Why China’s Success Matters to Us All.docVIP

Why China?s Success Matters to Us All AS heads of the G20 assembled in Los Cabos, Mexico, for their annual summit, it was clear that, four years into the international financial crisis, the policies adopted to deal with it by Europe and the U.S. are failing to do so. This is a statement of the obvious vis-à-vis Europe, where a double dip recession is a reality and the list of countries kept afloat by economic bailout packages has expanded to include Spain. The situation in the U.S. is not much better, with GDP growth from the last quarter at an anemic 1.9 percent. To understand the depth of the U.S.?s economic woes, consider that its annual economic growth during the last four years has averaged 0.3 percent and its employment is still five million below its pre-crisis peak. China?s economy has grown over 40 percent in size over the past four years. The contrast between the East Asian dynamo and the U.S. and EU economies could scarcely be more striking. The results of the different economic policies introduced to deal with the financial crisis in the three economies have been equally clear-cut. To summarize: – Europe has combined loose monetary policy with no stimulus to the productive economy, i.e.“austerity.” The result is an EU economy that has actually shrunk two percent over four years. – The U.S. has combined loose monetary policy with a consumer-orientated stimulus package delivered via a budget deficit. But the results of the stimulus were not effective, and as a result the U.S. economy grew by only one percent in four years. India, which followed the U.S.?s consumer stimulus model, has seen its growth decline from 9.4 percent in the first quarter of 2010 to 5.3 percent in the first quarter of 2012. – China combined expansionary monetary policy with an investment-led stimulus, and enjoyed an average annual growth of 10 percent right through the financial crisis. These differing results are nothing unexpected when we consult economic theory