Although China’s economic growth rate has slipped for five quarters in a row, in the third quarter of this year its rate was still one of the highest in the world at 9 percent. While national economies around the world are slowing down or going into recession, China’s economic performance can only be called exceptional.
Some people even look to China as the savior that could bring the global economy back to life. Last month, the Chinese government announced a 4 trillion yuan (US$586 billion) economic stimulus package. During October and last month, China cut interest rates by 1.35 percent — the biggest cut in 11 years.
This is not China’s prescription for saving the global economy. Rather, it is designed to keep the economy alive through the coming economic winter.
After three decades of economic opening and liberalization, China’s economy is tightly bound up with the wider world. The country’s economy is now 65 percent dependent on foreign trade. China holds more than US$1.9 trillion in foreign reserves and has US$420 billion in foreign debt. Foreign capital utilization exceeds US$1 trillion, and foreign-owned businesses account for more than 55 percent of foreign trade.
Given this level of global integration, China can hardly avoid being affected by the financial storm that has been spreading around the world since last year.
Nevertheless, China’s economy still grew 9 percent year-on-year in the third quarter. In October, investment was up 24.4 percent, consumption 18 percent and net imports 29.8 percent. With figures like these, one might think that China’s economy has not been affected by the global financial crisis at all.
However, many leading indicators suggest that an economic winter may be approaching. Since the start of this year, China’s real estate market has slid downward for 11 months in a row, taking it back to the low point it reached during the Asian financial crisis of 1997 to 1998. Real estate prices have dropped for three consecutive months — the biggest fall ever. The Shanghai stock exchange has dived from a high point of 5,955 points in October last year to 1,871 points at the end of last month — a loss of 15 trillion yuan. China’s plunging property market and the international financial crisis have brought consumer confidence down to 92 points, 5 points down compared with one year ago, and a three-year low.
There is more. Last month, China’s manufacturing purchasing managers’ index (PMI) was just 38.8 points, 27 points down from the same month last year, 5.8 points down from October and the lowest level on record. The new orders index, which includes both export and domestic orders, dropped 9.6 percent in October and a further 9.4 percent last month, down to 32.3 points, which is 42.7 percentage points down from last November and a historic low.
Notably, new export orders last month fell 12.4 points compared with October, down to 29 points, which is 45.9 percentage points down from last November and, again, a historic low.
In fact, economic data for October already showed signs that China’s economy was heading for a frosty period.
For example, the country’s industrial output growth rate fell four months in a row, halved from 16 percent in June to 8 percent in October — the lowest in seven years. The Nomura Research Institute estimates that it may be halved again for last month to 4 percent, which would be the lowest since 1990. At the same time, power generation has seen 4 percent negative growth from October last year, the first negative figure since May 1998. Fiscal revenue also saw negative growth for the first time since 1996.
These figures show that China’s economy has already been hit hard by the international financial crisis and that the government is now making strenuous efforts to turn the tide. On Nov. 5, Chinese Premier Wen Jiabao (溫家寶) announced that the government would adopt expansionary fiscal policy and appropriately loosened monetary policy. This is the first time since the 1997 to 1998 Asian financial crisis that China has adopted such policies, and it signals a clear turn away from the tighter controls of the intervening period.
Four days later, on Nov. 9, China announced that it would pour in 4 trillion yuan over the next two years to boost economic activity. Meanwhile, from the end of September until now, the People’s Bank of China has lowered the statutory deposit-reserve ratio by 2 percentage points, freeing up about 1 trillion yuan, and it has cut annual interest rates on deposits and loans by 1.62 percent and 1.89 percent respectively — the biggest rate cut in 11 years.
China’s economy cannot escape the threatening shadow of the international financial crisis, and the government dares not lower its guard. Chinese officials have already revealed that the country’s economic growth rate fell sharply to 7 percent in October.
The World Bank predicts that China’s growth rate next year will be around 7.5 percent. It looks as though China is going to have to fight to keep growth up to the desired 8 percent.
The current financial crisis is of a far bigger scale and is much more deadly than the one that hit Asia in 1997 and 1998. It remains to be seen whether China can safely get through the coming economic winter. It is going to be a severe test of the Chinese government’s political dexterity and of “capitalism with Chinese characteristics.”
Tung Chen-yuan is an associate professor, and Wang Guo-chen is a doctoral candidate in the Graduate Institute of Development Studies at National Chengchi University.
TRANSLATED BY JULIAN CLEGG
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations