Today, the world economy and the marketplace are deeply stuck in the mud of a far-reaching recession. What is China's real exposure to the global financial crisis? Can this emerging nation sustain itself during this crisis?
The answer: on one hand, China is experiencing vast pains; on the other, China can still manage the problems arising from the crisis. In short, this increasingly globalised China must take the same boat along with the rest of the world community.
China’s vast international dimensions
China's real exposure to the global financial crisis is huge and has many dimensions. First, the country's growth in this era, especially in the past two decades, has depended heavily on international trade, which accounted for US$2.56 trillion as of 2008, as well as foreign direct investment, accounting for more than $870 billion.
Second, China's foreign reserves stand at about $1.95 trillion, with more than half invested in US government and agency bonds.
Third, more than 25 million Chinese employees now work for overseas companies inside China.
So, altogether, China's economic and political health is directly tied to the fortunes of global markets and world development. Any negative development in the global markets and economy must have adverse consequences for China. At the same time, slow growth inside the nation could be negative to the world economy.
This new crisis is like no other, for the world is highly inter-connected like never before. What then is the next stage of global development? What are the best and worst case scenarios?
There is no short-term solution. The best scenario is that the US-centered global financial crisis will be stabilised within the next 18 months. People's confidence will pick up and there will be a more rational resolution of problems. In particular, the employment picture will change for the better. Thereafter, the world's governments could focus on reform of the global financial system so that it becomes more accountable and therefore, hopefully, more stable. But people's entrepreneurship is the ultimate solution to getting out of the mud of the global financial crisis, or any other crisis.
But things could go from bad to worse. The worst scenario is this: the global financial crisis drags on for many years. What is more, the economic crisis could lead to geopolitical-economic conflicts. For example, it could promote nationalist protectionist trade barriers and conflicts. Also, if the dollar goes into free fall, or if the US government prints too many dollars as a way to deal with its astronomical debts and trade deficits, it would lead to an unstable period for the global economy and political life. This aspect requires new attention.
There are no winners as a result of this recession. China's political and economic health is already deeply affected.
For China, the biggest issue is with the poor unemployment situation. Not to mention other things, shrinking international trade is causing vast pain in this part of the world. Indeed, in the first quarter of 2009, China's international trade dropped 24.9 per cent over a year earlier. This slowing international trade is to continue for the immediate future. So far, countless small- and mid-sized trading and manufacturing companies in coastal regions have gone under. More than 20 million rural migrant workers have lost their jobs. In addition, some 6 million new college graduates are having enormous trouble in securing employment. Such troubles could lead to dramatically adverse consequences.
The most fundamental issue related to sustained economic development inside China is to move decisively towards a law-based market economy, free from the deadly meddling of an unlimited bureaucratic power. The most basic requirement to achieve these ends is to have a firm separation of government from the business sphere. In such a way, the government can truly function like a government and the business entities can truly develop to become modern business organisations with the right set of owners, legal protection and governance.
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