The revelation for China after the financial crisis

The subprime Mortgage Crisis performs as financial crisis in the western countries, while it is more reflected in the real economy in China. The economy in China has developed fast over the past years , accompanied by many problems. We provide over-produced goods through low cost and serious pollution ,then dump them to international market at low prices. The people do not have money to make purchases and have to face the environmental pollution. There are several changes we have to make to our economy after the global financial crisis.

(1)  To increase domestic demand. The insufficient domestic demand leads to excess supply of commodities , and it  converts to surplus capacity which is very common in China. The consumption in developed countries helps to absorb part of surplus capacity. However, if these countries implement trade protectionism or restrict the export of Chinese products, serious surplus capacity may happen and leads to crisis. So the key is to support the economy by increasing domestic demand. The government should increase people's income and make sure they have effective consumption power. The incomplete social security system and unreasonable distribution  wealth leads to the weak power of consumption. We have to pay more attention to developing the rural market as the rural population is the largest in China. The domestic demand will increase dramatically if we can activate this market.

(2)  To change the mode of foreign trade and exports. Currently, the main exports mode in our country is to dump  low-end and  low added value products to foreign markets. This mode is not environmental friendly and consume a lot of resources. So we should carry out economic transition, which means improve the growth mode of foreign trade by producing more high added value products.

(3)  To use our foreign exchange reserves more effectively. China is the largest buyer of US treasury bonds. Until November 2010, China holds 8960 billion dollar US treasury bonds, which accounts for about 32% of China's foreign exchange reserves. In addition, China holds long-term U.S. agency debt ,long-term corporate bonds and stocks for over 6000 billion dollar. With the expansion of U.S. debt, we are facing the risk of debt depreciation. So the government should diversify the large amount of foreign exchange reserves to disperse risks, for example, to purchase more physical products including staple commodity instead of virtual bonds.