This is an article from the 21st Century Business Herald on October 29, 2008. It reflects part of the Chinese scholars’ thinking on how to deal with the current international financial crisis. The full translation follows. [1]
China should establish its strategic goals based on its international political goals

The subprime lending crisis has become the largest economic crisis since the Great Depression of the 1930s that spread through all of the capitalist countries. Because the center of this crisis is the US and Europe, which control the world’s economic and politic hegemony, China is in a relatively good situation. Although the crisis is having a certain impact on our export-oriented economy, at the same time this is a rare opportunity that China won’t encounter in a hundred years. If China fully takes advantage of this opportunity, it may significantly improve its position in the international economic and political system. Thus taking a certain degree of pressure and paying a small price is worth it.

We need to bear in mind that the economic goal of an isolated country is just absolute growth alone. But in the international system, as the result of interest distribution, a country not only needs to pursue the absolute growth rate; it also needs to pursue a relative growth rate, because the latter decides the country’s position in the interest distribution pattern; it decides what role a country plays regarding cheap labor; or a country can obtain a reasonable share of international trade and economic growth. During development, a big country in the process of growth should be good at seizing the opportunities created by instability and disaster. In the face of turmoil, all countries will be affected, but only during instability can the country with the ability to sustain the risk show its superiority. A big power is not worried about itself being impacted. During global economic decline, it does not even worry if the nation’s economic absolute scale declines, as long as its decline is less than its competitors. Then its relative position in the structure of the world is in fact rising. In the future’s recovery it would obtain much more profits than previously. If it can obtain more profits in the future, then the impact it suffers today is rather an investment.

In the face of the subprime lending crisis, whether we deal with it, or take advantage of it, first we need to be clear on China’s goals. When facing any major incident, our effort should be directed to a series of goals, from the lowest to the highest goals. On this basis we can know clearly what choices we have. During this crisis, China’s goals are listed below from low to high in sequence:

Reduce and eliminate the losses from the subprime lending crisis, weaken the subprime lending crisis’ impact on China’s economy and society, and ensure that China’s economy will continue growing at a certain rate. This is the lowest goal that China must achieve.

Use the crisis to weaken the competitors’ opportunities, etc., establish and consolidate the dominant position of the country and the nation’s capital on the domestic market. This is the necessary precondition for a great power to rise in the outside world. It can also place us in an initiative situation, whether attacking or defending.

Improve to the greatest extent China’s right of discourse in the world economic system, including consolidating, and enhancing our economic impact on neighboring countries/regions and other major countries/territories, and improving as much as possible China’s influence in the whole international economic system.

Regarding making efforts surrounding the first level goals, from enhancing the export incentives, to stimulating the domestic market, we have seen it (the effort), now and what is needed is to put measures in a timely manner to implement them.

On the second level, the first thing we need to do is to use the opportunity of the subprime lending crisis impacting the headquarters of the foreign-funded enterprises, and selectively buy back the foreign enterprises with a fair option. It not only will weaken the impact of the foreign-funded enterprises on domestic bank credit, suppliers business accounts receivables, and employment, but it will also help to break the foreign investment’s monopoly, help to build and consolidate the dominant position of the country’s and the nation’s capital on the domestic market, to reduce the pressure on the country’s foreign exchange reserves’ continued high growth, and at the same time to develop investment channels consistent with the national public interest, for large quantities of domestic surplus capital. Of course, we need to be selective when we acquire domestic foreign-funded enterprises. With other things being equal, priority should be given to buying back those foreign enterprises in the domestic market. The foreign enterprises with overseas markets are the second priority; high-tech and strategic enterprises are the first priority; low-skill, everyday consumer goods enterprises are the second priority. If we cannot grasp the sales channels of the acquired business, the acquisition is no more than a pile of waste metal. It is much easier to grasp the domestic sales channels than the overseas sales channels. The acquisition of high-tech and strategic foreign-funded enterprises can help us to obtain at least some technology that we do not have, and to enhance control over the strategic business. The low skill, everyday consumer goods enterprises have a low entry barrier. Thus they may not offer the technology that we need.

On the third level, we can use the right conditions as an exchange in which we use the right format and scale to participate in the western financial crisis. This will also help to maintain China’s external demand from shrinking dramatically. The exchange condition should be across political and economic lines, etc. of which, in the economy, the possible choices include asking the other side to ensure market entry and the right of China’s goods, services and investments (thus opening a path for the growth of China’s investments); reduce or stop any interference to the trade relationship between China and the third country, thus improving China’s right of discourse in the international economy system; or taking China’s suggestions during multilateral trade and financial negotiations, and so on.

Any crisis can mean the reshuffling of the existing economic and political structure, meaning that all emerging great powers have obtained more rising opportunities. After the Opium War, China’s weakness and turmoil created an unprecedented opportunity for Japan to rise. The First World War allowed the United States to leap from a European economic colony not long ago to become a European creditor. The Great Depression in 1930s allowed the Soviet Union to quickly rise from a nation of poverty and underdevelopment, with the majority of the population illiterate. The Second World War destroyed the ruling status of the British Commonwealth and the French empire. The United States and the Soviet Union quickly replaced them. In view of this, as long as the leadership is strong, the goal is clear and appropriate, and the action is timely and strong, it is entirely possible for China to make full use of this opportunity to leap forward and upgrade its position in the international political and economic system.

Endnote:
[1] 21st Century Business Herald, October 29, 2008
http://www.nanfangdaily.com.cn/spqy/200810290106.asp