The Effects on Developing Countries -

China

I chose this topic because……

Economics is fun

Wondering why was some better off than others?

Heard and read stuff about financial crisis

Outline• Brief Introduction of Facts of China

• Initial Conditions of China (before Financial Crisis)

• Brief Explanation of the Impact of Financial Crisis of 2008 on China

• China’s Reaction to Financial Crisis

• Possible Outcomes (issues) and Solutions

Case Study - China

Thesis Statement: China is a fast emerging country from

the recession of the world Financial Crisis of 2008 through

abiding its sets of agendas and proper self-adjustments

both before an economic catastrophe and the aftermath of

it.

Facts of China-

• Largest Exporter

China $1.506 trillion (2010 est.) #2 (behind EU) US $1.270 (2010 est.) #4

• Imports

China $1.307 trillion (2010 est.) #3 US $1.903 trillion (2010 est.) #1

Reference: CIA World Factbook

Export

Import

Facts of China-• GDP (real growth rate) – China 10.30% (2010 est.) # 7 US 2.7% (2010 est.) # 138

Taiwan 10.50% (2010 est.) #6 European Union 1.8% (2010 est.) #154

• Debt - External China $406.6 billion (31 December 2010 est.) #23 US $13.98 trillion (30 June 2010) #1

Reference: CIA World Factbook

GDP (real growth rate)(%)

Initial Condition of ChinaI. Highly administrative – Government controls the flow of

loanable fundsII. High interest rate – Higher saving

Comparison of BRIC countries and world average savings rate (Share of total savings to Gross National Income (GNI)(%)

1990 2000 2001 2002 2003 2004 2005 2006

China 40 37 38 41 44 47 51 54

Brazil 19 14 14 15 16 19 17 18

India 22 26 26 27 29 32 33 34

Russia 30 37 33 29 30 31 32 31

World 22 22 21 20 20 21 21 22

Reference: ZHANG Xiaojing, TANG Duoduo, LIN Yueqin (Institute of Economics, Chinese Academy of Social Sciences)

Economy Current account/GDP

(Expected value of 2009)

(%)

Short-term external debts/Foreign

exchange reserve(Expected value of 2009)(%)

Bank loans/deposits

Overall risk ranking

South Korea 1.3 102 1.3 14Brazil -1.5 22 1.36 10Russia 1.5 28 1.51 9India -2.4 9 0.74 4

Taiwan 7.9 26 0.87 3Malaysia 11.3 15 0.72 2

China 5.2 7 0.68 1

Initial Condition of China

III. Limited exposure to external risks

Reference: ZHANG Xiaojing, TANG Duoduo, LIN Yueqin (Institute of Economics, Chinese Academy of Social Sciences)

Impact of Financial Crisis of 2008 on China

• Investment in the US

• US Decreasing in Demand

When world financial crisis strikes…

Decrease demand for Chinese imports Chinese job losses Social and economical unrest

Cuts in interest rate Encourage lending

Tax cuts Increase willingness to consume

Monetary stimulus $586 billion (roughly 4 trillion yuan) stimulus package Domestic investment increased

Reference: ZHANG Xiaojing, TANG Duoduo, LIN Yueqin (Institute of Economics, Chinese Academy of Social Sciences), (Fan, The Jordan Times, 2011)

China’s $586 Stimulus Package

• Housing

• Rural Infrastructure

• Transportation

• Health and Education

• Environment

• Industry

• Disaster Rebuilding

• Incomes

• Taxes

• Finance Reference: (Chiu, 2008)

Possible Outcomes (issues) and Solutions

• Hasty and wasteful projects

• Increased government steerage

• Appreciation of renminbi

======================================

• Upgrade industrial structure

• Increase domestic market

Reference: (NewYorkTimes, 2008), (Naughton, China Leadership Monitor, No. 29)

1. Highly Administrative System

2. High Interest Rate, Reserve Ration

3. Limited Exposure to External Risks

4. Lower down Interest Rate, Reserve Ration Increase

spending

5. Tax Cuts Save exporting enterprises Save job lost

6. $586 Stimulus Package Numerous domestic investments

projects (urbanization) Domestic Market vs. Export

Oriented

CONCLUSION

THE END ～ ～ ～

References:

http://chinadigitaltimes.net/2008/12/2008-financial-crisis-and-china/

http://www.nytimes.com/2008/11/27/business/worldbusiness/27yuan.html

http://www.jordantimes.com/?news=23852

http://chineseculture.about.com/od/thechinesegovernment/a/Chinastimulus.htm

http://www.gees.org/files/documentation/doc_Documen-03520.pdf

http://www.xiaojingzhang.com/pdf/economicrecovery.pdf

http://epress.anu.edu.au/china_new_place/pdf/ch09.pdf

http://www.imf.org/external/pubs/ft/wp/2009/wp09172.pdf

References:

http://www.bus.indiana.edu/riharbau/harbaugh-chuxu.pdf

http://www.nytimes.com/2008/11/19/business/worldbusiness/19yuan.html

http://www.china.org.cn/business/2010-07/01/content_20396527.htm

http://www.cfr.org/india/financial-crisis-may-worsen-poverty-china-india/p17812

CIA Factbook