Influence of the Financial Crisis on the Chinese Economy

Topics: Inflation, Economy of the People's Republic of China, People's Republic of China Pages: 5 (2103 words) Published: November 28, 2008
Chinas economy and the influence of the financial crisis
China has one of the largest economic powers in the world. In the times of the financial crisis it is the more interesting in which ways this influences the economy of the Peoples Republic. This might be the beginning of a new era. It is foreseeable that the world will change and that America will lose power. That is why I want to deal with a global topic from a Chinese point of view. To reflect this topic the main part of the following essay is divided into four parts. The first one will describe Chinas economy. It is a general overview to get an idea about it. The second part deals about the financial crisis 2007/2008. It will sum up how it started which were the reason for the disaster and how it spread around the world. The third part will deal with the influence of the crisis on the economy of China. It will answer the questions if and how China has to deal with it. The last part gives a short foresight and draws conclusions from the events. Main part

Chinas Economy
Since 1949 Chinas economy changed from a planned economy to a socialistic economy with a Chinese impression. Because of this market economy China has a huge potential of growth. This is also related to the size of the country and its will to make up for the world wide leading economies. And this is also way its growths is expected to last for the future. Since the 1980s and the early 1990 the economic cycle decreases a little but compared with other countries it is still enviable. Even though the GDP of China equals the one of an developing country which a also based on the size. The growing potential is still not achieved and requires a better division of the markets within the country. This means also an economic exploitation of the whole country which is in progress. The difference between the booming east coast and the rest of China is to high. Chinas economy is both still in progress to become an industrial and service based economy and to become an open economy. An essential step has been the joining of the WTO in 2001. This was also an entry to globalisation. Economist call China as an economy in progress to a market economy because more and more private companies which are mostly managed by foreigners are founded in China. There are some economic risks based on the structure within the country. What might be interesting in connection with the financial crisis is the banking system which is very young. The big banks of China (for instance the Industrial and Commercial Bank of China – ICBC) could increase their profits. But their major debtors which are state owned enterprises are not competitive because they are making to much losses. This is a huge risk for the banks. It is also necessary to know that also Chinese Banks are trading bonds on the international market. Besides it is difficult for small and middle-sized companies to finance their operations with bank-credits. China has a very strong foreign trade. It is very dynamic and had a growth rate of 20% in the last two years. China lies on the third place of the biggest trading nations of the world. The main export goods are machines and electronic products. Whether the import goods are machines, chemical and mineral products as well as metals. It has to be said, that China exports more than it needs to import. In 2007, the Peoples Republics makes an active trade balance of 262 Mrd. USD. The financial crisis 2007/2008

The financial crisis started in the early summer in 2007 with a real estate crisis in the USA. Leading countries kept interest rates down because of low inflation rates. For instance the USA decreased the Federal Fund Rate to 1%. Furthermore the USA financed their trade deficit with capital which was invested in the American capital market. That is why China invested its profits, which it has earned with export, in government securities. This also decreased the real interest rate. Because of the low...
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