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1、The Nature of Chinas Economy and Global Financial CrisisProfessor Jun ZhangChina Center for Economic Studies, Fudan UniversityStylized FactsHigher Saving Rates;Higher Investment/GDP ratios;Rising Export/GDP ratio;Low productivity growth in non-tradable sector;Employment created in manufacturing sect
2、ors;Bank-based financial system;Interest rates and exchange rates fixed;De facto capital mobility;Chinas Exchange Rate (Yuan against US Dollar)Export/GDP Inflow of FDIs Balance of Trade (1978-2004)Balance of Trade by PartnersForeign Exchange Reserves19501953195619591962196519681971197419771980198319
3、861989199219951998200120042007020040060080010001200140016001800-200The most dynamic part of Chinese real economy is the private and exporting sectors; But they have been consistently facing financial constraints;Since 1999, however, one of the important drivers of Chinas boom has been the emergence
4、and expansion of urban real estate markets;Free housing system terminated nationally in 1999;Since then, urban housing sector was stimulated with continuous expansion of bank credits;Urban housing boom created huge revenues for local governments and stimulated housing investments; Real estate invest
5、ments accounted for rising share of capital construction in China;Housing boom transmitted into stock market boom and assets prices soar;Housing boom led to improved profitability in upstream and basic industries;Chinas boom (1998-2007) was due to:Expansion of exports;Assets boom;Fixed exchange rate
6、s invited rapid inflow of capital and induced passive expansion of money supply;M2/GDP has been rising;Excessive liquidity growth fueled assets prices and later on led to inflation of non-tradable goods; Profitability(%)1995-1999 2000 2001 2002 2003 2004 20052006 Upstream4.9 11.0 11.2 11.1 12.8 16.6
7、 19.6 22.1Middle-stream2.0 3.9 3.9 4.3 4.9 4.9 4.85.7Downstream2.9 4.4 4.6 4.9 5.3 5.0 5.15.6Regulated Sectors2.0 0.1 -0.3 1.0 1.9 3.2 -1.0 -1.1 Chinese economy began the downward process of adjustments in 2007 when assets prices recorded historical high and supply-side inflation began to break out;
8、 Monetary policy faced dilemma: contraction works assets sector, but hurts exporting sector due to lack of market-based financing institutions; Chinese government decided to tighten bank credits in the early of this year, and by May, exporting sector faced inadequacy of finance and closures of busin
9、ess happened;Chinas exporting sector deteriorated due to external market shrinkage;Inflow of FDIs slows down;The slow down of Chinas economy is largely a result of its domestic issues and global financial crisis deepens this process;Expansion of banking credit triggered housing markets and stock exc
10、hange;Rising M2/GDP reflects financial deepening into assets sector related to real estate, not exporting sector; Exporting sector is highly venerable to external shock;China therefore needs overcome structural problem to facilitate financial resources to support the productivity-enhancing sectors a
11、nd create more jobs to sustain its high growth;The Recent DecelerationThe Chinese economy shows deceleration of the growth in output and industrial VAs;The rate of inflation has dropped down to 2 % last month, PPI was 4%; Housing price index was up by 0.2%;Electricity generation went down by 4%; Exports turn into negative growth in November;Real Estate InvestmentIndustrial Value AddedOutput Change of Power, Steel and CementShort-Run Contributors of Growth
