Multilateral Cooperation Is Key to Resolving Global Financial Imbalances
The current surge in private capital flows has occurred in the midst of much-improved domestic policies and global financial conditions compared with those that prevailed during the capital flows surge of the l990s. 1 This time around, governments have so far generally managed to avoid excessive expansion of aggregate demand, large current-account deficits, and sharp appreciations of the real exchange rate. However, the policy agenda for managing capital flows is broad and complex, and considerable challenges remain.
Progress has been made in simplifying the very complex web of capital controls and exchange rate restrictions imposed by many countries. 2 But the gradual opening of capital accounts must be accompanied by a further strengthening of macroeconomic policies, the development of local capital markets and the institutions needed to regulate them, and the establishment of a system of risk management robust enough to respond to the needs of a more flexible exchange rate and open capital account. 3 Liberalization of the capital account once implemented is difficult to reverse. A return to capital controls should be seen only as a policy of last resort, to be used to dampen excessive exchange rate volatility or to moderate large inflows of capital when other policies, such as interest rates and intervention in foreign exchange markets, prove fruitless.
Despite the considerable improvement in policies in recent years, the surge in capital flows still presents substantial risks to developing countries. Future risks to economic and financial stability will likely take a different form and character4 than those encountered in the past - and may expose institutional and macroeconomic weaknesses that cannot be anticipated at this juncture. One warning sign of potential troubles has been the surge in portfolio inflows that has been associated with a dramatic escalation of stock market prices and valuations in many developing countries5, particularly in Asia, raising the risk of asset price bubbles. Other signs of possible trouble are appreciated exchange rates and current account deficits in some Eastern European countries. The impact of individual risks could be magnified if several were to occur simultaneously.
Developing-country policies must be reinforced by renewed international efforts to promote stability and maintain a financial environment conducive to a balanced expansion and deployment6 of capital flows in developing countries. One major risk to stability is the growing imbalance in global payments and the associated market anxiety/ about the possibility of a disorderly adjustment of the imbalance through sudden changes in exchange rates and global interest rates. Such changes could destabilize and disrupt international financial markets, which would cause all countries to suffer.
Although a coordinated policy of intervention in foreign currency markets is neither desirable nor feasible, a degree of multilateral cooperation is needed to address the current global imbalances. That approach, based on the mutual interests of deficit and surplus countries, should reflect the structural asymmetry between international reserve currencies and other currencies. At its center must be consensus on a blend of adjustments8 adequate to rebalance global aggregate demand without causing a global recession. Ordinarily, policy coordination among key players9 is unnecessary, because floating exchange rates, accompanying l0 monetary policies, and independent central banks do their job to facilitate adjustment to any shocks hitting the world economy. 11 But when the sustainability of the sources of financel2 for global payment imbalances is in doubt, as it is at present, multilateral cooperation to prevent sudden and disorderly market reactions becomes highly desirable13, especially if the growing global imbalances create pressure for protectionist trade policies in some countries.
Developing countries, in particular, have much to gain from multilateral cooperation, and much to lose from its absence14, and they would suffer disproportionately if instability were induced and a disorderly unwinding of global financial imbalances ensued. The world economy is moving toward a multipolar international monetary system in which the monetary and financial policies of the United States, Euro Area, Japan, and several key emerging market economies, including China, all exert substantial influence. Policymakers in emerging market economies should therefore strive to strengthen institutions and promote policies and mechanisms that will improve their ability to navigate in a world of increasingly integrated and interdependent financial and production systems. 15
Rejuvenating Trade through Science and Technology and IPR Protection
Since reform and opening up, China's economy has been developing rapidly with tremendous achievements in foreign trade. The upbeat situation of China's economy and foreign trade is hard won, and is inseparable from the respect and attention paid by the Chinese government to IPR protection. With the development of science and technology, the rise of knowledge-based economy, and the acceleration of economic globalization, the importance of intellectual property has been enhanced historically, Through efforts over the last two decades, intellectual property has gained overall development in China, thus laying a solid foundation and constituting a strong guarantee for encouraging independent innovation, strengthening independent research and development capacity, and boosting international competitiveness.
In today's world, the reform and development of IPR system has entered an unprecedentedly dynamic stage. Intellectual property has played an increasingly prominent role in world economy, science and technology and trade, as well as a vital factor behind a nation's economic growth. To strengthen their IPR protection system has become a natural choice for countries that wish to develop science, technology and economy and enhance national strength. Japan has explicitly put forward the basic state policy of "building the country through intellectual property", replacing the previous one of "building the country through science and technology". The U.S. takes intellectual property as a fundamental national strategic resource. It identifies IPR protection as an important tool in competition, and deepening IPR management, especially patent management, as a significant instrument to guide technological innovation, economic restructuring and optimization and upgrading of industrial technological structure. In this global context, the coverage of IPR protection is widening, the level of protection is becoming higher, and competition centering on IPR is getting ever fiercer. Intellectual property has become a bridge linking technology, economy and trade.
The coming 15 years is a crucial period for China to take a new approach to industrialization and realize the objective of building a well-off society in an all-round way, and also a crucial period for China to transform itself from a big trading country to a strong trading power. The fundamental transformation of the developmental mode of foreign trade and improvement of the quality and effect of foreign trade demand attention to the driving role of proprietary IPR and brands. Through a strengthened IPR system, the innovation capability and core competitiveness of enterprises will be enhanced. Without a sound IPR protection system, it will be impossible for China to release its independent innovation capability. That has a bearing not only on China's image but also on her development and her interests.
The first 2 decades of this century is a period of strategic opportunities for China to take a new approach to industrialization, build a well-off society in an all-round way and expedite the modernization drive. We must grip the opportunities, protect and utilize IPR, foster and promote capacity building among enterprises for independent innovation, and accelerate the creation and cultivation of China's proprietary IPR and brands in the high-tech sector. We will show the whole world that China not only makes textile and light industry products featuring low price and good quality , but also makes high-tech products and brands with proprietary IPR that speak for the talent and wisdom of the Chinese nation.
The globalization of the world's capital markets that has occurred in the past 10 years will be replicated right across the economy in the next decade. An international perspective has become central to management. Without it managers are operating in ignorance and cannot understand what is happening to them and their firms.
Partly because of globalization and partly because of demography, the work forces of the next century are going to be very different from those of the last century. Most firms will be employing more foreign nationals. More likely than not, you and your boss will not be of the same nationality. Demography and changing social mores mean that white males will become a smaller fraction of the work force as women and nunorities grow in importance. All of these factors will require changes in the traditional methods of managing the work force.
In addition, the need to produce goods and services at quality levels previously thought impossible to obtain in mass production and the spreading use of participatory management techniques will require a work force with much higher levels of education and skills. Production workers must be able to do statistical quality control; production workers must be able to do just- in-time inventories. Managers are increasingly shifting from a "don't think do what you are told" to a "think, I am not going to tell you what to do" style of management.
As the socialist market economy gradually improves, there is also a growing sense of social responsibility among the vast majority of Chinese companies. They abide by the code of ethics and lawful operation and are committed to providing high-quality products for domestic and foreign consumers. They pay attention to conservation, environmental protection and CSR fulfillment.
Some companies go even further by publishing their CSR reports to disclose their CSR performance and to voluntarily subject themselves to public scrutiny. Of course, constrained by the level and stage of its economic development, China still practices a rough-edged economic growth model, featuring high energy and resources consumption and high environmental costs. A handful of companies are still single-mindedly seeking profits and turning a blind eye to their social responsibilities.
Since the 1980s, CSR has become to a global trend. Putting emphasis on CSR means companies not only have to be responsible to their investors, but also to their employees, customers, business partners, and to the environment and society. International success stories also show that CSR is part of a company's brand image and its core competitiveness. It is a vital source of sustained prosperity for business. So in order to survive and grow, it is imperative that companies should raise their CSR awareness and actively fulfill their social responsibilities. We have every reason to believe that future business competition will diversify from specific products, technology and talents toward CSR performance. As the proverb goes, "The rose is in her hand and the fragrance in mine". Companies benefit from their efforts to honor CSR and promote social harmony.