“China has every reason to be optimistic”

Floria Hau (Hong Kong, AC 08-10)

I still remember the time when the US complained about the Chinese government for keeping the Chinese currency (yuan) artificially weak, to give its exporters an unfair trade advantage, when China had already allowed the yuan to strengthen by about 20% against the dollar since loosening its fixed exchange rate system in 2005.

Ironically, now it seems that China is the country most likely to lead the world out of this global economic recession. There is much faith in China’s growing recovery. In the first half of this year, China enjoyed a relatively high growth rate of 7.1%. The Asian Development Bank recently forecasted that China’s economy would grow by up to 9% in the coming year. Such optimism is not without reason, as the Chinese government had made some very wise moves both prior to and after the financial crisis.

Back in 2007, the government saw the risk of an economy growing too fast, and took measures to prevent the economy from overheating. In that year the Chinese central bank raised interest rates six times and increased banks’ reserve requirement ratio ten times. (Reserve requirement ratio is the proportion of money a bank must hold in reserve.)

One might have thought that China’s sharp economic downturn is driven by a slump in exports demand in the United States. In fact, China’s growth began to slow in 2007, well before the US economy collapsed. The slowdown was triggered by a collapse in property market.

In response to the slowdown, the government very soon announced a massive 4-trillion yuan worth ($585 billion / £334 billion) of fiscal stimulus package. This would not be possible if China had not kept a budget surplus prior to the crisis. About half of the increase in investment is on improving public infrastructure, which would potentially yield a high rate of return as there are still so much room for development within the rural regions of China. Another thing unique about the Chinese economy is that the government has the power to ‘ask’ state banks to lend. In other words, such degree of government influence allows the government’s measures to be implemented more rapidly than anywhere else in the world, allowing much faster recovery from the crisis.

Being the world’s third largest economy, and the economy which is enjoying the largest growth rate, China has every reason to be optimistic about its future economic growth. Now that the global economy is more integrated than ever, it is very encouraging for me to see how China’s economic growth could potentially benefit other countries as well.

– United World College Student Magazine –


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