A decade has passed since the global financial crisis broke out with the collapse of Lehman Brothers. Thanks to active measures it had taken in response to the crisis, China has achieved considerable development results. In 2008, China and the United States accounted for respectively 7.2 percent and 23.1 percent of the world’s GDP. In 2017, China’s share in the world economy soared by 7.8 percentage points to 15 percent while that of the US climbed by 1.2 percentage points to 24.3 percent of the total.

At present, the world economy has finally walked out of the shadow of the crisis into a period of stability. According to the International Monetary Fund, the global economic growth rate of 2017 will reach 3.7 percent, very close to the 3.74-percent long-term equilibrium growth level of the world economy from 1990 to 2007. And the world economy is expected to grow by 3.9 percent this and next years.

A key fact that cannot be ignored is that in the past 10 years, China has contributed substiantially to the world economic recovery. 

For example, while its GDP accounted for only 8.5 percent of the world total in 2009, China contributed as much as 50 percent of world economic growth. In 2017, China’s share in the world economy was still only 15 percent. But the Chinese economy has on average contributed to more than 30 percent of global growth in the past decade.

In reality, except for pulling global economic growth, China’s economy has also paid high price for it. In the last decade, China's debt-to-GDP ratio has soared by 114 percent, rising from 143.1 percent by 2008 to 255.7 percent by 2017. China's passive leverage increase cannot be separated with the bailout measures, like quantitative easing, adopted by developed countries from 2009 to 2015. For example, benchmark interest rate of the Federal Reserve remained at zero or close to zero until 2015.

However, due to the pessimistic expectation, the liquidity from the quantitative easing policy in developed countries has not boosted their domestic consumption and investment, but it has entered China in a large scale, promoting currency appreciation and price rising of real estate and other assets there. 

Second, the spillover effect of monetary policy of developed countries triggered new crises.

Since 1990, the world economy has experienced two economic bubbles. One was the IT that burst bubble in the late 1990s, which burst in 2001. The other was the financial and real estate bubble in 2008. After the outbreak of the financial crisis, developed countries with high leverage have been trapped in the crisis, and low-leveraged emerging economies generally have maintained economic growth. 

In this situation, developed countries had adopted a policy mix of austere budget and quantitative easing, and meanwhile promoted structural reforms to revive manufacturing. While, in order to control the asset bubble brought by the global liquidity, the emerging economies had to tighten the monetary policy and ease fiscal policy. 

Unfortunately, lack of the ability to properly manage the overflowed liquidity and the rising asset bubbles, the tremendous inflow of international liquidity directly led to the asset bubble-driven boom in the emerging economies.

This financial crisis literally changed the game strategy of big powers. 

For instance, in terms of the economic recovery of the US, it mainly depended on the quantitative easing and expanded macro policies for exports in the short-term, on trade protectionism and re-industrialization, re-innovation and re-export strategy in anti-globalization in the medium-term and on the shift of global economic and trade rules in the long run.

Unwilling to take responsibility for creating the bubble, the US is inclined to blame China for the global economic imbalance. It also demands yuan appreciation, requires China to expand imports and consumption as well as forces China to assume the responsibility of adjusting overcapacity.

Actually, when the developed economies, such as the US, are heading for recovery, it is also the time that the bubble economy of emerging economies would burst. 

Once the US economy entered a period of recovery in 2015, it exited the quantitative easing and kept raising the interest rate. As a result, the US dollar appreciation had led to a large inflow of global capital to the US.

The global recovery balance was broken, and a new round of global economic shock was triggered. 

Because of the normalization of the US monetary policy and the revitalization of manufacturing and trade protectionism, the current uncertainties in the global economy have been expanded, which led some emerging economies and their currencies into huge trouble. 

Third, the new crisis is being accelerated by the rise of global trade protectionism.

This year, after the slowest economic recovery in history, the growth in the world trade, investment and manufacturing sectors started to get stronger. 

However, the IMF cautioned that if the medium and long-term structural contradictions cannot be resolved, the next recession will come earlier than expected and be harder to deal with.

It seems that the world economy is at a crossroads, where joint efforts may bring progress, while the split may cause long-term chaos. 

At this juncture, the US has provoked the trade war and attempts to establish a new system of the global economy by using the US-defined trade principles. 

But here comes three basic questions: 

First, the globalization based on Western rules since 1918 has reached a historical turning point. Relying on the globalization driven by an open economy, market mechanism and innovation is not capable of sustaining further development, not to mention the globalization wanted by the US to make America great again. So what will be the fair global governance structure like?

Second, as the leading driver of globalization promotion since 1918, the US is no longer willing to give other countries a ride, by taking more responsibility for providing public goods and promoting internationalism. Then, what will be the obligations of a responsible great power?

Third, since 1918, emerging markets and developing countries have stepped closer to the center of the world stage. However, globalization governance does not reasonably reflect their interests and will. Globalization has not developed in the direction to more openness, balance, coordination and cooperation, but rather to oppressiveness. Under the trade war, what actions should China take to meet the requirements of being a responsible big country can be met?

Ten years after the financial crisis, the world economy has just begun to stabilize, but the risks have not decreased, but risen significantly. 

The 2018 Global Risk Report released at the Davos Forum in January this year indicated that the world has entered a critical period of increased risk. Of those surveyed, 90 percent believed that this year the political and economic confrontations between big powers are likely to intensify. And, in the next 10 years, the world may find it difficult to enjoy the hard-won stability.

Zhang Yansheng is principal researcher at the China Center for International Economic Exchanges. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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