Business

Powerhouse hopes to stand firm in financial storm

Jonathan Watts

China looks likely to emerge stronger in the weakened financial system after weathering its own crises of unrest in Tibet and the Sichuan earthquake.

China looks likely to emerge stronger in the weakened financial system after weathering its own crises of unrest in Tibet and the Sichuan earthquake this year.

Most experts there predict that the relative isolation of the country’s financial system, high savings rate and the internal strengths of the fast-growing economy will help keep it secure.

But concerns remain about the shrinking of big overseas markets and the likely inflation of commodities. This is likely to hit Guangdong, Zhejiang and other coastal industrial hubs, which rely on exports to provide demand for their factories.

Even before the crisis, China’s economic growth is thought to have slowed from the red-hot pace of recent years. This was partly because of government credit-tightening measures to tackle inflation.
But growth is still enviably rapid. In a report issued on Saturday, the country’s top think tank, the Chinese Academy of Social Sciences, estimates the economy will grow by 10,1% in 2008 and 9,5% in 2009.

“The financial crisis and the world economic slowdown will have an impact on us, but they won’t change the fundamentals of the Chinese economy,” Chen Jiagui, vice-head of the academy, said.

Compared with last year’s 11,9% growth rate, it is a slowdown. The authorities are trying to further stimulate domestic demand, which is seen as the best way to offset the loss of export business. This week, the People’s Bank of China was quick to follow the coordinated move by six central banks in North America and Europe with a 0,27-percentage-point reduction of interest rates.

Despite the crunch overseas, the Chinese Academy of Social Sciences says retail sales will increase by 19% and exports by 21% this year.

Analysts are studying the opportunities for China to buy cheaply into strategically important foreign firms that were previously too expensive or too politically sensitive to consider. China’s acquisition of such stakes has been accelerating in the past three years, according to the Boston Consulting Group, which noted five buyouts by Chinese banks worth more than $1-billion since 2005.

While the British bail-out has attracted some passing comment, editorials and commentators have looked towards Wall Street, many asking whether the United States model of capitalism was finished, and what the implications would be for the rising power of China.

The nationalist Global Times suggested Beijing should start short-selling its huge holdings of US Treasury bonds to punish Washington for selling arms to Taiwan. While the government has shown no sign of making such a move—which would be tantamount to declaring financial war—the article received considerable support in debating forums.

“Financial liberalism has gone wild since the Thatcher Cabinet and the Reagan administration set off a wave of ‘neo-liberalism’ in the 1980s,” noted Liu Junhong, a researcher with China Institute of Contemporary International Relations, in a comment piece for the English-language newspaper the China Daily.—guardian.co.uk

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