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Why China hasn’t suffered an economic crisis in several decades?

(People's Daily Online)    13:16, October 10, 2019


In the eyes of some Western observers, the Lunar New Year figures indicate a plunge in the Chinese economy, as factories have suspended operations and shops closed during the seven-day National Holiday. Some doomsayers even call such scenarios the "Chinese economic crisis". But the reality is that the Chinese people are celebrating the Lunar New Year. 

Behind such humor comes a question worth pondering: why no economic crisis has ever occurred in China over the past several decades?

When the 1997 Asian financial crisis swept almost across the region, stock prices plunged, factories were shut down, and workers were laid off, in countries such as Thailand, Malaysia, Singapore, Japan and South Korea.

When the global economic crisis took place in the US in 2008, major developed economies, including Japan and the European Union, were severely affected. Even until today, some countries haven’t walked out of the shadow of the crisis completely.

While other countries were hurt by regional or global financial and economic crises, China saw its economy grow by 9.5 percent on average over the past 40 years. The country has contributed more than 30 percent to global economic growth for several years in a row.

China’s GDP increased by 174 times between 1952 and 2018. Between 1979 and 2018, its average GDP growth was 9.4 percent on a yearly basis, much higher than the global average at around 2.9 percent in the same period.

The country has grown into the holder of the largest foreign exchange reserves. Its foreign exchange reserves exceeded $3 trillion by the end of 2018, the largest in the world for the 13th consecutive year.

The expanding economy, rising national strength, broad market and sufficient potential ensure that when faced with external risks and crises, China can cope with the circumstances timely and effectively.

Undoubtedly, China has experienced economic fluctuations under the influence of international economic and financial crises since the founding of the People's Republic of China 70 years ago.

There were major bouts of inflation happening around 1988 and 1994, respectively, and risk of capital outflows was high from 1991 to 1994 due to fluctuations of the yuan exchange rates. In addition, the financial and economic crises in 1997 and 2008 both had an impact on China’s foreign trade and financial sector.

The difference is that China can always turn crises into opportunities, and achieve its own structural reform and transformation.

Lian Ping, chief economist of China Bank of Communications, said it was precisely because of the introduction of shareholding reforms that when the financial crisis of 2008 occurred, the Chinese banking industry had sufficient capital to enlarge credit supply, which then greatly enhanced the overall risk-resistance capability of the financial industry and also allowed it to withstand the impact of this crisis.

In addition to effectively responding to external risks and being able to turn crises into opportunities in a timely manner, China is constantly striving to break new ground and transform and upgrade.

China promotes supply-side structural reforms to achieve high-quality economic development. In addition, its strong and effective macro-control policies also play an irreplaceable role in achieving structural reform and transformation.

In the face of the 1997 Asian financial crisis, China insisted that the yuan should not depreciate. At the same time, it actively took measures such as encouraging exports, attracting foreign investment, and expanding domestic demand, to effectively hedge the impact of the crisis on the Chinese economy.

In 2008, China’s links with the world became even more close. In the face of a greater impact from the international financial crisis, China quickly adopted policies and measures to further expand domestic demand and promote economic growth, and effectively responded through active macro-control measures such as industrial revitalization, expansion of consumption, financial support, and stabilizing employment.

In preventing and coping with risks and challenges, China has continuously enhanced its capabilities and the Chinese characteristics have become increasingly apparent.

China's development achievements and its initiative in the process of preventing and responding to economic crises have set a good example for other countries and have accumulated good experiences for the sake of global economic governance.

Currently, the global economy is facing increasingly downward pressure, and the risk of economic recession is increasing. The International Monetary Fund lowered its global economic growth forecast to 3.2 percent this year, the lowest in the latest 10 years.

How could China maintain the bottom line of having no economic crisis and effectively deal with potential crises and risks?

Peter Wong, chief executive of the Hong Kong and Shanghai Banking Corporation Limited (HSBC), said that it is necessary to strengthen the coordination mechanism of cross-sector financial supervision to form a unified, coordinated and efficient financial supervision system.

He pointed out that it is also necessary to participate in global economic governance at a higher level, constructively promote reforms of the global economic and financial fields, and improve the ability to guide market expectations and boost market confidence.

We can conclude generally all of this discussion with a recent comment that “a more open China will further integrate itself into the world and deliver greater progress and prosperity for both China and the world at large”, as Chinese President Xi Jinping said at the opening ceremony of the second Belt and Road Forum for International Cooperation (BRF).

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Web editor: Hongyu, Liang Jun)

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