Expert Views

Xu Xiaonian: professor of Economics and Finance of China Europe International Business School

The U.S. debt crisis warns China to reduce its foreign reserve

The downgrading of the U.S.’s credit rating by the Standard Poor is a good thing， which delivers a heavy blow against the deficit budget policy. It reminds people that there is no free lunch in the world and also highlights the rating agency’s independence. It also makes us realize the urgency of balancing the international payments and reducing foreign reserves.

Yi Xianrong: researcher from the Financial Research Institute of the Chinese Academy of Social Science

Will a new round of financial crisis hit the world?

The downgrading of the U.S.’s credit rating by the Standard Poor symbolizes a re-pricing of the U.S. national credit. It exercises significant impacts on the world financial market， but it should not be over exaggerated.

Now the most important concern should be to what extend has the U.S. national credit crisis shaken the international financial system led by the U.S. dollars， and whether the U.S. would change the debt-driven economic growth mode as a consequence. Changes in these two aspects would determine the direction of future U.S. economic growth and whether the world economy would recover from the predicaments. It is still early to make conclusions about whether a new financial crisis would break out.

Xie Guozhong: director of Rosetta Capital Consulting Company

The U.S. debt not in crash， but only requires confidence

After the U.S. credit rating was downgraded， consumers and investors’ confidences about the market became very fragile. The consumer confidence index of the United States has reached a new low in the past two years. The slump of the stock market highlights the market’s awareness of economic slide. The recent 2 months have witnessed a shrinking global trade indicating a high possibility for a contract in the European and Japanese economies for the third quarter. In fact， the reaction from the stock market has been delayed.

The most significant issue that characterizes a debt crisis is the marked rise of bond interest， which however， has not appeared for the U.S. bonds. The U.S. debt crisis we are talking about is a confidence crisis about politics. The impacts on the real economy have not totally emerged. What could be seen is the rising bond interest in Europe， such as Italy and Spain.

Fiscally speaking， China has not suffered any losses from such a crisis. From the perspective of trade， Chinese trade volume and the port throughput have been falling in the past two months， with the dropping speed higher for the second quarter than the first one. These questions are not contributed only by the U.S.， but rather the Europe and Japan.

China should purchase now the U.S. stock shares， rather than the U.S. bond. The U.S. stock market is quite reliable with shares convertible， and the U.S. corporations have robust source of revenues， which also sell in bulk the products to emerging markets. Even if the U.S. stock shares are not cheap， they are better investment goods compared with bonds.

Tan Yaling: senior researcher and experts on foreign exchanges

The U.S. debt crisis will show its consequence

There is a fundamental difference between the U.S. debt crisis and the European one. The former crisis results from the U.S. global expansionist strategy， indicating that the U.S. seeks to find more competitive advantage and field of monopoly. Therefore， when confronted with the new financial crisis， the U.S Federal Reserve finds the significance of issuing money divergent from other central banks， which is that the U.S. Federal Reserve aims to strengthen its control and monopoly of the world， while other central banks just respond to avoid the danger of spinning out of control.

It is true that the U.S. is facing severe debt problem， which indicates the severity of structural imbalances of the U.S. economy. The reason why the U.S. has been doing so was that it matches with the U.S. global strategy: on the one hand， the U.S. trans-national corporations are working to make their resources， capital and wealth distribution globalized， and transfer such resources into the U.S. debt economy to raise more capital. On the other hand， why the U.S. has the gumption to risk being in huge debt is because it has strong economic base and resources distribution capacities. Therefore， when looking at the U.S. debt crisis， we should take into account the predominance of the U.S. dollars.

Today’s the world’s raised concern about the U.S. debt crisis does not include the study and analysis of the U.S. dollars’ special status and influences. No matter how the debt crisis ends， it is certain that the U.S. dollar would not collapse. Under the hegemony of the U.S. dollars， the circulation of the world economy and capital would finally led to outflow of dollars from the U.S. and inflow of commodities and resources into the U.S. Things would not change that the U.S. could still mobilize， monopoly and distribute the global resources to serve for its own developments.

Zuo Xiaolei: consultant to President of the Galaxy Securities

What does the U.S. debt crisis tell the world

The European debt crisis has far from closed， while the U.S. debt crisis is pushing the recovering global economy toward the abyss of recession. These two crisis might provide a good opportunity for the whole world to refocus on the most basic and common consensus， which is that the national bond and financial tools should be used to optimize effective distribution of the real economy.

Once the national economy is blackmailed by debt issuance and pure transaction-based financial tools， which may even become the backbone to ensure the economic functioning， then the national economy would run the risk of “hollow within”. If the national bond or issued money lose their values and purchasing powers， the debt-supported economy might suddenly collapse.

The development model relying on debts should be discarded by the whole world， which could not afford to live in risky and terrifying environment in which new debts are issued to repay the old debts and the risk of breaking contracts keeps piling up.

Now it is very urgent for various countries to raise upper limits for short-term bonds， reduce government expenditure， and relieve the debt crisis. However， the fiscal tightening policy could only reduce deficits and the scale of national bonds， which is a temporary tactic adopted by various governments to relieve inflectional pressures from the debts.

For the short term， its negative impacts on the recovering economy might be more prominent. If the degree of tightening and the degree of economic recovery fail to match， the economic and social problems in consequence might be very severe and it is possible for some countries to witness bankruptcy again. Therefore， after avoiding the short-term risk of breaking contracts， the U.S. and European counties should feel extremely urgent to change their economic development modes.

To reinvigorate the world economy， the economic development mode should refocus on the real economy and also the economic basis that makes an economy strong. As national debts hitting the peak frequently， we should encourage and utilize social and international capital for direct investments， especially direct investments from emerging market economies.

The author thinks that to walk out of predicaments due to the U.S. debt and European debt crisis， emerging market economies should support the developed countries to redirect their economic development strategy toward the real economy， and invest more of their foreign reserves into the developed countries. The “Emerging Industry Global Development Plan”， which is designing by the Chinese government， should be listed as one of the direct investment strategies of developed countries.

Under the new global economic structure， the capital flows from developing countries into the developed countries and create job opportunities there. Developed countries revitalize themselves by using their real economy to fix the virtual economy. The developing countries change their economic development mode from an export surplus mode driven by the comparative advantage of labor to a direct capital investment mode to realize the economic development model change for the world economy. This might be the way to rebalance the world economy.