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Innovation is best way out of financial crisis

By Hu Shaowei (China Daily)
Updated: 2009-04-06 07:48

The government should complement its wide range of stimulus packages to combat the economic slowdown by adopting some long-term macroeconomic measures. It has indeed adopted proactive fiscal and moderately loose monetary policies and launched large-scale investments to enable the economy to recover faster, and taken steps to push for optimization of the national economic structure. But it should ensure that its interventions to rescue the reeling market should not go against market principles. Its steps should be appropriate and prudent to avoid creating the misconception that it is "omnipotent".

It's the government that decides a country's macroeconomic policy. But while taking micro-control measures, it has to maintain a balance between regulations and self-operating principles of the market.

The Chinese government has to push forward its long-awaited economic transformation, and adopt practicable and viable measures to reverse the economic downturn, which was so evident in the fourth quarter of last year.

The global financial crisis has taught us some valuable lessons, which should prove vital while we chalk out a blueprint to maintain a steady economic growth. For example, the seriously unbalanced economic growth in the developed countries is a wake-up for us. It tells us to expedite our economic transformation and put in more efforts to solve the deep-rooted problems to improve economic growth.

The other valuable lesson is that we should not let the country's expansive credit policy create new obstacles for the long-anticipated economic structural adjustment. The country is plagued by serious over-production in some areas. Big investment projects can increase the demand for some of these products and ease the pressure on the manufacturing industries. For instance, big-time investment in the real estate sector would increase the demand for steel and some other products. But the ban on bank lending and some large-sized projects has prevented individuals and firms from starting big construction and other projects, dealing a blow to industries such as steel and petrochemicals.

The recession in the United States and some other advanced economies will not allow people there to start spending like before any time soon. This does not augur well for a country like China that is the biggest manufacturing base in the world. If the country starts, or even tries to, export its excess products, it will increase global trade disputes. Steel companies in the US and European countries are already appealing to their governments to impose new restrictions on imports. And if their governments accept their pleas and resort to trade protectionism to boost their domestic economies, it will be more bad news for China.

Such a possibility calls for prudence on the part of the Chinese government, which has to save its industrial foundation by preventing reckless expansive investments to rescue domestic enterprises.

Besides, we cannot pin high hopes on the country's proactive fiscal policy to tackle the ongoing economic crisis. Economic crises are an unavoidable hazard in a country's economic development. Some countries have used wars and/or technological revolutions to overcome economic crises. A major war can change the distribution pattern of global production and consumption and help achieve a "balanced economic development" for some countries. Technological revolution, too, could boost new industries in a crisis-stricken country, for it can spur domestic production and consumption, and inject new vitality into its economy. That means an economic crisis can be overcome in two ways

In the 1930s, Franklin D. Roosevelt launched his "New Deal" and succeeded in lifting the US out of the Great Depression earlier than other countries. But ironically, it was the destructive World War II that ended the global economic crisis. Fortunately, the US did not need a war to end the economic crisis in the 1960s and 1970s, caused mainly by deflation. Instead, it used technological innovation to inject new vitality into its economy and boost its productivity to end the crisis.

Our leaders are aware of these facts, as was evident from what Premier Wen Jiabao told a press briefing at the end of this year's National People's Congress session. The government is well prepared to deal with the ongoing global financial crisis and has enough "room" for other policy measures, he said. It has "adequate ammunition" to tackle even a bigger economic crisis and can announce "new stimulus plans any time", he reassured the people.

The world's development history tells us that wars create more problems than they can solve and that mastering science and technology is the best way a country can become a major power. Technological innovation is the best, and perhaps the only, way to overcome an economic crisis, and for that we do not need an indiscriminate expansive financial policy.

The author is a senior economist with the State Information Center.