The Impact Of Financial Crisis On China And Its Solution

Cheng Hua Hua

Interview with Professor and doctoral tutor Liu Xiaoxin, School of economics, Nankai University

The subprime mortgage crisis, which began in February last year, has evolved into a financial crisis sweeping the United States and affecting the whole world.

As a country that is actively integrating into the world economic and financial system, China is naturally unable to stay away from it.

So what impact will the US financial crisis bring to China?

Where will China's economy go?

With these questions, the reporter interviewed Liu Xiaoxin, professor and doctoral tutor of School of economics, Nankai University.

An important pillar of the US economy is domestic consumption. Before the outbreak of the subprime crisis, the United States continued to acquire products and services from other countries by exporting US dollars, and it also provided an important market for many countries, especially developing countries.

With the outbreak of the subprime mortgage crisis and the financial crisis, the confidence of the American people in the economy has been shrinking, and the consumption capacity and consumption desire have continued to decrease.

In this regard, Liu Xiaoxin believes that this will inevitably reduce the demand for foreign products, resulting in reduced imports of the United States.

The United States is China's second largest trading partner, and the impact of the US financial crisis's pmission effect on China's foreign trade exports has emerged.

Statistics from the General Administration of Customs show that the proportion of the US in the total import and export volume of China has decreased from 14.2% in August last year to 12.7% in August this year.

Since foreign trade is an important part of national income, the continued decline of US trade will also have some adverse effects on China's economic growth.

China's exports to the United States include a large proportion of labor intensive products such as textiles, footwear, bottoms and daily necessities.

The main consumer groups of these products are the middle and low income groups in the United States. They suffered great losses in the financial crisis, which will definitely affect the export of these products to the us to a large extent.

At the same time, the export of these labor-intensive products in China mainly relies on price advantage to compete with other developing countries. Because of the weakness of the US dollar and the appreciation of the RMB, the price advantage of Chinese enterprises is not in existence, and exports are further suppressed.

In addition, we should not ignore that the vast majority of small and medium enterprises in China, which are closed down by the US financial crisis, are labor-intensive industries. This is also one of the negative effects brought by the financial crisis in the United States.

It should be said that the financial crisis in the United States has restrained China's economic growth to a certain extent.

But on the other hand, due to the outbreak of the financial crisis in the United States, the world's energy and resource prices have declined under the influence of economic downturn and recession. China can make use of the world's energy and resources prices to go down, this favorable opportunity to promote economic development.

The financial crisis in the United States has already had a certain impact on China's economy, and this effect will continue for a certain period of time.

Then, how can we eliminate the adverse effects brought by the financial crisis?

Liu Xiaoxin believes that this depends on the time and degree of recovery from the financial crisis. On the other hand, China needs to take measures to solve all kinds of problems brought about by the financial crisis.

For foreign trade export industry, we must first expand other overseas markets actively to compensate for the loss of the US market.

At the same time, domestic demand must be expanded, and domestic consumption can be used to digest excess capacity.

As for the impact of the US financial crisis on China's foreign exchange reserves, on the one hand, we should optimize the structure of China's foreign exchange reserves and gradually reduce the proportion of US dollar assets, so as to enhance our foreign exchange reserves' ability to resist risks and preserve and increase their value in the face of financial crisis and turbulence. On the other hand, we should speed up the process of RMB internationalization, and with China's continuous prosperity and continuous integration into the international financial environment and the further internationalization of RMB, we can gain certain discourse power among the world powers and get the status of international settlement.

In fact, the international monetary position of the US dollar will be shaken because people's confidence in the US dollar is no longer firm, and the monetary structure has the opportunity to rearrange the currency.

Flexible use of monetary policy to deal with emergencies.

The US financial crisis is caused by the burst of the real estate bubble, but the underlying reason is the virtualization of the currency. The leveraging of the economy has led to the crisis caused by the socialization of financial risks.

The floating interest rate policy adopted by the United States is the direct cause of the financial crisis. The 17 consecutive interest rate hike in the United States has led to the emergence of a financial crisis when subprime customers are unable to make up for their monthly payments.

We should take warning and use monetary policy flexibly to deal with emergencies.

At present, a series of stability and support policies for the stock market (stamp duty unilateral collection, margin trading policy and so on) and the collective rebound of real estate stocks are also the reflection of relevant policies.

In addition, the regulatory authorities will continue to strengthen prudential supervision and services to financial institutions, urge financial institutions to strengthen their own risk management, enhance their ability to resist risks and maintain the normal order of capital markets.