I am here at the CIGI ’09 conference at a very interesting session that is ongoing at the moment. The panel is called From Where Will the Economic Recovery Come and the panelists include Kenneth Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University, Alicia Garcia-Herrero, chief economist for Emerging Markets, BBVA Hong Kong, Manmohan Agarwal, senior visiting fellow, CIGI and Marcel Fortuna Biato, policy advisor in the Office of the President of Brazil. The panel is being chaired by Ngaire Woods at Oxford University.
It is evident that the panel planners assumed that the answer would be from the rising powers. A simple answer seems to have emerged – yes, but only in a collective sense and even there it is problematic. Individual rising powers, including China, would be unable to replace the US consumer as the major engine of growth.
I was struck, however, by the rather confusing picture that emerged from the panel on China. It appears that the panel is saying that China has and has not redirected its economy to be more consumption oriented. Additionally, China will or will not act as an engine of growth.
Let me say this – the panel was dead on when examining the policy to bring increased consumption. It is social policy in particular and potentially an effort to ease conditions for the purchase of homes. If it is true that the key policy is the development of a Chinese social safety net – health care, unemployment and pension – well, little has been implemented to date no matter what the future may hold. Secondly, whether the implementation in fact results in a rise of consumption and a decline in savings by Chinese households is a hypothesis only. In an aging population the required or hoped for changes may not be as significant as we think.