• Why is this the worst financial crisis since the Great
• -Financial industry over-incentives
– Incomplete regulatory model for crisis
– Financial engineering
– Bad risk-management models in Micro-way
– Sub-prime mortgage credit losses
– Inept prudential supervision
– Moral hazard from deposit insurance & related
–Insufficient capital (in the U.S.) or Basel 2
• Incomplete regulatory supervision for financial
• Belief that Housing Prices would continue
– Implies failed risk management
– Implies weak underwriting standards
• Levered financial institututions: 10-to-1 up to
– Took on large mortgage-related risks
– Difficult to raise capital when losses occur
– Contagion results from delevering
• Global Housing Bubble
– UK, Ireland, Spain, Australia
– Italy, France, China
Imbalance in World Economy
• Allocation of resources into wealth
production and income distribution fields
should be in proper ratio in an economy.
• In fact, it is unbalanced allocation: too much
into financial industry in developed
economies, which made supply was over
demand in the domestic financial industry ,
bubble the prices of speculating assets, but
lower and lower the return of the field.
• Less production, more distribution?
Imbalance in World Economy
• With globalization, unbalance allocation of
resources in one economy, could be in a good
ratio in the world.
• NICs in production as China, developed in
distribution by the strong financial services.
• Then, over-production in NICs, over
consumption in developed economies.
• Two imbalances meet, vulnerable balance
established in world economy.
Imbalance in World Economy
• Less production but more consumption in
developed, bowering consumption is not
sustainable. Paper money is not real wealth
unless accepted by the producers in world.
• Income and return distribution in the world is
unbalanced. Same investment requires same
return, law of averages of return. Finally,
crash of virtual economy to meet the need of
the law in the world.
Join Hands and Tide over
• Establish credible macroeconomic policies
• Provide needed liquidity, Secure confidence of
• Protect depositors
• government ownership of banks
• Sale of assets taken over
• Announce medium-term restructuring program
• Overhaul of regulations to not repeat mistakes
G20 summit – leaders' statement
• We have today therefore pledged to do whatever is
• restore confidence, growth, and jobs; repair the
financial system to restore lending; strengthen
financial regulation to rebuild trust; fund and
reform our international financial institutions to
overcome this crisis and prevent future ones;
promote global trade and investment and reject
protectionism, to underpin prosperity; and build an
inclusive, green, and sustainable recovery.By acting
together to fulfil these pledges we will bring the
world economy out of recession and prevent a crisis
like this from recurring in the future.
U.S. Economic Adjustments
• Need to reduce fiscal deficit and increase
– Now happening too fast
• Need to balance trade deficits
– Strong dollar may help short run, hurt long run
• Strong consumers are key to recovery
– Well-capitalized home buyers
U.S., EU, Japan
• U.S. offered $12.8 trillion to inject liquidity, and buy
the toxic assets.
• The 27-member bloc European Union member
states have injected a total of 3 trillion euros in
fighting against the financial crisis.
• Japan said it plans to spend at least $100 billion
(67.2 billion pounds) more to help steer its economy.
• Summit: An additional $1.1 trillion programme of
support to restore credit, growth and jobs in the
• China has made utmost efforts to provide support
and assistance to other countries and signed
bilateral currency swap agreements worth RMB650
billion with relevant countries and regions,$40
billion to IMF. We have actively participated in the
Self-managed Reserve Pooling Arrangement of the
Chiang Mai Initiative Multilateralization scheme in
an effort to uphold economic and financial stability
in our region and promote regional financial
cooperation and trade.
Recovery in future
• With Continue coorporation,the “second-
wave crisis”of the world financial system
• EU- L shape, US – U shape, China- V shape,
• U shape crisis would be lasted for the
next 2-3 years, and full recovery happens
in the process of adjustment of the world
economy structure and trade pattern.
SUPPLY CHAIN AND
PATTERN OF WORLD
Smiling curve in 1970’s and 80’s
An Trade Triangle emerges, where China
develops a sustained trade deficit with China
and a surplus with OECD economies of nearly
In other words, most of China’s trade surplus
will ultimately accrue to its regional neighbors.
This has profound implications for patterns of
both North-South and regional capital
• In 1980’s U.S.saving rate was 9%, in 1990’s
was 5%, in 2001, was around 2%, and in 2005,
was only 0.5%. With financial crisis, the
saving rate increased 2.4%, in August it was
6.9%, if national saving rate increased 5%
points averagely in 2009, that means
consumption decrease at least USD 700
• S – Strategies
• P – Positioning
• A – Action
• Tradition Model of production in
Asia should be changed?
PRIMARY OBJECTIVE FOR
• TO SUSTAIN THE GROWTH AND
DEVELOPMENT OF THE REGION FOR
THE COMMON GOOD OF ITS
PEOPLES AND, IN THIS WAY, TO
CONTRIBUTE TO THE GROWTH AND
DEVELOPMENT OF THE WORLD
OPTIONS FOR THE REGION
OPTION 1: ESTABLISH 3 “ ASEAN+1 ”S
FTA FORMULA AND FINALLY MERGE IN ONE
OPTION 2: NORTHEAST ECONOMIES
ESTABLISH FTA, THEN INTEGRATE INTO AFTA;
OPTION 3: LAUCH EAFTA IN EARLY STAGE;
WHY NOT 10+5?
• Consists of 10 ASEAN countries, and
China,Japan, and South Korea, started in the
1st ASEM in 1996,and 1st 10+3 summit in Kula
Lumpur in Dec. 1997.
• Objective: to provide the natural basis for
a comprehensive East Asia Trade
Q & A : DISCUSSION
• AND ...?
• Y = C + I + (X – M);
• “Sustainable development," which deals
only with the balance between economic
development, social development and
environmental conservation. Sustainable
development is a functional approach with
an emphasis on intergenerational justice