Don't blame China

Attributing the current financial crisis to high savings in emerging economies makes no sense, says a Xinhua News Agency story. The following is an excerpt:

A strange view has developed recently from some US government and economic circles, which posits high savings in emerging markets such as China and oil exporting countries sowed the seeds of a global credit bubble, ultimately leading to the current global financial crisis.

The advocates of this view say different countries have different saving and investment tendencies, resulting in imbalances in the world economy. They also say the emerging markets exerted downward pressure on investment yields in recent years at a time of low inflation and booming trade and capital flows, driving investors in developed economies to turn to riskier investments.

Such a position is both irresponsible and untenable. High savings in emerging markets do not mean consumers and investors in developed economies can borrow money from them without misgivings.

The high savings rate in emerging markets is not a reason for developed countries to loosen financial regulation and look on as financial institutions develop new derivatives and let financial bubbles balloon.

The Chinese habit of saving, both on personal and national level, originates from a cultural tradition that cherishes diligence and thrift.

Previous outbreaks of world and regional financial crises prove that Chinese savings have no causal relationship with the crisis. The reasons for the current financial crisis lie in excessive consumption, high debt, improper macroeconomic policies and lack of financial regulation.

The US should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success.

Some experts have referred to the lack of ethics in the financial system as they tried to find out the causes for the crisis. "We don't just need a financial bailout; we need an ethical bailout," wrote New York Times columnist Thomas Friedman.

The urgent task for the US is not to shirk its responsibilities, but to find solutions for the crisis and realize balanced economic growth. Washington should accelerate domestic adjustment, reasonably enhance the level of national saving, reduce trade and financial deficits and properly deal with the relationship between risks and profits as well as regulation and innovation.

The financial crisis has not yet hit bottom and its impacts on the real economy are deepening. The international community needs to act together to curb the spread of the crisis instead of looking for someone to blame.

(China Daily 01/19/2009 page2)