From the May/June 2009 issue of The National Interest.
THE CHINESE word for crisis, weiji, includes elements of both danger and opportunity. This symbolic meaning has taken on especially great significance in recent years. The emergence of modern China as a global economic power can, in fact, be dated to the nation's willingness to seize critical moments of adversity. That was very much the case during the Asian financial crisis of 1997-98, which marked a critical turning point in the ascendance of China as a major economic power. And it could also be the case today.
But there is an important catch: unlike earlier crises, it is not altogether clear that China senses the gravity of the current danger. That leaves it caught in something much closer to denial-making it difficult to seize the opportunity that peril can provide.
The world is in the midst of its most wrenching financial downturn since the 1930s. From subprime to "no-prime," the once-proud icons of modern finance have all been turned inside out. An asset-dependent and increasingly integrated world has been quick to follow. The global economy is set for its first outright contraction since the end of World War II. Relative to a forty-year trend-growth rate of 3.7 percent in world output, a likely decline on the order of 1.5 percent in the world's gross domestic product (GDP) in 2009 is all the more stunning. For a $64 trillion global economy, such a shortfall translates into $3.2 trillion of foregone world GDP. Never before has the modern global economy had to come to grips with such a severe and abrupt widening in the so-called global output gap.
