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Advantages of Chinese economy will make it first to recover
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17:07, April 16, 2009

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The Global Financial Crisis triggered by US sub-prime mortgage lending has had a severe negative impact on the World economy. Is it possible for China to take the lead in recovering from the economic crisis and reverse the negative trend of economic development? What advantages does China have in getting through the crisis when encountering such a ‘cold winter?' We interviewed Mei Xinyu, an assistant research fellow with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, Professor Yu Yongda, Director of the Institute of International Strategy & Development under the School of Public Policy and Management of Tsinghua University, and Zhang Xiaojing, Director of the Macro-economic Research Department of the Institute of Economic Research under the Chinese Academy of Social Sciences.

The three most exposed sectors

Q: Which sectors are affected most by the financial crisis?

Mei Xinyu: The financial crisis has had the largest impact on China's export sector and capital markets. Facing the financial crisis's impact on the export sector, the Chinese government has taken several measures, including incentives to boost exports and measures to expand access to export markets. These measures have achieved some results, but such results are still not enough to fully offset the impact of shrinking foreign markets. Furthermore, it still takes times for some policies to show their effects. As for the capital market, China has adopted a series of measures to prevent a dramatic burst of the market bubble and to eliminate the inflated stock prices.

Yu Yongda: There are three sectors in China that have been most exposed to this financial crisis. The first involves overseas creditor's rights relevant areas, including US national debt, overseas insurance assets, and other types of financial assets, Chinese outward direct investment and oversea labor service exports. The financial crisis has led to a large decline in the value of China's overseas assets and proceeds counted in US dollars, caused major losses to China. The second involves industries directly related to the manufacture of low-end products. The impact that the financial crisis has had on the consumable market mainly focuses on the high and low-end markets. Thirdly, China's domestic basic industry and raw material industry have also been greatly affected.

Favorable factors for China's economic recovery

Question: Which favorable factors does China enjoy that will lead the economy out of the slump?

Mei: China's financial performance is best placed among economic powers, with its banking system as well as its international balance of payments and reserves being stable. China is also free from worries about the monetary crisis that results from speculative currency attacks. It can survive the increase of imports resulting from expanding domestic demand, and can live through the impact of reversed international capital flow. Our favorable balance of trade can be maintained at a certain level, with the possibility of a slight increase throughout the year. Due to the widening gaps of relatively different growth speeds, China's relative status in the international economic system may be raised. Despite this, we still need to remain cool-headed in our efforts to deal with the crisis.

Zhang Xiaojing: The leadership capability of the Chinese government is an extremely favorable factor. From the growth rate of credit and loans in January and February, we can clearly see that the strength of the government has played a positive role in the short term. In addition, while many countries are preparing to adopt expansionary policies with deep worries about inflation, China has put its inflation rate under control in a timely manner, which provides excellent conditions for the future economic development of China.

At the same time, China, with its vast territory, is undergoing a rapid process of industrialization and urbanization, creating all types of demand. Indeed, the current crisis has, to some extent, struck the economy in the coastal regions. Nonetheless, its impact on the central and western areas is limited. There also exists a broad space for development, taking into account the proportion that consumption accounts for in China's GDP. In general, therefore, China enjoys great advantages in economic development and its potential for expanding domestic consumption is immense.

Expanding domestic demand through comprehensive reform

Question: Will expansion of infrastructure construction contribute to China's employment growth?

Mei: Indeed, expansion of infrastructure construction is conducive to boosting China's employment growth. Except directly creating jobs in industries such as construction, related equipment, and iron and steel manufacturing, it can also remove infrastructure bottlenecks caused by the expansion of domestic demand (such as unavailability of home appliances in rural areas due to poor performance of the power grid network) and expand the market for products produced in remote areas, so as to increase revenues and consumption capacity in these areas. In the long run, employment growth is the key for expanding domestic demand.

Yu: China's employment growth will rely on increasingly high government investment, yet it is more important that the government makes effort to boost private investment. Therefore, it is a long way from creating jobs. However, the stable employment and increase of personal income are certainly key conditions for boosting China's domestic demand.

Zhang: Employment and domestic demand are interrelated. We know that only when the economy grows can employment be expanded, only when employment is expanded can revenue increase, only when revenue increases can consumption be encouraged, and only when consumption increases can economic growth be boosted. However, if we want to find a breakthrough point, we will find that it is impossible to expand domestic demand through employment growth in the short term. The expansion of domestic demand can be achieved by implementing more comprehensive reform plans in the long run.

China's economic growth will drive the recovery of the world economy

Question: What influences can the recovery of China's economy have on the world economy?

Mei: China's economic recovery helps to save a piece of untouched land that is unaffected by the world economic crisis. It is helpful not only to weaken the intensity of the crisis, but also to prevent the crisis from spreading through China's trade, investment and aid, which can make the economy boom.

Yu: It is undoubted that China's economic growth is an important factor to drive the world's economic recovery. China's economic recovery and consumer growth, especially the structural growth – the transformation from a low-end consumer market to a high-end one, are certain to drive the recovery of the world economy.

In addition, China's economic growth will contribute to the recovery of the world economy, the key to which is stimulating and driving the world economy. Moreover, China's economic development model can also be referred by other countries. The role that China will play on the world stage in the future is certain to be "significant, far-reaching, stable and harmless to other countries." Therefore, this financial crisis also brings China a very good opportunity to enhance its international status.

By People's Daily Online

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