Uln

Can China Lead the World Out of Crisis?

Yes fiscal policy with a social profile, that is what we want China to do, and lately everyone seems to believe it's going to happen. Look at the latest World Bank report, for example, where it is taken as a fact that China's stimulus package in 2009 will be spent sensibly to "rebalance its economy"

I find it hard to believe, for a few reasons.

1- Will the development hawks in the CCP allow Hu to implement this kind of policies? Especially considering that some of them, like Health care system, are costly and someone needs to finance them. How much power do Hu and Wen really have to oppose the interests of business?

2- Chinese like to save money, that is just the way they are, it is a trait of character. No amount of health care or Land reform is going to make them spend more in 2009. How would it make sense that the same people who were saving during an economic boom decide to spend now more now that there is fear of crisis? It will take one new generation to change consumer behaviour.

3- All the advice you give makes sense in the long term, but it will not help China weather a difficult 2009. How well will the system resist the social and political tensions that will arise? And how well will Hu Jintao resist them in the Party?

It is all very good to dream, but I am afraid the largest part of China's money in 09 will go to help the companies, not the peasants. And as for currency, exporters pressure will be strong to keep RMB down, we can only hope that Hu won't let them get away with this one at least.

China will have enough trouble helping itself next year, so I wouldn't count on it saving the world.