At present, as the Federal Reserve continues to raise interest rates, the global non-American currencies are under increasing pressure, and the vulnerability of many economies is increasing: capital continues to flow out, currencies depreciate, and they are facing debt crisis and financial risks. This phenomenon is a historical repetition of the "hot and cold bath" of the US dollar, but the difference this time is that the global system dominated by the United States is experiencing an impact, and most countries have not yet figured out how to ensure their own security and rebuild a new order.
COVID-19 epidemic, Russia-Ukraine conflict and inflation in Europe and America are impacting global economic stability and accelerating the disintegration of the world political and economic order formed since the era of globalization. The current pattern of globalization was formed after the end of the Cold War. China, Eastern Europe, Russian and other regions provide a large number of cheap labor for globalization. The revolution of information industry from Internet, personal computer to mobile phone and the liberalization and reform of global economic system have released the growth space. In addition, because of the good quality and low price of China's goods, the United States can maintain long-term low interest rates, stimulate the sustained prosperity of consumption, and promote the global flow of Wall Street capital.
However, after the subprime mortgage crisis broke out in 2008, globalization began to change. Some populists in the United States believe that globalization leads to the loss of local manufacturing industry, exacerbates the polarization between the rich and the poor and social opposition in China, and weakens the innovation ability based on manufacturing industry. Therefore, trade protectionism began to prevail. At the same time, major economies began to turn into the era driven by quantitative easing monetary policy, but due to the strong supply capacity formed in the era of globalization, it did not trigger inflation, which further stimulated western countries to generally try modern monetary policy: to maintain economic growth by approaching zero interest rates or even negative interest rates. Too cheap capital also supports large-scale venture capital activities and creates many bubbles of business model innovation.
Everything has changed greatly since the global epidemic broke out. First of all, the epidemic has impacted the domestic supply systems of various countries, and at the same time, it has also impacted the global supply chain, leading to the distortion of the relationship between supply and demand and the emergence of great inflation when the economy restarts. In particular, driven by industrial policies and trade protection, western countries are trying to adjust the division of labor formed by globalization and realize localized production, which will continue to impact the supply side; Secondly, the global crisis of energy, food and other commodities is promoting the de-dollarization pricing of resource commodities and strengthening the independent pricing power. The so-called era of cheap resources may never return, and the dollar system is also facing an impact because of this inflation; Third, the epidemic and aging have led to a labor shortage crisis in major economies around the world. The United States, Germany, Japan, Britain and other countries are all facing this thorny problem in the post-epidemic era, and the aging of China is also accelerating, which will increase the global manufacturing cost.
Inflation driven by these structural changes may be difficult to tame by raising interest rates continuously in a short period of time, so the end of the era of low interest rates may not only lead to a global economic recession, but also pose a threat to the huge global bubble formed since major economies began to adopt quantitative easing in 2008. The risk of bubble bursting will further disintegrate the global order and the old supply structure, and promote the formation of a new order. This will be a painful process.
In fact, after the subprime mortgage crisis, the United States deeply reflected and put forward a long-term plan for structural reform, namely, developing advanced manufacturing industries and improving social distribution. This idea has continued from the Obama era to the present. The political system in the United States makes it difficult for the government to really implement these structural policies, especially when it is unable to adjust the stock. It relies too much on increasing a large fiscal deficit to promote the development of the manufacturing industry and rebuild the society, which is precisely one of the biggest forces driving the great inflation: excessively aggressive fiscal policies release a large amount of money, leading to higher inflation expectations.
Since the 18th National Congress of the Communist Party of China, China has promoted structural reforms oriented to long-term sustainable development, vigorously developed the real economy, carried out supply-side structural reforms, improved production efficiency and competitiveness through innovation, reduced dependence on debt-driven industries such as real estate and infrastructure by gradually restraining leverage ratio, improved energy utilization efficiency through promoting environmental protection and energy transformation, and smoothed the national economic cycle through market reform and improving social distribution. Reform will bring pain, but it will enable us to better cope with trade frictions, the COVID-19 epidemic and the era of global inflation, and take a more active stance in future adjustment. In the past few years and in the future, competition has promoted the respective reform processes of China and the United States, but China's reform is more systematic and coordinated, and can be promoted step by step according to the timetable, which is the biggest institutional advantage of our structural reform.