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Experts: financial crisis hits more than China's trade
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15:22, November 27, 2008

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The impact of the global financial crisis on China goes beyond the country's foreign trade; it makes it difficult to make economic and social policies, said two Chinese experts on finance and public administration in a recent interview with People's Daily.

Prof. Xiao Geng, director of the Tsinghua-Brookings Center and senior fellow of Brookings Institution, said that the global financial crisis is squeezing global wealth as property prices and stock prices are falling around the world, including China.

As a result of that shrinking wealth, foreign direct investment into China will decrease. Capital inflow has been rising over the first ten months of the year, but at a slower pace.

There are yet more challenges to China's economy, both in the short term and mid-long term. Xiao noted that in the short term, like many other countries, China would face an economic downturn and deflation. The International Monetary Fund has tuned down the forecast for the world economy in 2009 to 2.2 percent from 3.7 percent. China's economy slowed down to 9.9 percent in the first three quarters of this year and is estimated to slow further.

Governments around the world have adopted measures to boost their economies including recapitalization of financial institutions and interest rate cuts. China has announced its four trillion stimulus package in early November and local governments are investing even more. Xiao is concerned about the inflation those actions could cause in the long run. He reminded us of the fact that the bubbles on the stock and property markets before the crisis can be traced back to inflation.

Prof. Wang Manchuan from the National School of Administration is concerned about the possible social influence of the economic downturn. He has witnessed how small and medium sized enterprises are struggling in his recent trip to the southeast. This part of China has been the most important engine of China's economic growth over the past 30 years.

The difficult time for SMEs means mounting unemployment pressure among migrant workers. The Ministry of Human Resources and Social Security said there was not massive job cuts but recognized that the number of migrant workers going home was increasing.

Policy adjustment is another dilemma that the global financial crisis has caused to decision makers. Governments have to change their policies and plans. That is not easy for any government.

By People's Daily Online

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