Financial innovation vital for reform

By Zhu Ning (China Daily) Updated: 2014-07-14 07:04

The Chinese economy and financial markets have to be prepared to go through cycles or even bubbles and busts, and accept them as inevitable stages from which to learn.

To make things even more interesting, the entire global monetary and economic system is now undergoing a period of fundamental shift.

Stalled by each of their own sets of fiscal problems, developed economies such as the US, the European Union and Japan have all been busy solving their own problems.

At the same time, these domestic policies have considerable repercussions on the rest of the world, most notably emerging economies that rely heavily on exports and foreign capital investment.

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There have been some concerns in China that developed economies are trying to suppress the rise of the emerging economies.

In particular, there is a growing feeling in China that the US is waging a "financial war" on China.

At the same time China has many reasons to be seriously concerned with US monetary and fiscal policy, given that it holds a large amount of US treasuries and government agency debts.

Of course, we can ask all kinds of questions about why people do certain things. Sadly we cannot see inside the mind of the chair of the Federal Reserve, Janet Yellen, to get the answer to the above.

But clearly a game is being played between the countries, using politics, economics and finances.

However, we do have to realize that the US Federal Reserve is responsible to the US Congress, which has set out some very clear policy mandates.

The Fed's mandate is independent from the US government, and promoting the country's international political and economical status is not among the Fed's remit.

Of course, it is perfectly feasible that the Fed's governors think about such things when making their decisions.

However, it is hard to see how they could personally benefit from such "conspiracies".

China has every reason to feel concerned with US policy, but consider this: $2 trillion would represent just one to two months of US GDP - so I really question whether it would be worthwhile for the US to engage in such a conspiracy.

Instead of blaming the US for its irresponsible monetary policy, it would be better for China to modernize its own financial system through financial innovation and come up with policies that the US would have to respect when making its own foreign and monetary policies.