The Chinese authorities moved decisively to lift the economy out of the hole it had fallen into with the collapse of global export demand. The second reason was the flexibility of the Chinese economy, and especially its labour market, in adjusting to the impact of the crisis on the structure of demand. This characteristic of the Chinese economy (not unlike the Japanese economy in the Great Depression – see my earlier piece) makes it resilient to shocks from the international economy at this stage of its development. It will also make the next phase of global recovery highly risky, especially if the recovery of industrial economies is as slow as is predicted, since China will tend to outcompete others in international markets. This is not just the problem of an undervalued nominal exchange rate — it is a deeply structural problem.

Huang has five predictions for this year. The predictions include the good news of the continuing boom in China. But, Huang implies, without substantial structural reform, the current path will lead only to more of the same, and that is not good for the longer term prospects. It will lead to a return of the pre-2008 growth model, which, according to Chinese Premier Wen Jiabao himself is unbalanced, inefficient and hence unsustainable. So the good news is that China is booming. The bad news, as Huang explains, is that it has not addressed the structural problems that it needs to if Chinese and global recovery and growth is to be sustainable in the medium term. These are major policy problems. They will need to be the focus of regional and international attention in managing the global recovery over the coming year.