Essays on (Intermediate Macro Eco) In China, 1) describe the events leading up to the financial crisis, 2) how China was directly/indirectly impact by the crisis, 3) detail the policies used to combat the crisis, 4) provide a forecast for future growth in economy Research Paper
no. China’s Financial Crisis Most economies faced worst financial crises that were facilitated by the general decline in the world’s economy that was contributed for by the great recession that stroke the world towards the end of the 21st century. However, experts has it that China’s economy might have been affected far back before the global financial crisis erupted (Zheng and Tong 71). Therefore, global great recession of the year 2008 only sky rocked the economic crisis in China that is believed to have begun in the year 2007. In 2007, the Chinese leading stock indices had already started experiencing a steady decline that reached half of its highest values by the end of 2008 (Savona, Kirton, and Oldani 29). Additionally, the financial crisis in china was also contributed by increased uncertainty both within its local economy and within international or global economy. In addition, the increase in asset finance also affected the liquidity of major financial institutions thereby exposing these financial institutions to collapse. Therefore, it is worth noting that high private debts and poor monetary policies combined with global great recession China’s financial crisis.
It should be noted that the effects of financial crisis to the China’s economy were in both short and long-term basis. China is a renowned exporter of light industry products. Following the china’s financial crisis, the light industries could not maintain the expected production since the international markets could not buy the products as expected thereby leading to reduced production subsequently laying-off of most of the workers who worked in these light industries (Lin, et al. 52). On the other hand, the Chinese financial crisis affected the China’s stock market this followed the collapse of this country’s financial sector. This led to dramatic collapse of the stock market. Additionally, most of the China’s financial institution Western partners suddenly pulled out; therefore, creating immense impact in partnership where they had the majority of the shares. The financial crisis also affected some of the external economic relations of China with other economies (Yang and Heng 114).
In the 2009, Chinese economy experienced the worst decline that was characterized by rapid decline in exports and economic growth. The global recession lowed this country’s average growth rate to a low of 6.1 percent (Zheng and Tong 46). This rate had never been experience and it led to rise in the rate of unemployment. The 2007 China’s financial crisis lead to the declaration of numerous financial institutions in China bankrupt. These financial institutions experienced increased family defaults on their subprime loans. These loans were defaulted due to increased interest rates on them thereby making families unable to pay them. Additionally, the financial crisis led to the failure of the Asset securities of different financial institutions since asset-backed securities on these subprime loans lost value (Savona, Kirton, and Oldani 30). In the year 2009, China signed a deal of $250 billion with Russia to supply it with oil for a period of 20 years. This deal was signed in the exchange of loans it had taken from Russia following China’s financial crisis.
Since every economy needs to respond on its financial crisis towards rescuing its economy, China initiated numerous policies to respond to its economic state. These policies expected the China’s economy to recover faster and beyond its pre-financial crisis; hence, these policies aimed on strengthening China’s domestic demands (Lin, et al. 94). Moreover, they aimed at initiating the China’s voting rights to IMF towards influencing China’s commensurate within its trading blocks. For instance, China introduced a policy that responded to its international relationship with other economies (Yang and Heng 108). This policy aimed at cultivating the image of China thereby eliminating any circumstance or responsibility that would suppress the country’s capacity to be viewed or considered as the biggest or the largest developing economy of the world. Moreover, this policy contributed to the stability of the international financial institutions (Savona, Kirton, and Oldani 58). Additionally, China responded by passing an economic stimulus that was valued at nearly $600 billion; however, this package reflected no change since the Chinese economy limped into the year 2009.
Despite being affected with its own financial policies combined with global financial crisis, China’s strong domestic demands led it to rise above the financial crisis to be the fastest growing economy. Understanding its own economic potential, China has seized from depending on other economies financially; a fact that makes it to finance most of its project; hence, boosting its economic growth. China is expected to still perform much better following its position that is above other emerging economies; this is due to its sound external debt ratio to the GDP (Lin, et al. 65). This ratio indicates that it has a massive surplus that it can use to grow its economy further. Additionally, the Chinese population is large enough that it can reduce foreign demands on its good; thus, preventing the financial crisis due to depending on other of the international markets.
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Savona, Paolo, John J. Kirton, and Chiara Oldani. Global Financial Crisis: Global Impact and Solutions. Farnham, Surrey, England: Ashgate, 2011. Internet resource.
Yang, Mu, and Michael S. H. Heng. Global Financial Crisis and Challenges for China. Hackensack, NJ: World Scientific Pub, 2012. Print.
Zheng, Yongnian, and Sarah Y. Tong. China and the Global Economic Crisis. Singapore: World Scientific, 2010. Internet resource.