Cover, issue no. 401, January 5, 2009 
Original article: [Chinese]

A new year has only just begun and we're already anxiously asking how it will turn out.

Many farmer-turned-migrant workers have returned home. When the upcoming Spring Festival in late January ends, it will be the beginning of new uncertainty: Will they find new jobs afterwards?

Meanwhile, factories have been shutting down in waves from the coasts to inland cities. Salaries are waning.

Will our lives become more difficult in the new year? Will China's economy slow much further? Where can we find the answers?

Government officials, scholars and market observers are pushing out analysis and projections almost on daily basis. But after what we have been through in 2008 - when the economy unexpectedly changed gears so many times - we are much less sure of what to believe, and much less confident in how to react.

Where can we find the inspiration to look through this gloomy time we find ourselves in?

Once, we were obsessed with inflation. To fend off this great threat we let the renminbi rapidly appreciate, controlled prices through administrative measures, reduced and later canceled export tax rebates.

At the time, it never occur to us that there was a fine line between inflation and deflation.

Inflation is indeed a serious problem. But in determining it's onset, we cannot solely rely on the consumer price index (CPI), China's calculation of which fails to cover a broader range of goods and assets.

Aside from this, the shrinking value of property too is also playing a role in influencing consumption and expectations.

For a long time, we have measured inflation by CPI only and neglected the changes in property prices. This caused problems in the past year.

We succeeded in controlling inflation through aggressive macro control policies, but only a few months later, we found ourselves flirting with deflation.

When the US subprime mortgage crisis erupted in 2007, few in China saw its relationship to China's economy.

A year later, when the problem evolved into a worldwide financial crisis, we finally realized that China could not stay isolated in such a globalized economy. It wasn't the same as it was during the Asian financial crisis a decade ago.

While China was in the midst of tightening its monetary policies, it clashed with the global economic downturn. We had hoped that the country would experience a moderate slowdown, but available data from recent months suggested that China was on a roller-coaster.

Given that the worst is likely to happen in 2009, they key question is whether or not we can successfully steer the economy to a soft-landing?

The Chinese economy has witnessed many ups and downs in the past three decades. But turbulence brought about by a truly open market economy only started to sink in since 2002, and the challenges met in 2008 were among the steepest.

Compare to 30 years ago, we are in a very different environment. Thus, our policies too should change with the times, and there has been evidence that we have not made enough adjustments.

More often than not, we have stuck firmly to the doctrines of classic economics text books; but every market economy, especially the emerging markets, have their own characteristics and problems.

Be they prescriptions based on Keynes or liberal free-market theory, experiences of others have shown that there is no one single medicine that could cure all economic malaise.

If we failed to recognize and identify changes and prevailing trends, no matter how minute they might be, then we would have failed in diagnosis and been unable to deliver the right prescription.

One such example was maintaining tight credit policy when Chinese small-and-medium sized companies were struggling to stay afloat.

Although China has been a member of the World Trade Organization (WTO) for seven years, many officials and scholars have remained close-minded in their views of the world.

Yet in the era of globalized markets, one has to take external factors into consideration when analyzing trends and formulating policies. Very often, however, we have neglected such relationships.

The year 2008 has taught us a bitter lesson. Our manufacturing sector has been hit badly following the financial crisis in the US, threatening China's economic stability and financial security. In a flash, we have crossed that fine line separating inflation and deflation, separating excess liquidity from a lack of it.

All these unexpected turns have forced us to arm ourselves with wisdom, foresight, and understanding of the larger global framework. We must diagnose and apply remedies from a holistic approach, instead of treating each problem as an isolated ailment.

Ten years ago, the reputed Chinese economist Wu Jinglian said that to enter the Chinese stock market, one needed lots of wisdom.

Today, we could say the same about handling the whole of China's economy.