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One world, three paths

By Andrew Sheng (chinadaily.com.cn)
Updated: 2008-11-17 10:23

Special Coverage Exclusive: An Asian view of the global financial crisis

Contents:  Preface  A historical inflexion point  The macro question  The micro origins  Lessons for China and Asia  Back to basics  One world, three paths  Status quo  The rise of regional markets  Romance of the three regions  Conclusion

Now that the financial crisis phase is passing, the world has moved into the crisis management and resolution phase.

The US and Europe will do whatever it takes to restore order. They will recapitalize banks, use fiscal policy to stimulate the economy, stop the foreclosure of mortgages, engage in regulatory reforms and then start talking about the global architecture.

President Bush has called a global summit, comprising the Group of 20 on the financial crisis to be held on November 14-15, 2008 in Washington DC. The Group of 20 was established in 1999 as part of the response to the Asian crisis. It comprised central bank and ministries of finance leaders from the G-8 (US, UK, France, Germany, Canada, Italy, Japan, Russia), EU and China, India, Brazil, Argentina, Australia, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea and Turkey).

The goals of the summit are to identify the causes of the problem and their possible solutions. The US considers that the solutions would take the form of a list of principles that countries should adhere to, of which a primary goal is to avoid policies that undermine the policies of the other countries.

Since the US elections will be held on November 4, it is unlikely that any decisions made at the summit would bind the new US President.

We come back to the structural issue of how we got to where we are – a financially interconnected world with no global monetary authority and financial regulator that was not able to manage the risks of global imbalances. Where does China and Asia fit in? I see three potential paths.

To be continued...

The author is chief advisor at the China Banking Regulatory Commission and former chairman of the Hong Kong Securities and Futures Commission.