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Zeng warns of bumpy ride out of world financial meltdown

THE world would experience a long and bumpy process to ride out the global financial crisis and developing countries may become the biggest victims, China's former Vice Premier Zeng Peiyan said yesterday.

The world should build up a stable, predictable and diversified international currency system, Zeng told the Global Think Tank Summit, which was hosted by the China Center for International Economic Exchanges in Beijing.

The center, headed by Zeng and including other economic heavyweights, was established in March and is an important avenue for the Chinese government.

Representatives from more than 30 global think tanks and 100-plus economists, former national leaders, Nobel laureates and executives of the world's top 500 companies attended the summit.

"The world economy is at a low right now and its recovery won't be reached overnight," Zen said.

"The huge bubble in the world financial system has not disappeared amid many bad loans. The world has seen overcapacity in many production sectors and new demand for consumption needs to be cultivated."

He noted nearly all governments had carried out emergency plans to rescue their economies and there was thus less room left for stronger fiscal stimulation policies.

More evidence had shown that developing countries may become the biggest victims in the deepest crisis since the 1930s, while previous achievements in bridging the gap between rich and poor countries may disappear, he said.

"Developed countries should contribute more to improve the external economic environment for poor countries and keep their promise to provide aid and investment, preventing further deterioration," he said.

The World Bank cut its 2009 global growth forecast last week to a reduction of 2.9 percent from a March estimate of 1.7 percent. The Washington-based bank also warned that a drop in investment in developing countries would increase poverty.

Zeng stressed the importance of the establishment of a mechanism to keep the world reserve currency stable.

"It is hard to change the current international currency framework in a short time and your currency is likely to become my problem," said Zeng. "In East Asia, we should accelerate the process of having a regional reserve currency to reduce the exposure to financial risks."

For China, the biggest obstacle was how to stabilize falling exports, said Zeng. "The expansion of domestic demand is limited and can't make up for the loss of diving exports," he said.

China's exports in May fell 26.4 percent from a year earlier.

A lagging service industry, a lack of financial services catering to the demand of small and medium enterprises and a huge consumption of natural resources were cited by Zeng as among the big obstacles for China's road to economic recovery.


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