The financial crisis has been in full swing for four years now, but it had been brewing for some time longer. Unfortunately, the warnings of the more prescient economists went unheeded. When the bankruptcy of Lehmann Brothers ignited contagion and panic, the attention of the world turned towards Wall Street. It is there that we need to look – geographically and analytically – to understand how it all began. This has given strength to China’s sense of justification, as they see the crisis as a destabilizing factor with national origins: the problem started in New York, not Beijing, in the largest stock market in the world, and not in the marginal exchanges in Shanghai and Shenzhen. Among the accused stand the same protagonists that were celebrated as a triumph of liberalism: deregulated finance, concession of sovereignty from politics to economics, and the enormous flows of money that operate outside of government control.
Although Beijing can consider itself out of range for direct criticism, its indirect responsibility is not exactly marginal. The opacity and corruption of its economic system have fed growth that has been quantitative and unbalanced. China capitalized on its unbalanced system for years. The excessive, almost obsessive saving habits of its population have financed the public debts of the wealthiest nations, primarily United States. The Asian giant has been committed for years to a giant industrial operation, the results of which have greatly affected it exports. American consumption was reflected in Chinese manufacturing: these were the main factors of the world economy.
The relationship in the end was contradictory, and the explosion of the financial crisis was the confirmation. It is true that the ignition point of the crisis was the popping of the American housing bubble, but the imbalances were already there. The economists that sounded the alarm were like Cassandra: they knew the future, they warned others, and they were ignored, right up until the crisis came to a head, with the evident consequences that leaves no room see a solution.
China now needs to emerge from its economic paradox, where the savings of Chinese peasants are financing America’s middle class. It can do this by fueling its own consumption, which has been ignored for years in favor of manufacturing and export. This will not be an easy course, bristling with political resistance and long-standing habits, and for this reason the involvement of the government will be essential. Putting public resources into play to help consumption will be decisive, as demonstrated by the massive fiscal stimulus delivered in 2009 to re-launch an ailing economy suffering under faltering exports. It goes without saying, that these days, being a financial advisor can certainly make your head spin. A reduction in taxes and increased discounts on durable goods like automobiles and home appliances, favorable interest rates, and easier access to credit were the methods used to compensate for the downturn in exports by boosting internal demand. This operation now needs to be repeated, even though it cannot be as massive this time around.
