Can China Save Global Economy?

In the early 1980s when the US and European economies were in a double-dip recession, it was Japan that came to their rescue.

The Japanese government shifted its economic priorities from exports to consumption and imports. Following the 1985 Plaza Accord, the Bank of Japan launched an aggressive monetary policy easing to boost domestic demand.

The Japanese government launched a number of policies to expand domestic demand and open domestic markets to foreign businesses, let its currency appreciate, provided tax credit incentives for imports and lifted financial regulations.

The country further recycled its trade surplus through direct and indirect investments to US and Europe.

Japanese companies took over and revitalized ailing US and European manufacturing companies, transferring technology and management know-how to these companies.

By the mid-1980s, the world economy was up and running in a virtuous cycle that benefited the world economy and most notably Japan that experienced its golden decade.

Now the US and European economies are heading again into a double-dip recession.

With their monetary and fiscal policies maxed-out, and with Washington and Brussels “dysfunctional,” who will come to the recue?

Obviously, the best candidate is China. With its economy still growing by leaps and bounds, with its foreign currency reserves soaring, and with its government functional, China can certainly play an important role to helping the world economy to recover.

China, for instance, can boost domestic spending and let its currency appreciate as Japan did in the early 1980s.

China can continue to purchase US and European debt and African mines. But can Chinese companies take over ailing American and European businesses and turn them around?

—Source: Forbes

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