Letters and Blogs

Spread wealth in name of consumption

The worldwide economic crisis provides China an opportunity. It should establish new strategic reserves of metals like copper and aluminum. The prices of many raw materials like these metals have dropped by more than half from their peak due to concerns about the worldwide economic slowdown. The Chinese government should reallocate its foreign reserves away from the US dollar and dollar-denominated assets. Domestically, China should have a major structural change in its economy toward a more sustainable and energy-efficient one. While an increase in government spending has an immediate effect on the real economy, it will not do much better in terms of structural change than tax cut. By cutting taxes, personal or corporate, the government redistributes the wealth to the public. This will induce higher personal consumption.

Jinpeng Ma