By Fan Junmei
Experts point out that the current financial crisis in America has had no major impact on China.
Not a second Great Depression
Li Yang, director of the Finance Research Institute of the Chinese Academy of Social Sciences, said that even though we cannot predict the precise duration and severity of the American financial crisis, one thing for sure is that it will not be as destructive as the Great Depression(1929—1933), a crisis that caused critical damage to the American economy. Because recent developments in the financial industry have been detached from the real economy, which is only slightly impacted on this occasion, its impact on the traditional banking system is not so severe.
As an expert from the World Economics and Politics Institute of the Chinese Academy of Social Sciences, Zhang Bin thinks that the real economy of America will not suffer unduly though the financial markets will be punished. In fact, financial constraints will reduce excessive consumption through fortune's domino effect, which, together with an expansion in exports will push the productive sector of the American economy in the right direction.
"Starting from real estate mortgages, this financial turbulence is hitting the financial market, but the traditional banking system is almost intact. Its nature is a partial financial crisis, not a nationwide economic crisis," argued Liu Yuanchun, Vice-Director of the Economics Department of the Chinese People's University.
China slightly affected
According to Li Yang, China's financial industry is still in its infancy and the capital market is not completely open. A high savings ratio can stimulate demand when economic recession occurs. China's economy is therefore cushioned against the worst of the disaster.
Expert Zhang Xiaojing is from the Economy Research Institute of the Chinese Academy of Social Sciences. He stated that financial turbulence has a significant impact on people's psychology. Although it is likely to cause a decline in China's external demand, our stock market and financial system will not be fundamentally affected.
Zhang Bin commented that the influence of Lehman Brothers' filing for bankruptcy was exaggerated. Its real impact on the American economy is not as severe as people imagine. Few financial organisations in China have business transactions with Lehman Brothers; its effect on China's real economy is therefore insignificant.
Liu said that China's economic flexibility and macro-control will guarantee its economic stability.
Focus on domestic measures
The financial turbulence has caused a sudden decline in Japan's economy, and the EU has amended its economic growth plans. The inevitable economic depression in America will affect China's foreign trade, particularly exports. However, exports have already been declining in the first half of this year, so there is no need to revise policy on the issue. Macro-control should focus on internal structural adjustments to cope with possible external challenges, added Liu.
To reverse a foreign trade decline, we should expand domestic demand and stimulate investment through reducing the burden on enterprises and increasing social expenditure, said Zhang.
Li Yang also emphasized that the People's Bank of China has lowered the benchmark lending rate and reserve requirement ratio; further adjustments will be made as the situation evolves.
(China.org.cn September 19, 2008)