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Chance for change

(China Daily)
Updated: 2009-09-16 13:53

The first anniversary of the collapse of Lehman Brothers does not mark the end of the worst global financial crisis since 1930s. Any complacency over recent signs that the world economy is stabilizing will only mislead policymakers about the dire need to reshape the global financial and economic architecture.

Two summits of the G20, the group of big, rich and emerging economies, had been held in Washington and London in the past 12 months to boost the joint efforts for combating the global recession.

Increasing "green shoots" of economic recovery bear full testimony to the necessity and effectiveness of such global policy coordination. Not only are big developing economies like China and India registering strong growth but major developed economies have also stopped contracting and are set to stage a rebound in the third quarter.

However, given the lack of fundamental changes to address the global imbalance and overhaul the international financial system, it is far from a sure bet to claim that the world economy will step out of the current crisis any time soon.

Global leaders who will gather in Pittsburgh next week for the third G20 summit should not miss the window for change that unfortunately seems to be closing right now.

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If the world is to prevent what happened a year ago from happening again, global leaders must act quickly to put in place a better financial regulation framework that can closely monitor systemic risks in the first place, and rapidly arrest the spread of a financial crisis when it occurs.

Criticism that Wall Street banks have so far restructured only around the edges demand attention from global leaders who are responsible for delivering needed changes.

The US government's recent decision to impose protectionist tariffs on China-made tires is another cause of particular apprehension. It certainly will raise serious doubts about the world's largest economy's commitment to free trade. Worse, heightened economic tensions between the two large economies will worsen the difficulties for fixing the global imbalance by encouraging domestic changes in all countries.

It is widely recognized that export-led Asian economies like China have to reduce their reliance on export for growth while rich countries like the United States need to cut current account and budget deficits. But trade protectionism will only poison the global trading environment to trigger trade wars and put off domestic restructuring.

One of the key lessons that policymakers should learn from the demise of Lehman Brothers a year ago is that the global financial and economic order is in need of fundamental change. After the initial panic and fire-fighting, it is time to deal with the root causes.