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Impact of the Global Financial Crisis on China’s Export

Author: DuHuaJun
Tutor: MaShuQin
School: Zhejiang Technology and Business University
Course: International Trade
Keywords: Global financial crisis China’s export Mechanism The three regions
CLC: F832.6
Type: Master's thesis
Year: 2010
Downloads: 247
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Abstract

The sub-prime mortgage crisis that erupted in the United States in August 2007 has developed into the largest global financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of world financial system. Unfortunately, the inner firewall of the financial system could not stop the crisis spilling over from the financial sector to the real economy. World economic crisis is ongoing. Just as the International Monetary Fund statistics shows, world economic growth has gone all the way down since 2007, the peak of the last round of economic expansion. Consequently, in 2009, world economy suffered the first recession since the 1990s, and the worst after the World WarⅡas many investors, economists and commentators believed. Developed countries suffered more in this crisis because of their inseparable binding between financial market and the real economy. On the other hand, shocks sustained by emerging and developing economies were indirect but significant, as what happened in China.During the period of the global financial crisis, China experienced a significant economic growth down-turn, which started in 2008 and hit the bottom in 2009. Exports shrink, resulted from external environment deterioration and demand shrink, was regarded as one of the determinate factors of China’s economy decline. Under the circumstance of restricted "troika-function" of export and insufficient domestic demand, we could not prevent the economy from recession only relying on investment because of its unsustainability. Necessarily, when promoting domestic demand and investment, we need to clarify the influence mechanism between the crisis and China’s export. Only in this way can we figure out how to adjust export strategies and then achieve economy recovery as soon as possible. Moreover, regional perspectives analysis we have made was an exploratory research in the processing of China’s regional export upgrading and economic coordinate-development.Chapter IV and Chapter V is the core of this paper. In Chapter IV, firstly, we compared the Three regions’ economic stability and anti-risk ability, in which, as we pointed out, the Middle region is relatively weak in the crisis. However, the Eastern region and the Western region performed differently as the time varied:in the earlier times of the crisis, the Wastern region performed relatively well; but latter, the eastern region showed a greater stability. However, are there any consistent relations betweem macroeconomic stability and the extension of the impact that the Three Regions’export sustained? Comparisons in export trade volume, export pattern and export subjects we have made between the Three Regions confirmed above positive relation.The analytic methodology we adopted in this paper, especially in Chapter V, is based on traditional international economics theories, particularly the Current Account’s "Elasticities Approach", and the Gravity Model of Trade. Accurately speaking, it is an intergration of above two approaches. Firstly, we abstracted theoretically the influence mechanism through which the economic crisis affects China’s export. We distinguished two kinds of influence factors, which are demand factors and supply factors. The former refers to foreign income and real exchange rate, as traditional international economics theories says. Drawing lessons from the Gravity Model’s Resistence analysis, we catogrized the supply factors into costs (labor and raw material) and investments (foreign direct investment and domestic fixed investment). With this taken into consideration, we established an indicators system, and then examined its validity and explanatory power by nation-wide and reginal statistics.Using nation-wide samples, our panel-data modle provides robust evidence which strongly proves that demand shocks and the increasing labor cost (one of the main supply shocks) have made negative consequences on China’s export in this economic crisis. Regionally, our regression estimates suggest that declined foreign demand, increasing labor costs and investment cut-down caused the East region’s export shrink, whereas demand shocks and fallen material price to the Middle region, increasing labor costs and declined FDI inflow to the West region.In the coming post-crisis era, China has to accelerate the restructuration and upgrade of its foreign trade industry, and raise export commodities’ added-value and core competitiveness. Meanwhile, strengthening international economic corporation would be helpful to resist trade protectionism and to prevent the economy from a second recession. But in the long run, more efforts should be made to transform the economic development mode, lower foreign demand dependence and expand domestic market. Regionally, tasks of optimizing the Eastern region’s export structure and nurturing the Middle’s and the Western region’s undertaking abilities for nationwide industrial transfer would be urgent.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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