Real recovery still far away

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(China Daily)
Updated: 2009-10-13 08:03

The bankruptcy of Lehman Brothers a year ago was the beginning of one of the worst economic crises. Although the worst is behind us, we can't expect a V-shaped recovery, says an article in China Securities Journal. Excerpt:

To lift the economy out of the global economic crisis, banking institutions have covered up financial risks through revaluation and by peeling off their bad assets. Though banks' losses have been minimized accordingly, the global economy is yet to recover truly.

If the slump continues, potential losses, combined with new problems, will drive the real economy into a vicious circle of decline and borrowed boom. The situation in China shortly after the reform of State-owned commercial banks began fits well with this model.

So, where are we heading?

Currently, things look blue. Just before the global economic crisis broke out, the world economy passed through a "golden period" that had two main driving forces: advanced communication technology and globalization. Yet the crisis has impaired both of them. First, communication technology does not have the same impact as before. And second, with the US economic model going bust and protectionism rebounding, we should not be surprised to see "deglobalization" setting roots and growing in the coming decades.

The point of the argument is that real recovery can take a long time. So in the short term, developing countries should boost their domestic markets for new growth because an overall upturn will come only after important technical renovations breathe new life into economic circles.

(China Daily 10/13/2009 page9)