A Smaller World

Lou Jiwei, the head of China's CIC sovereign wealth fund, is saying some interesting things:

"Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have," Mr. Lou said as part of a panel discussion on the second and final day of the Clinton Global Initiative conference here.
Asked whether China might pursue economic policies aimed at saving the world, Mr. Lou said that the country's leaders had a narrower focus. "China can only save herself because the scale of China is still rather small," he said, adding that while China has more people than any other country, economic output is still low enough that the Chinese economy is not yet big enough to have a big effect on the global economy.
"If China can do a good job domestically, that is the best thing it can do for the world," he said.

The first comment is definitely smart. Back when CIC was taking stakes in the likes of Blackstone, the world was more easily comprehensible than it is now. When financial stocks started plunging last year, it was easy to expect that a liquidity injection could get them back to what then was seen as "normal" but now is seen as bubble levels. Now, no one knows what "normal" is going to be, going forwards, or even whether the global financial system is solvent. So staying away from financials right now, especially when it comes to their equity, seems like a good idea.

Lou's also right that the best thing China can do for the world is to just keep on growing domestically.

But as for the idea that the Chinese economy is not yet big enough to have a big effect on the global economy -- well, that's just silly. There's a very good chance that right now, with Europe and the US in recession, all of the increase in gross world product can be accounted for by the amount China's GDP is rising. Without China's growth, the world would be in a much more dire place than it is now.

Yes, there's a limited amount that China can do singlehandedly. But then again, there's a limited amount that anybody can do singlehandedly: European stock markets seem decidedly underwhelmed by this morning's massive coordinated rate cuts, and US markets even more so. China might feel "rather small" these days in terms of what it can achieve -- but I can assure Mr Lou that policymakers everywhere else have much the same sentiment.