JOINING HANDS: The China Institute Executive Summit in Beijing on April 27-28 provides a forum for economists and business leaders from China and the United States to weigh their cooperation in fighting the economic crisis JIANG XIAOYING

As the battle against the global financial storm heats up, China and the United States are increasingly finding themselves in the same boat.

In the face of looming downturns, both countries have pumped massive fiscal stimuli into various key industries to foster a turnaround. But an end to the crisis will not necessarily turn on a spigot of fresh economic growth. It is widely believed that restarting the world growth engine will require closer ties between the world’s largest economy and the most vibrant emerging economy.

The high economic interdependence of China and the United States could explain why they believe cooperation with the other is essential. While U.S. consumers account for the bulk of China’s growth-driven exports, China is the largest holder of U.S. government debt-a key source of financing for America’s soaring deficits.

Considering the many uncertainties of the current crisis, the question many are asking is whether the two countries’ economies can emerge from the downturns by working with each other and at the same time position themselves for future economic growth.

This year’s China Institute Executive Summit on April 27-28 in Beijing provided a platform for economists and business leaders from both countries to plot a way out of the current economic mess. By exchanging views on further cooperation, they sent a strong signal of hope on their joint path toward economic recovery.

This was the first time that the five-year-old summit was held outside the United States. Sara Judge McCalpin, President of the China Institute, which organized the summit, told Beijing Review that the conference was designed to provide a bridge between business leaders from both countries and help them gain knowledge and learn best practices from each other in overcoming the crisis. The China Institute is an educational and cultural organization based in the United States, which focuses on advancing a deeper understanding of China.

Challenges ahead

While Europe and Japan sink into deeper recession, the world is looking to China and the United States for some confidence. With its 4-trillion-yuan ($586 billion) stimulus package taking hold, the Chinese economy appears to be turning around. On the other side of the Pacific Ocean, a gradual stabilization is also removing a huge drag from the U.S. economy although it still has a long way to go before it can realize a full-fledged recovery. More importantly, the fiscal boost delivered by each country provides a source of confidence for the other.

But one common challenge confronting the two economies is that U.S. consumers, whose retirement accounts and home values have seen significant drops in value, will be more prone to saving money than spending it in the years to come, said Donald H. Straszheim, Managing Principal with Straszheim Global Advisors Inc., at the summit. Straszheim Global Advisors is a U.S.-based independent economic research firm that focuses on business strategies in the two economies.

With the large amount of excess capacity built up during the past boom times yet to be digested, reduced consumer demand for products will make a dent in both economies, Straszheim said.

In response, China is widely expected to rebalance its economy away from its current dependence on exports and toward private consumption, while the United States must shore up its investments since it cannot afford another round of over-leveraged household spending.

Economists at the summit welcomed China’s push into innovative and high-value industries, as well as the government’s efforts to build a viable social safety net that could spark a surge in domestic consumption. A higher rate of precautionary savings in the United States also would help restore the household balance sheet and provide a floor under the buckling financial system, they said. The entrenched consumption-savings imbalances between the two economies must be gradually redressed, they added.

Yet, the road to economic revitalization will not be smooth sailing. China’s economic growth, without a vibrant export engine, may no longer be able to operate in high gear, because the country’s consumer market still needs time to grow, Straszheim said. The United States, in turn, will have to cope with a shortage of fiscal ammunition to jumpstart the economy, he said. It also faces questions about how to address the problems of monetary, credit and asset restructuring to repair its tattered financial system, he added.

“We should join hands to evolve with a new foundation for future growth,” Straszheim said. “There is a real need for continuous cooperation between us to overcome those challenges together.”

Zhu Min, Vice President of Bank of China Ltd. (BOC), echoed Straszheim’s opinion, citing the Sino-U.S. Strategic Economic Dialogue as an important stage for coordination.

“Never before have we been so close to each other,” he said. “The first step of cooperation should be to enhance our mutual understanding and policy transparency in a concerted effort to temper the growing slack.”

Norman Yen, Board Advisor of SmithStreetSolutions Consulting Co. Ltd., a Shanghai-based knowledge process outsourcing firm, said coordination may be difficult for the two economies, which have their own preoccupations, but the dialogue serves as a good start.

Opportunities on the horizon

Although it came as a heavy blow to the Chinese economy, the global downturn has been more of a double-edged sword whose upside has started to shine through.

Now is a good time for the country to nurture a consumption-driven growth model that is more sustainable and efficient in both economic and environmental terms, said Yen. To achieve that, more meat must be added to the bones of industrial restructuring plans, and the government must ensure that quality plans are implemented, he said.

For China’s ambitious enterprises, the downturn also provides them with a rare opportunity to become more globally competitive. Through outbound organic expansion or cross-border mergers and acquisitions, they can get access to advanced technologies, raw materials, marketing and distribution channels, global brands and global management teams.

Another bright spot for both domestic and foreign investors is China’s rural market that is emerging as a potential driver for the flagging economy. Cao Yuanzheng, chief economist at BOC International Holdings Ltd., said China’s numerous towns and villages would increasingly become important targets of investments. For example, the rural areas where financial services and capital are scarce may provide chances for foreign banks and private equity investors, he said.

Rural China is no longer simply a source of emigrants bound for the cities, but a hotbed of prosperity, said Peter Rupert Lighte, Chairman of JP Morgan Chase Bank (China) Co. Ltd. But that will eventually require a dynamic integration of cities and villages, he said. For instance, the government must draw rural migrants to smaller and newer cities closer to their original homes so that the geographic and financial urban-rural divides will be diminished, he said.

Green economy

In addressing their different economic woes, China and the Untied States took similar low-carbon paths to green growth. While China embarked on a spending spree on environment protection, the United States resorted to a tax cut for clean energy industries.

The “green” stimuli have the capacity to inject steam into both economies in a sustainable and efficient way, said William J. Friedman, Director of Food & Drug Asia at Covington & Burling LLP, a renowned law firm based in the United States. The countries’ enormous economic and social benefits range from higher energy efficiency and healthier agricultural products to green job creation and conservation-based enterprises, he added.

Richard J. Schulberg, Executive Director of the International Sustainable Development Foundation, agreed with Friedman.

“We are still confronting a crisis of neglect in many places around the world about the ecological system and the climate change that might be even more crippling to the world’s future than the current financial crisis,” he said. “The financial crisis is also mounting pressure on us to be more productive and energy-efficient. As a result, the pursuit of the green economy is not an option, but a necessity for the promising future.”

Gary William Dirks, Group Vice President of BP Plc, believes that China and the United States can play a positive role in fostering the green economy by strengthening their financial support for green policies and creating standards.

The two countries have a good opportunity to cooperate in a number of areas, such as protecting the ecosystem, promoting energy-efficient vehicles and developing a smart grid that is highly efficient in power transmission and distribution, he said.