The Way to Economic Recovery

Yang Bojun has written a very interesting essay about “the lady selling goose eggs, who says that Americans will all have to go about begging for their food.” He encountered this old lady in the Hunan countryside. She heard on TV that Americans would have to beg for food due to the serious economic crisis. In his essay, Yang explains that he read in the newspaper that Americans now depend on the money we are lending them. If it wasn’t for our money, America would have collapsed long ago.

Although this is not exactly the case, the official media portrayal of the American economic crisis over the past six months could easily give this impression. While Americans seemingly won’t survive, the counterpart to this storyline shows the Chinese economy rising rapidly and swiftly overcoming Japan. China's foreign exchange reserves are the largest in the world. Following its 4 trillion yuan stimulus policy, China is the first to emerge from economic crisis and go on to promote global economic growth.

The idea that the U.S. is declining while China emerges has simultaneously become fodder for superficial nationalism and seriously altered our countrymen’s understanding of the economy. The old lady that Yang Hengjun wrote about is just one example. However, whatever the state of the economy, this lady from Hunan will still be able to go on selling her goose eggs. What should worry us are the decisions of certain high-level leaders. If they are misled by propaganda, they might come up with erroneous policies at great costs. Thus, checking facts and reviewing the most recent data related to the economy is necessary homework before determining economic policy.

Let’s first take a look at some of the most important data related to the U.S. economy.

According to figures published last Friday, the number of people employed in non-agricultural sectors decreased by 345,000. This is far less than the predicted decrease of 520,000; and is the most positive figure since the bankruptcy of Lehman Brothers.

The Purchasing Manager’s Index, published on June 1, reached 48.2 percent, up 2.7 percent from April. Of 18 manufacturing businesses, half were experiencing growth in new purchase orders in May.

Data from the U.S. Department of Commerce indicate that, in April 2009, engineering and construction expenditures unexpectedly rose 0.8 percentage points. Economic experts previously forecast a decrease of 1.2 percent.

Other reports indicate that, in April, U.S. consumers reduced expenditures by 0.1 percentage points, which is less than the forecast of 0.2 percentage points.

In April, the average American income rose 0.5 percent, following decreases in the previous two months.

U.S. economic consultancy firms announced that the U.S. Consumer Confidence Index jumped to 54.9 percent in May, exceeding market forecasts. In April the Index adjusted to 40.8 percent.

The National Association for Business Economics predicts that the U.S. economy will contract by 1.8 percent in the second quarter, a marked improvement over a 5.7 percent contraction in the first quarter and a 6.8 percent contraction in the fourth quarter of 2008.

The above-cited data are not comprehensive. However, it is obvious that the U.S. economy is already showing signs of improvement after hitting rock bottom. This is reflected in the U.S. stock market exchange. The Dow Jones has already risen by approximately 30 percent this year.

Chairman of the U.S. Federal Reserve, Ben Bernanke, has expressed hope that the U.S. economy will come out of decline and begin to recover by the end of the year.

As the consumer model and the global position of the U.S. dollar continue to evolve, U.S. economic recovery won’t all be smooth-sailing. However, the U.S. economy is quickly rising from its lowest point. There are many reasons for this, including swift corrections of the structure of the U.S. economy by its own internal mechanisms.

Turning to China, public opinion is universally chanting positively about economic recovery. However, key data concerning electricity supply, employment, and public finance and revenue convey troubling information. It reveals that China’s existing recovery is substantially watered down.

Every day, core economic data like the following are updated and published.

Data from the Statistics and Surveys Institute of the China Grid Corporation show that the daily amount of electrical energy generated fell by 3.5 percent in May.

On June 11, the General Administration of Customs published figures showing that, in the last 5 months, our country’s total foreign trade was worth US$763.49 billion, which is 24.7 percent less than the same period last year.

Exports are down by 21.8 percent and imports by 28 percent. In May, the total value of imported goods reached US$164.127 billion, down 25.9 percent from last year. Exports were down by 26.4 percent and imports by 25.2 percent. Nationwide, industries and businesses grew 8.9 percent in value over the last year, lagging behind last year’s growth of 7.1 percent, but accelerating 1.6 percentage points just in the last month.

Of course, the most dazzling data is that of fixed assets investment. In the last 5 months of this year, investment rose 32.9 percent more than the same period last year. However, while fixed asset investment has accelerated remarkably, this is also a sign that this economic growth is not high quality and could bring about a decay of economic structures in the future.

Furthermore, the improvements in the U.S. economy do not mean that China can return to its original export-driven model. After the crisis, the possibility of wealth brought about through financial derivatives has faded. The model of American consumers saddled with debt has already undergone major adjustments, as household savings are progressively rising and there will be no way to absorb Chinese commodities for a good while longer. Minor policy adjustments like export tax returns will not be able to change China’s continuing export depression predicament.

June has arrived and the upper level administration is still being prudent about making its position known. On June 3, Wen Jiabao presided over the Executive Meeting of the State Council. He pointed out that we still have not seen the worst effects of the international economic crisis in China. There are still many indications of uncertainty and instability in economic development, and the foundation of China’s economy is not yet stable.

Why is this so? Up until this point, economic policies have been basically in the form of economic stimulus, emphasizing short-term economic gains and ignoring the imbalanced structure of the economy. This policy choice reflects the rigidity of structures of interest and politics. However, current political figures have abandoned policies that would try to establish structures based on interest once again.

In terms of the significance of all this, I quite agree with Xu Xiaonian’s conclusions in his discussion of the “way to recovery.” The crisis originated from an imbalance, so the route to recovery lies in establishing an equilibrium. Our developing economic system has already undergone substantial adjustments. China’s economic imbalance has worsened because of the stimulus investment. Yet, if we can be leaders in making adjustments, we can be leaders in recovery. Rejecting further adjustment would be tantamount to saying no to recovery.