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Shen Liantao: 2010&Nbsp; A Turning Year.

2011/1/12 10:17:00 43

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Shen Liantao Turn 2010

2010

Flashed past.

For the whole world, this is from 2007 to 2009.

Economic crisis

A year of overall recovery.

Emerging markets are strong, while developed markets are still deleveraging.

High unemployment rate

Fight hard.

This year ended in Europe's crisis. European countries are trying to save Ireland's economy in order to stop the spread of the crisis.

Germany seems to have become the strongest member of the European Union. Its current account surplus is as high as China's absolute or relative amount.

The US economy seems to have recovered a bit of growth, but the unemployment rate remains high.

Overall, from the investment perspective, the developed market seems to be doing well because of the second round of quantitative easing by the Federal Reserve.

The US stock market has risen by 10%, even the Japanese market has risen by 10% because of the appreciation of the yen.

Only the European market dropped by about 10% (except 10% of Germany).

Emerging market stocks rose 13%, of which Thailand and Indonesia paid more than 50% in 2010. Only the fastest growing China, Shanghai A share index fell by more than 15%, because people are worried about higher interest rates and tighter monetary policy environment.

However, there is no good performance in the financial market.

Gold and crude oil prices increased by nearly 25% in 2010, while industrial products increased by 40%.

This actually reflects that investors are more willing to increase their holdings of real goods than paper money and securities.

In structure, the developed markets are deeply in debt and there may be major adjustments, especially in Europe.

Despite the high level of debt in the United States, it is likely that fiscal and monetary stimulus will still be possible in 2011 because of presidential elections in 2012.

If unemployment remains high, new presidents may be replaced in 2012.

Personally, I think the most interesting experience of 2010 is the pformation of our mode of thinking from the west to the East.

This change first appeared in 2009, but it was not obvious.

In the 2010, there was a clear change in thinking. Western intellectuals realized that their theoretical superiority was being impacted.

I believe that in the second ten years of twenty-first Century, there will be significant changes in economic theory, from the neo classical free market fundamentalism to a more practical and empirical theory.

However, I am not sure whether the breakthroughs of the new theory will come from universities in Asia.

The leading business schools in the West are aware of the shortcomings of the risk management model and the expected tools, and have begun to change.

Through interdisciplinary research, they are moving from a partial and narrow model to a more comprehensive idea, and regard the world as a whole system rather than a partial analysis.

In other words, we should look at the world from the perspective of system complexity. We should consider how individuals, enterprises and even countries adapt to this complexity: our actions will affect other parts of the world, and vice versa.

Feedback mechanism has become the core of our thinking. We need to understand that there are many solutions to complex problems, rather than the beautiful "optimal equilibrium" in neoclassical analysis.

As the recent two University of Toronto professors suggest, we need not only the idea of "one mile deep, one inch wide," but also the idea of "one mile wide, one inch deep".

Historians, statesmen and journalists tend to look at problems widely, and our students are now taught as narrow professional experts.

Our discipline is often concerned with the theory of "explaining a lot with one thing," which is too narrow and simplified.

For example, the stock market analysts are often "momentum analysts", based on linear analysis, using simple charts to show why the market will go up.

Their collective influence on the market makes the market more pro cyclical, because herding can make expectations self actualization.

The huge fluctuation of stock market in the past 30 years has shaken our confidence in these analytical tools.

The market, like the weather, is sometimes very hot and extremely cold. It is difficult to predict with traditional tools.

First, the impact of global warming on financial markets is beyond analysts' expectations.

Because of the feedback mechanism between man and nature, the influence on the financial market naturally may be larger than that estimated by the present model.

Secondly, we find that the mainstream mode is not effective, and we are entering a period of pformation of models and theories.

This will be a period of chaos. Some people will make big profits, but others will suffer a great deal.

What I am concerned about is that although Asian economies are better able to withstand this crisis than the west, universities and think-tank in Asia have not developed new thinking systems that can fundamentally challenge the West.

In part, our thinking pattern is dominated by the western with technological superiority, including knowledge exploration and theoretical research.

We often equate modernization with westernization.

In fact, for the country, the real modernization is to localize foreign thoughts according to their own environment and reality.

If localization is successful, such innovations can be exported to foreign markets.

For products like this, the same is true for thinking.

That is why I think 2011 will be the key turning point.

I do not think that the competition between the East and the West on GDP or products is the key point, but rather the competition of ideas.

Is the Asian model really adaptable, or are we vulnerable to undetected and corrected?

This will be the challenge of 2011.