By Maximilian Clarke
The world’s economy is in a less precipitous situation than at the close of 2011, IMF Director Christine Lagarde said during a presentation at the 2012 China Development Forum as she touched upon the ‘special responsibilities’ more resilient, high-growth economies have in maintaining macroeconomic stability.
The high growth achieved by China and other markets helped prevent further economic collapse across the world, whilst China’s stability allowed its leaders to navigate the downturn effectively.
“When the crisis hit, China demonstrated policy commitment and leadership yet again, deftly combating the negative spillovers,” explained Lagarde., before outlining the three contributing factors.”
• One, China’s economy was in much better shape than most and had the capacity to respond–thanks to sound policymaking in the preceding years. This reflected prudent fiscal policy, countercyclical monetary policy, as well as structural improvements that had helped boost productivity.
• Two, China had so far focused on trade liberalization, deferring financial integration for a later stage in its reform trajectory. As a result, China’s financial system was not exposed to the toxic assets that wreaked havoc on many advanced economies’ financial systems.
• Three, policymakers responded quickly and forcefully, with a stimulus package to offset the shock from the collapse in global demand.
Lagarde then proceeded to caution the world’s number two economy on the importance of relying too heavily on exports and that boosting domestic consumer demand and tackling income inequality must be central to future policy.
“Why is this important? Export and investment-oriented growth may have catapulted China to where it is today, but it is not sufficiently people-centered. Prosperity can only endure when it is shared more broadly among the Chinese people. And the same is true for social stability.”
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