mao wrote On the Protracted War, which was partly a critique of the predictions for a rapid win or loss floating around at that time, and pointed out that China's only chance of victory would be in a protracted war. That really turned out to be the course of the war in China.

It is time that Chinese economists wrote China's modern version of the protracted war program.

China is now faced with three challenges, and none of them is likely to go away very soon.

The first challenge is, as Chinese leaders have made clear, to try to seek as high a growth rate as possible - at a time of no increase in foreign direct investment, in export orders, or in foreign debt, and primarily through stimulating its domestic market.

Despite the $586-billion economic stimulus package Beijing has designed, how effectively China can meet the challenge would remain uncertain until large numbers of small enterprises can spring up to redefine the nation's growth model.

The second challenge is to manage an inevitable and more rapid than expected process of the renminbi's change - from its restrictions now to full convertibility. Beijing recently allowed it to be used more widely - both in Hong Kong and between regional trading countries.

This will help sustain what is left in international trade, especially the trading opportunities between China and its Asian Pacific partners.

The third challenge is to participate in the reform of the global financial system. Essentially, this is a task of rebuilding world order, a task China has never seriously undertaken since the Tang Dynasty (AD 619-907).

But reform, let alone the change Barack Obama, the US president elect, has proposed, should require not just more money from the G20 members - which is scheduled for a summit meeting in April.

But change will not be easy, considering the fact that the world's major financial companies are all in the developed countries but the new system will have to serve the emerging economies just as well. 

(China Daily January 5, 2009)

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