Martin Wolf explains how it is China's best interest to rebalance its economy by increasing consumption and how, if China is able to just that, the "crisis will have brought great long-term benefit" to the global economy.
China has had a good crisis. That became obvious at the "summer Davos" of the World Economic Forum, in Dalian, less than two weeks ago. Chinese confidence was palpable. But so was anxiety. The giant has survived the shock. But its recovery is driven by a surge in credit and fixed investment. In the longer term, China needs to rebalance its economy, by increasing consumption. It is time for the Chinese to enjoy themselves more. How unpleasant can that be?
The man who best captured both the confidence and the uncertainty was premier Wen Jiabao. He told the meeting that "the unprecedented global financial crisis has taken a heavy toll on the Chinese economy. Yet we have risen up to challenges and dealt with the difficulties with full confidence". But he also admitted that the "stabilisation and recovery of the Chinese economy are not yet steady, solid and balanced".
The data coming out of China suggest a powerful recovery is indeed under way. In the first half of the year, noted the premier, gross domestic product expanded 7.1 per cent. The September consensus forecasts suggest that the Chinese economy will expand 8.3 per cent in 2009 and 9.4 per cent in 2010. The Asian giant is expected to become the world's second largest economy in 2010, even at market prices.