These are issues that are in urgent need of a solution. To do that, the People’s Bank of China should reduce market liquidity on the one hand, while clearing up black-market financing on the other. The problem is that this will be most felt by banks that do not have sufficient working capital, and this could drive up overnight interest rates to 30 percent. This in turn will have an impact on companies’ working capital and cause the stock market to fall.
The effect of all this is rapidly being felt and becoming increasingly pervasive in this transitioning economy. At the same time, China’s financial woes are becoming ever more apparent in the global market.
There are many Taiwanese businesspeople in China who have been caught up in the difficulties of this economic transition. Whether they can adapt to the pace of change is crucial to their survival. The government should provide some form of technical and financial support to guide them through this difficult period.
China takes in about 34 percent of Taiwanese exports, and a slowdown in China will significantly affect Taiwan’s economy. Given this, Taiwan is not even assured of a 2 percent economic growth rate for this year.
China’s new leadership is currently faced with a complex, high-risk economic transition involving a large number of variables. Chinese Premier Li Keqiang (李克強) needs to strike the right balance in his economic policy moving forward: If he gets it right, China will continue to go from strength to strength, but one false move could spell disaster. He knows the importance of caution at this point.
Norman Yin is a professor of financial studies at National Chengchi University.
Translated by Paul Cooper