The AP reports on the impact of the global financial crisis on China’s exporters:
China has been known as the world’s factory for everything from toys to T-shirts, and exports have powered its growth in recent years. But exports are taking a hit from the global financial crisis because of lower demand from overseas and tightening credit from state-owned banks.
A slowdown in Chinese exports would ripple through the world economy as China imports fewer raw materials, half-finished goods for assembly and supplies, such as Australian iron ore or factory equipment from the United States, Europe and Japan. Raw materials used for exports made up half of China’s nearly US$1 trillion in imports last year.
China’s economy is still expected to expand by at least 9 percent this year, and its banks are flush with cash and hold little risky debt. But its economy has been weakened by a bursting housing bubble and an anemic stock market, and the hope that China’s appetite for imports will rescue other countries has been tempered.
Because of the slowdown in exports, some suggest that China would best serve itself by helping out the hardest hit countries. From the Globe and Mail:
Last Wednesday, China joined six central banks, including the U.S. Federal Reserve and the European Central Bank, in cutting interest rates. And after the weekend Washington meeting of the International Monetary Fund, which endorsed a plan of action by the G7, a senior Chinese official called for international co-operation to restore financial stability. “China is willing to strengthen its co-operation with other countries and, through such joint efforts, we hope global financial stability can be safeguarded,” said Yi Gang, deputy governor of the People’s Bank of China.
Increasingly, China and other emerging markets that have not been seriously affected so far by the financial turmoil in North America and Europe are being viewed as an important part of the solution. The IMF predicts that reserves held by China, Russia and other emerging markets, estimated at $4.7- trillion last year, would surge to $6.5-trillion by the end of next year. That suggests that the emerging markets could play a major role in the resolution of the current crisis.
Read also an editorial in Caijing by Hu Shuli about the crisis and recovery package:
It’s still too early to comment on the effectiveness and impact of the rescue plan. If it is only an emergency step, and the government manages to veer back onto the old track of a free market, then negative impacts will be controllable. If some measures are made permanent, the crisis could become a turning point for the U.S. economy. Looking at the history of American financial crises, the latter is very unlikely.
Rescue action is neither “socialism” or “capitalism.” This action is a last resort for a government trying to manage its economy. China should interpret it correctly: if we take emergency action as normal practice – and second-guess our belief in the free market for China – we might delay China’s own market reform.