Zhang Monan

Towards new financial order

By Zhang Monan (China Daily)
Updated: 2010-07-05 08:00

Wealthy economies' decline and developing ones' rise makes it necessary to remodel the economic governance framework

Global recovery is moving into a more complicated phase in the post-crisis era. The top priority of the G20 summit held recently in Toronto was to strengthen the recovery and laying the foundation for sustainable and balanced growth.

Although the global economic and financial order dominated by developed economies has not changed fundamentally, the longstanding global economic disequilibrium and uneven wealth distribution during the recovery process have gradually turned the situation, relatively stable for decades, into a multi-faceted problem.

In the aftermath of the financial crisis, emerging economies, showing expanded domestic demand and government spending, have played a major role in leading the recovery.

For example, China's economy registered a year-on-year increase of 11.9 percent in the first quarter of this year. India's economy expanded 8.6 percent and Brazil 9 percent, all of which were faster than that of the developed world.

The rapid rise in the stature of developing countries and simultaneous decline of the wealthy economies provide an opportunity to break the traditional governance framework dominated by the rich club.

Against this backdrop, the G20, after three successful summits, has finally replaced the G8 and stepped into the center of global governance.

Nevertheless, contradictions and differences still exist, not only among developed countries, but also between developed and developing countries. This shows that the recovery is uneven across countries and rebalancing global wealth distribution is imperative.

On the one hand, both sides want their own specific policies to dominate the G20 agenda.

Washington is focusing on financial rebuilding and attempts to restore its financial stability and competitiveness, and regain its absolute leadership in global financial matters.

The EU, however, faces the task of fiscal tightening in the aftermath of sovereign debt crises. Compared with the 750-billion-euro aid package, fiscal self-help and a sound constraint mechanism could truly provide fundamental solutions to the European debt crises.

The euro zone countries will defend the common currency, adopt fiscal restraints and restore government credit, even at the cost of an economic slowdown or recession.

The process of reforming the global financial system and fiscal rebuilding will be propelled by the financial and debt crises. This is in the core interests of the US and the EU regardless of how wide their differences are.

On the other hand, besides caring for global short-term recovery, China and other developing countries are hoping the global economy develops in a more balanced and healthy way, and gives them more say in global financial restructuring.