2010-09-06 15:17

The latest economic developments in Europe and the United States should serve as essential references for Beijing's policymakers, who are racing against time to give the final touches to a new national economic and social development guideline for the next five years.

The 17th Central Committee of the Communist Party of China (CPC) is scheduled to hold its fifth plenary session in Beijing in October to discuss the formulation of the 12th Five-Year Plan (2011-15).

The latest developments in Europe and US are vital because their mainstream judgment of trends from the financial crisis is more optimistic than the overall sentiment among Chinese scholars and policymakers.

In spite of high jobless rates, Europe is registering strong economic growth and the recovery base in the US is broadening. Europe and the US are confident that their economies have avoided the disasters of the Great Depression (1929-1933) and the double-dip recession, though they believe it is too early to conclude that the crisis is over.

These encouraging observations in the US, where the financial turmoil originated, and Europe, where the sovereignty debt crisis hit, came just days ahead of the second anniversary of the Lehman Brothers bankruptcy, which is unanimously taken as the beginning of the latest global financial crisis.

At this juncture, the European Central Bank (ECB) has revised upward its earlier economic projections for the euro area, which consists of 16 countries with a bigger population size than the US. It forecast last Friday that annual real GDP growth will range between 1.4-1.8 percent in 2010 and 0.5-2.3 percent in 2011.

Meanwhile, the US reported that its private sector has gained momentum and its payrolls climbed 67,000 in August, more than what was forecast, though the overall jobless rate is up to 9.6 percent last month. US President Barack Obama said last week that the economy is moving in "the right direction; we just have to speed it up" and he will be addressing a broader package of new ideas this week.

For Chinese decision makers, all these sentiments and judgments are of no slight significance because their country's economy is already deeply interwoven with that of the world.

They hold that the coming five years will be a key period to build a moderately prosperous society, to tackle the thorny problem of deepening the reform and opening-up process and to accelerate the transformation of the economic development pattern.

Putting a long list of challenging domestic tasks and the encouraging but still unstable global environment together, Chinese decision makers should prepare a "flexible" five-year national development guideline in the post-crisis era. Ample leverage tools should be considered to deal with any worsening of the global environment.

For the economic cycle, the coming five-year should also be divided into two parts. After two years of massive stimulus investment and because the global economy is more likely to grow at a lower pace, China's economy may achieve a moderate rate of about 8-8.5 percent during 2011-2012.

For the rest of the three years, it can grow slightly faster than the first two years with a stable 9 percent of growth when the global economy finally, and ideally, walks out of the woods.

In addition to flexibility and the growth cycle, Chinese policymakers may also consider the following:

First, find out the right time to exit stimulus measures. After the two-year implementation of the 4-trillion-yuan stimulus package, what are the right fiscal and monetary policies? The policymakers should address these clearly in the guideline.

Second, market room. Europe and the US have already decided to speed up growth and create more jobs by reviving their real economy, boosting exports and stimulating domestic consumption. The approaches are very similar to those that China has adopted or has in its pipelines. Though China is restructuring its economic pattern, its export-based companies will meet mounting competition. China will also encounter trade protectionism. It should be well prepared to face Western market pressures.

Third, global financial governance. There is an end to the financial crisis round the corner but the shaping of a new order of global financial governance is just beginning. The country will also play a constructive role in the G20 platform on behalf of emerging economies and win more say for them. The guideline should also include measures toward gradual internationalization of the Chinese yuan currency. China should diversify its huge holdings of foreign reserves and guarantee its safety.

This guideline is vital not only for the five years but also for the coming decade. By 2020, the difference in economic size between China and the US will be hugely dwindled and the yuan should obtain a weight equal to its economic size.

The author is China Daily's chief correspondent in Brussels.