How can China fight the current financial crisis and maintai
2017-08-06 06:52
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How can China fight the current financial crisis and maintain long-term stable de
How can China fight the current financial crisis and maintain long-term stable development?
After three decades of reform and opening, China's economy has always maintained high-speed development. GDP from around 362 billion Yuan in1978 increased to around 30 trillion Yuan in 2008, which had grown by over 80 times(National Bureau of Statistic of China ,2009) .However, although China has benefited from globalization in the last three decades, China has also got many serious troubles from globalization, such as environmental problems, inequality and corruption. In addition, the current global financial crisis is one of the big troubles from the current neoliberal globalization and the dream of free market capitalism has been shattered (Wolf, 2008).Neoliberalism is a political philosophy, a continuance and redefinition of the neoclassical theories of economicscentral principle of neoliberal policy. The central principle of neoliberal policy is untrammelled free markets and free trade including free capital flows￡¨Chang￡?2007￡?. Neoliberal movements ultimately changed the world's economies in many ways, such as growth in international trade and cross-border capital flows, elimination of trade barriers, cutbacks in defense spending and in public sector employment, higher living standards, increasing technology transfer and innovation. However, its negative effects are also very serious. More and more economists claim high inequality is spurred by neoliberal policies which produce profound political, social, economic, health, and environmental constraints and problems. Unfortunately, all these disasters have happened in China.So, how can China respond to the financial crisis and further development? In this paper, Keynesianism is highly suggested to lend guidance to fighting the financial crisis; furthermore, improving education can help China maintain long-term stable development.Keynesianism is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes, and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government, to stabilize output over the business cycle(Sheffrin, 2003).Keynes contended that aggregate demand for goods might be insufficient during economic downturns. Therefore, government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation. Likewise, during economic overheating, government policies could be used to eliminate inflation to balance and stabilize the economy.business cycle To many the true success of Keynesian policy can be seen at the onset of economic recessionsWorld War II, which provided a kick to the world economy, removed uncertainty, and forced the rebuilding of destroyed capital. Keynesian ideas became almost official in social-democratic Europe after the war and in the U.S. in the 1960s. Also the success can be seen in the last few years in China. In the wake of the financial crisis of 2007-2009 the free-market consensus began to attract negative comment even by mainstream opinion formers from the economic Right. In March 2008, free-market guru Martin Wolf, chief economics commentator at the Financial Time announced the death of the dream of global free-market capitalism, and quoted Josef Ackermann, chief executive of Deustsche Bank, as saying "I no longer believe in the market's self-healing power."(Financial Times). Macro economist James K Galbraith, used the 25th Annual Milton Friedman Distinguished Lecture to launch a sweeping attack against the consensus for monetarist economics and argued that Keynesian economics were far more relevant for tackling the emerging crises (Galbraith,2009) . Starting in 2008, high level policy makers in the world's modern economies have shown a renewed interest in implementing economic solutions in accordance with the recommendations of Keynesian economics?a such as fiscal stimulus and government intervention (Kale, 2008). Keynesian Keynesian thinking influences U.S. President Barack ObamaBarack Obama. In a speech on 8 January 2009, President Obama unveiled a plan for extensive domestic spending to combat recession, further reflecting Keynesian thinking (BBC wedside). For policymakers and their supporters around the world, Keynesian solutions are currently seen as representing the best option for saving their nations from the finacial crisis.The following will discuss why and how China should adopt Keynesianism to fight the current financial crisis and maintain sustainable development from three aspects: stimulating domestic market, optimizing the import and export structure, continuing to implement macro-economic regulations.Firstly, stimulating the domestic market is an urgent task for the government. Keynes argued that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment deflation(Alan, 2002). According to Keynesianism, China should reinforce the domestic market as a way to fend off the global reverberations from the economic downturn.First, China?ˉs overdependence on international trade is very vulnerable ,which is sometimes effected by the global uncertainty . According to National Bureau of Statistics of China, in the last few years, the total exports count for around 40% of the China?ˉs GDP. However, the current crisis has greatly shrunk external demand, which has resulted in the closure of thousands of factories and a rise in unemployment, especially in developed coastal areas. Masses of unemployed workers will cause great concern over social and political instability in the next several years. Second, the export-oriented growth model cultivates strong inertia, locking China in at the lower end of the value-added chain. If China is going to keep its position as the ?°world?ˉs factory?± ?a a place of low-cost assembly lines ?a the country cannot substantially improve its real productivity in terms of research and development and manufacturing technology. For example, many state-owned firms became assembly lines for foreign-brand cars, and the major profits went to foreign investors. Third, overdependence on international demand has weakened Chinese foreign policy. This external dependency limits China?ˉs policy options when it comes to responding to such issues as human rights, Taiwan, trade friction and even quarrels with Japan over history textbooks. Chinese leaders often face the accusation of not doing enough and being too soft.
