Thursday, 6 November 2008

China and the Credit Crunch

China and the Credit Crunch by Mr Stuart Simpson

(A copy of the Power Point slides can be found at

As the credit crunch continues to go from bad to worse the reality of recession in much of the developed world has been accepted. The task now is to avoid a lasting and severe depression. What does this mean for China and the other emerging economies? Talk of decoupling has all but vanished. Will the effects of the credit crunch spread to the world's most dynamic economy? Or will China forge a new role for itself in a changed global economy.

Stuart Simpson is the financial analyst and journalist as well as the convenor of the Institute of Ideas Emerging Economies Forum - researching the economic, political and cultural impact of the dynamic growth of much of the developing world. He has published various articles on these themes in print and online publications, including The Independent, Die Welt, Spiked and Novo Magazine.

Part 1: Global imbalance and the causes of Credit Crunch

  • In the West consumption is greater than production and this is made possible through the purchase of treasury bonds and other forms of credits by the Chinese government.
  • The role cheap credit plays in the leading to the current financial crisis is not highlighted enough.
  • A contrast of recent trends of the trade balance in China and the US.

Part 2: The poor giant economy of China

  • A sustained growth in most areas of the world such as Africa and Latin America.
  • How the Asian financial crisis in 1997 impacted the most dynamic economies in Asia.
  • China only started to develop in an unprecedented pace from late 1990s and early 21st century.
  • The composition of China’s economy: a growing service sector and a shift from low valued manufacturing industry to high valued manufacturing.
  • However judging from wealth and GDP per capita China is still well behind Europe, Japan and the US and remains largely a poor country.
  • The IMF stated that after adjusting for PPP, China is much poorer than people perceive it to be.

Part 3: The Credit Crunch and its relationship with China

  • China is in fact not affecting the global economy as much as the US is, but is deeply affected by the state of the economies in the rest of the world e.g. some factories in China closed down due to the global recession.
  • There is uneven development in China, so the credit crunch is not affecting the whole of China uniformly.
  • A case study: Shanghai vs. Sichuan
  • Solutions to China: exchange rate and interest rate adjustment, tax rebate, fiscal stimulus and corruption.
Kindly produced and edited by Olivia Huang and Sida Yin

This event was held by China Development Society. To join, please send an email to

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