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The Impact of International Financial Crisis on China’s Economy and Countermeasures

Author: GaoSong
Tutor: TianZhongJing
School: Jilin University
Course: World economy
Keywords: subprime mortgage crisis impact fiscal policy financial policy
CLC: F124
Type: Master's thesis
Year: 2009
Downloads: 2044
Quote: 5
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Abstract

Since the 1929～1933 Great Depression sweeping through the world economy, some typical financial crisis have taken place many times, among which the most famous ones include the 20th century 80’s international debt crisis, the 1992 European currency crisis, the 1994 Mexican financial crisis, the 1997 Southeast-Asian financial crisis。And the 2001 Argentinian financial crisis. Because of different economic systems and financial structures, these crises show different characteristics of the formation mechanism and evolution. Accompanied by increased globalization, the synchronization of economic fluctuations and financial fluctuations generated a financial crisis of globalization and international conduction boosters,as a state policy and economic indicators of change having an immediate impact on other countries。And thus“the financial virus”of the dissemination of a national or regional financial crisis becomes the rapid transmission of global financial crisis.The subprime-loan crisis occurred In April 2007 to the United States in September 2008 evolved into a global financial crisis gradually spreading to the real economy and slowing down the entire global economic growth. Not just the United States, the European Union, Japan and other developed countries sustained economic entities recession, but also emerging market economies including the“BRIC”countries also faced a difficult situation with capital flight and external demand slowdown. The global financial market turmoil was intensified and the international economic environment increased uncertainties. Under such circumstances, it is of great practical significance in correctly judging from the current international financial crisis and development trends, identifying the impact of international financial crises, and deeply studying the formation mechanisms and response measures for maintaining China’s national security.The global financial crisis originated in the subprime mortgage crisis in United States on the one hand. The outbreak of“sub-loan crisis”has four main aspects: (1) economic stimulus policy of the United States as the dominant incentive;(2) Mortgage-Backed Securities scale of the expansion;(3) market interest rates continue to improve;(4) lack of supervision and lag. On the other hand, financial globalization and global financial markets have become a linkage of truth, which leads to the sub-loan crisis in the United States evolving into a global financial crisis. International financial market system’s inherent contradictions existing for a long time made different financial systems incapable of resisting the impact of the world’s largest economies. But the sub-loan crisis is the fuse of the financial crisis and the true cause of the crisis spreading around the world is that there are significant flaws in the financial system itself. Since the 90’s in the 20th century, the proliferation of financial liberalization and various kinds of financial innovation in the global financial market makes excessive use of financial leverage to carry out risk management and speculative trading, and lack of monitoring or missing in itself also determines the spread of the inevitability of the crisis.The current international financial crisis, have a profound impact on China’s macroscopic and microcosmic. In regard of the macroeconomic aspect, first of all, the financial crisis makes significantly lower external demand,inevitably leading to a substantial decline in exports and thereby encouraging the emergence of China’s economic slowdown; Secondly, the American“sub-loan crisis”will inevitably lead to the further evolution of the substantial depreciation of the dollar, the lower United States bond market and consumer credit market downturn, whose factors will inevitably make China’s huge foreign exchange reserves shrunk;Finally, because of rife speculation, the continuous rise in housing prices, China’s inflationary pressures forced the central bank continuing to raise interest rates so that housing mortgage loans go into the default high-risk period and China’s real estate market will face a greater risk. In regard of the microeconomic aspect, the impact is mainly manifested in the following six aspects: (1) employment and income subjected to a greater impact;(2) income expected to be more conservative; (3) cautious consumption and strong savings wishes;(4) consumer expecting large uncertainties;(5)the reduction in family spending, especially in equipment supplies and services;(6) housing policy adjustment to be increased and buyers’demand yet to be released. Faced with the current international financial crisis, the Chinese Government has taken decisive measures to deal with: first, the introduction of a package to address the financial crisis and at the same time, to send buying missions to Europe to procure the necessary equipment, goods and technology for China so as to resume business and the confidence of the public;Second, the implementation of scientific and reasonable measures to expand domestic demand for sustainable and healthy growth;Third, the performance of duty, strengthening cooperation to tide over the difficulties;Fourth, the norms of domestic financial and trade markets, the promotion of the national economy healthy and stable development;Fifth, the promotion consumer in improving people’s livelihood while maintaining economic growth. These initiatives will fundamentally improve people’s livelihood, so as to provide power for sustained economic growth. However, in the implementation of these measures, the country must strengthen effective monitoring, the protection of these policies and measures. In addition, it is worth emphasizing that enhance the level of real wages of migrant workers, labor standards and the level of benefits, lower the cost of medical care, education and the city to live and work in order to have driven the demand for capacity to pay the Chinese economy out of inflation and economic slowdown. Correspondingly, the increase in the use of the labor cost of capital should be a corresponding tax on the production aspect. These two complement are indispensable. In addition to the leading role played by the Government, the Chinese enterprises should actively cooperate with the central government, make good use of the measures, and seize the opportunity to seek common development. Specifically, on the one hand, exporting enterprises should be combined with changes of exporting environment in a timely manner to adjust, focusing on change;on the other hand, non-exporting enterprises should timely make resources integration, improve competitiveness, focusing on innovation.The impact and influence of the financial crisis on China has not bear we do not carry out effective reform and innovation. The Chinese government and enterprises should only bravely face the crisis, bear strong confidence to overcome difficulties. There are opportunities in turning the global financial crisis into upgrading comprehensive national strength, optimizing the allocation of resources, and enhancing the competitiveness of enterprises. We should adopt and implement a scientific and rational policy measures to solve certain structural problems on restricting industrial competitiveness, then China’s economy will once again take-off and finally defeated the global financial crisis.

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