AN ARTICLE FROM GEORGE ZHIBIN GU
Today, the world marketplace is deeply stuck in a recession all in a sudden. What is China’s real exposure to the global financial crisis? Can this emerging nation sustain the crisis?
China’s real exposure to the global financial crisis is huge, which has many dimensions.
First, China’s growth in this era especially in the last two decades has depended seriously on international trade, which accounted for $2.56 trillion as of 2008, as well as foreign direct investment, accounting to over $870 billion.
Second, China’s foreign reserve is about half, or $1 trillion, has been invested in US government and agency bonds.
Third, over 25 million Chinese employees now work for overseas companies inside China.
So, altogether, China’s economic and political health is directly tied to the fortunes of global markets and world development. Any negative development in the global markets and economy must have adverse consequences to China. At the same time, a slow growth inside the nation could be negative to the world economy.
This new crisis is like no other in the past. For, the world is highly interconnected like never before. Then, what is the next stage global development? What is the best-case scenario and the worst-case scenario?
To be sure, there is no short-term solution whatsoever. The best-case scenario is that the US-centered global financial crisis would be stabalized within the next 18 months. In such a way, people’s confidence would pick up and things would get more rational resolutions. In particular, the employment picture can change for the better. Thereafter, the world governments can focus on reform the global financial system so that it would become more accountable and therefore more stable hopefully. But people’s entrepreneurship is the ultimate solution to get out the mud of global financial crisis, or any other crisis.
But things could go from bad to worse. The worst-case scenario is this: this global financial crisis would drag on for many years to come. What is more, economic crisis would lead to geo-political-economic conflicts. For example, it could promote nationalist protectionist trade barriers and conflicts. Also, if the dollar would have a free fall, or if the US government would print too many greenbacks as a way to deal with its astronomical debts and trade deficits, it would lead to a rather unstable period of global economy and political life. This aspect of issues requires new attentions.
There is no winner out of this recession. China’s political and economic health is already deeply affected.
For China, the biggest issue is with terrible unemployment situation. Not to mention other things, shrinking international trade is causing vast pains in this part of the world as well. So far, countless small and mid size trading and manufacturing companies in coastal regions have gone in distress. Over 20 million rural migrant workers have lost jobs. What is more, some 6 million new college graduates have enormous troubles of getting employed. Such troubles could lead to dramatically adverse consequences.
What is more, the most fundamental issue related to sustained economic development inside China is to move decisively toward a law-based market economy, free from the deadly meddling of a unlimited bureaucratic power. The most basic requirement for this end is to have a firm seperation of government with the business sphere. In such a way, the government can truly function like a government and the business entitles can truly develop to become modern business organizations with a right set of ownership, legal protection and governance. Unfortunately, these basic issues have not really been addressed in the past three decades of reform.
What is more unfortunate is this: this ongoing global financial crisis has meant a continuing delay in a true and basic economic reform. But without a fundamental economic reform in the above context, sustained and rational development would be filled with chronic crisis, which is built-into the old economic and political system. This aspect of basic issues is little understood by the outside world, but they are most fundamental for a healthy economic development for China in the long run. Simply put, all the positive economic development in the past three decades must be installed in a law-based modern institutional and legal system. That is something China has no way to aviod at all if its sustained development is to be maintained in the future.
Naturally, a slow growth and reform in the Chinese economy could have greater impacts on the world as well.
All of us now live in the same boat, which is a great realization from the ongoing global financial crisis. As far as China is concerned, today’s economic situation, regardless how ugly it has become, is managable still. For, China has gained vast economic progress over the past 30 years. Above all, China has become increasingly integrated into the world development and global markets. In this regard, resolving the deep-seated problems within China would already be a significant contribution to the world. At the same time, China’s sustained progress will positively affect the global development, and vice versa.
Travel industry is a testing case for global economic interconnectedness in some way. Surely,things are affected by the ongoing crisis. But there are bright spots.
As far as China is concerned, inbound travel would get some reduction in the immediatue future for sure. But the reduction would not be that significant. Why? Not to mention other things, overseas companies have already set up over 700,000 companies inside China. So, the economic connections are deep enough that the inbound travel will continue to develop though a small reduction is likely to continue within the next few months or so.
For outbound travel, it should continue to grow though at a smaller growth rate for the immediate future. Why? Chinese people are passionate to see the outside world. Also, personal savings in China have reached over $3 trillion, which offers an economic foundation for the well-to-do Chinese travelers to see other nations. And the strengthening yuan is also a positive factor. In 2008, over 40 million Chinese went abroad, a dramatic change from 1978 in which only 10,000 people went out. This Chinese passion to see the world will continue to pick up steam for the long run.
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