Time to rethink the recipe for a global recovery

Premier Li Keqiang delivers a speech at the opening ceremony of 2015 Summer Davos forum in Dalian, Liaoning province, on Sept 10, 2015. [Feng Yongbin/ China Daily]

The world economy is bracing for its worst year since the global recession of 2009. The International Monetary Fund on Tuesday cut its predictions for global economic growth to 3.1 percent in 2015 and 3.6 percent in 2016, while the real global GDP grew by 3.4 percent last year. Worse, the IMF said that downside risks are high and these numbers could yet be lowered still further.

Isn't that a loud enough warning that we need to rethink what might have gone wrong with the experiment of using cheap money to fuel a lasting global recovery?

Given that the aggregate global GDP stood at $77 trillion last year, each 0.1 percent less growth could mean the evaporation of tens of billions of dollars in incomes or revenues around the world.

That should be a big enough problem on its own, as the tepid global recovery has for years stalled income growth for many, while widening the wealth disparity in almost every country.

The IMF was quick to point out the obvious: that China's economic slowdown, falling commodity prices and the approaching normalization of US monetary policy are the three main forces currently pressuring the global economy.

But by failing to pinpoint what the real root cause is behind slowing global growth, the IMF has hardly fulfilled its role of monitoring risks and sending early warnings of another global financial and economic crisis.

It is true that the Chinese economy has entered a rough patch in recent years and its decreasing appetite for raw materials has put commodity-rich countries under extra strain. But these economic challenges for China and emerging countries are neither a cause nor a result of the 2008 global financial and economic crisis.

Both Chinese policymakers and the international community have long recognized that China's dependence on exports and investment-led growth, which have played a huge role in fuelling the country's double-digit growth for more than three decades and driven global growth, are running off course. China's massive stimulus package to fight off the global economic crisis may have somewhat delayed the country's painful but necessary economic restructuring towards consumption and innovation-driven growth, but the country has not reversed its pursuit of long-term sustainable growth.

There is indeed numerous downbeat news about China's economic growth nowadays. Yet the simple fact that there were 11.5 percent more vehicles on the nation's roads during the weeklong National Day holiday compared with the same period last year indicates not only how stoic Chinese travelers are in the face of the daunting traffic jams but also the huge potential of the domestic market that merits all the efforts the country is making to tap it.

It is unreasonable to focus on the difficulties China is encountering during the course of its economic transformation as being the underlying reasons for the faltering global growth.

Instead, it is the abnormal monetary environment that the US has led the world into that justifies more caution from global policymakers as it becomes increasingly obvious that zero-interest rates have already outlived their mission as a quick fix.

The deceleration of global growth should have proven wrong the assumption of some central bankers that they could print their way to prosperity. The recent failure of the US Fed to raise interest rates also confirmed its reluctance to abandon the addition of cheap money, even though it hasn't boosted real economic growth.

When looking for a root cause of the anemic recovery of the global economy, should not the IMF take note of the absurdity that the US Fed cited concerns over the Chinese economy as a reason not to withdraw from an unprecedented monetary policy introduced purely for its own domestic problems?

The author is a senior writer with China Daily.

zhuqiwen@chinadaily.com.cn