22 Ideas to Fix the World: Conversations with the World's Foremost Thinkers

22. JIEMIAN YANG: “Developing countries are in an unprecedentedly strong position in the world economy”

414 ◆ ◆ ◆ 22 “Developing countries are in an unprecedentedly strong position in the world economy” JIEMIAN YANG in conversation with Li Xin Jiemian Yang is a senior fellow and the president of the Shanghai Institutes for International Studies and a member of the Shanghai Committee of the People’s Political Consultative Conference. The rise of China is, for the most part, either overhyped or downplayed , depending on the context and the economic and political opinions of the commentator. Yet fairly infrequently are Chinese experts actually consulted. In this detailed interview, Jiemian Yang delves into the importance of China and other emerging developing economies in the contemporary global context. This is an assessment of China as a major global player, inexorably linked to developed states yet one that needs to modify its existing policies to become a true global player. Professor Yang also makes the bold claim that the current global crisis, rather than undermining globalization, is in fact proving globalization ’s importance and in many cases strengthening global governance structures. While acknowledging the severity of the crisis, Yang Photo courtesy of Jiemian Yang. Jiemian Yang ◆ ◆ ◆ 415 sees many global political and economic factors—ranging from fiscal interconnectedness to the proliferation of interstate agreements to demographics—that give rise to hope for stability and growth in both the developed and the developing world. LX: How would you evaluate world economic developments in the past decades since the end of the cold war? JY: In the first decade of the twenty-first century, the world economy has witnessed the biggest change since the industrial revolution. Much different from modern history, a group of developing countries rather than just a few have emerged, including not only big ones such as China, Russia, India, and Brazil (BRIC) but also medium-size economies like Vietnam, Indonesia, Nigeria, Turkey, and others. This represents significant progress in the world economy. Along with the very fast growth of the emerging economies, the developed Western countries also experienced a quite strong growth period generally since the end of the cold war until 2007; there were some benefits coming from integrating Soviet Bloc countries into the international economic order, but the system remained dominated by the Western countries. The huge new input of relatively cheap labor into the global production chains from China, India, and other developing countries effectively lowered the cost of global manufacturing, allowing predominantly Western consumers to maintain their way of life and access to cheap commodities. The other important contribution of the newly integrated developing economies to the Western market system is their relatively high savings rate, especially in China, with their great pool of foreign exchange reserves to be invested in the developed countries ’ bond and capital markets. Such evident money “surplus” effectively lowered the borrowing cost of capital in the developed countries themselves, thus allowing them to finance their own business. Although some people would later accuse the emerging countries of providing too much low-cost lending to the developed countries, and they think this is the main reason for the great financial crisis, I think they are totally 416 ◆ ◆ ◆ Make Development Possible wrong and misleading, as the cause of the financial bubble is located entirely in the developed countries. LX: But the speed of growth was not the same? JY: You are right. Emerging economies developed much faster than the Western countries. In the globalization context and with the emerging countries reforming their own economic institutions, economic factors like people, goods, money, and technology could move more freely than before. Their economic management level has improved substantially, with more stable macroeconomic policy, transparency, continuity, and stability and improved company governance according to market principles . All these have greatly promoted productivity in the emerging countries. With their huge resources and populations as the multiplier, their economic output has grown in an unprecedented way. As a result, the balance of economic power between the developing and developed countries became more equal than before. The financial and economic crisis since 2008 has accelerated the process. So, in general , the developing countries are in an unprecedentedly strong position in the world economy. LX: As you said, the world economy has developed very strongly over the past two decades, and in particular the emerging economies grew impressively. But since the eruption of the subprime debt crisis in the United States, the world economy has been very fragile. With this background , how do you foresee the world economy...