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The global recession started
with housing market crash in the United States in 2007 has rapidly spread to the world. The
extent and intensity of this episode of global economic down turn is
 unprecedented. The crisis is escalating. Market condition is still worsening. Job
market is still weakening. Productivities are still declining. Governments
of the western countries are struggling to find ways to
end this catastrophic crisis. Unfortunately, none seems to have seen
any substantially promising results.
Nevertheless, there is a silver lining in this globalized meltdown. A
series of indicators have shown China's economy is reaching its bottom.
As the matter of fact, China becomes the only economy in the world to see significant
growth in credit to corporate and household sectors since September
2008.
Why China is so resistant to such a severe global recession considering a large
portion of its economy once was heavily relying on exportations that are
now suffering steady shrinking?
Of course, there are many factors that might have contributed to the resistance. But the
most important contributors should include its social structure, political
system and market dynamics. All these factors are
inter-correlated.
Social Structure
In article "Real Causes For US Financial Meltdown and Global Recession", I
suggested that the rooted cause for this episode of recession, and most
likely for the great depression, is the extreme inequity developed
during the
rapid economic expansions in the United States.
The social structure in China can just avoid real inequality, an
"invisible hand" in the capital market. It is conceivable that inequality is growing in China in recent years, which
could potentially
expose Chinese economy to certain risks in the future,
nevertheless at the current stage, its inequality hasn't reached a level
that is even worth concerning. China has a socialist economy. Although free market
mechanism had been brought into the country in the process of opening up and reform, the government has never given up its
absolute control and
ownership over far exceeding 50% of the total assets in the country.
On the other hand, media is an important element in the social progression of
the modern age. It is a undoubted fact that in China the media is
in large maneuvered by the central government and is lack of
transparency. This great social disadvantage in the civilized world
nevertheless may have to certain extent played a positive role in
economy during this global recession. There is a classic philosophical
saying, "bad things can turn into good things under certain
circumstances". That government controls media may well be one of them.
It is clear that consumer's confidence is a key to market stabilities.
The confidence itself is a fragile substance that is extremely
susceptible of the future perspectives in the society. When government releases
a set of dismal economic data, arbitrary analyses and debates in the
media may greatly exaggerate seriousness of the situation and negatively
impact consumer's sentiment. Any decline in consumer's confidence in a
economic down turn inevitably will cascade the recession and
consequently, a terrible domino effect will occur.
This type of negative media effects can not happen in China. In
contrary, the Chinese government has fully utilized its propaganda power
to stabilize and even lift consumer's sentiment since the global
recession was declared. They have repeatedly emphasized, "we are
confident our economy will maintain its sustained growth although we are
facing some challenges from the global economic crisis". As long as
the consumers keep spending, broad aspects of the economy are at lease
manageable.
Therefore, the unique social structure makes China more resistant to the
global recession than any western nations.
In a separate note, many may argue democracy
and freedom have their supremacy in a democratic society and must be
upheld. Yes, I agree. But I can also give you logical reasons why the government
in a critical time could and should hide certain economic information from the
general public without compromising the fundamental democratic spirit. Let me use a
frequent saying by President Bush, "we are fighting two wars, one is
against terrorists, the other is against economic crisis."
Indeed, it is a tough war to fight against any economic crisis. It is
much
tougher to fight against the global recession of such a magnitude that
could slip easily into a depression.
Crisis, recession and depression are all our enemies. When we are are
fighting a war, the government has all the reasons to keep certain
information pertaining to war field top secretes, while the war
field we are in today is economy.
Political System
China has been under one party ruling since 1949. Politicians from the
capitalist world
have condemned its dictatorship for decades. As a long
term ideological republican, I can neither afford to fully endorse such a
controversial political system. However, from a philosophical point of
view, I, so do all of us, must concede this system has indeed made a
significant contribution to China's strong resistance to the current
global recession.
Unlike taking politicians in the US several weeks to hand down the
heavily compromised seven hundred billion financial bailout legislation,
It took Chinese administration virtually overnight to unveil a four
trillion yuan economic stimulus package when the global recession was
determined. This massive plan has been viewed even by many western
economists as a great shot that immunized China from infecting fatal recession
disease.
The plan, containing no ideological elements, collectively adopted the
wisdoms of the most prominent economists in China. The plan precisely
aimed at stimulating domestic demands through massive government
investments in industrial restructuring, technological innovation,
social security, education and infrastructural developments. As I
discussed in article "Real Causes For US Financial Meltdown and Global Recession",
proper and direct government investing is the most effective approach to
rescue an ailing economy. A series of recent reports indicate China's
four trillion yuan stimulus package is now taking effect. According to the median
projection of fourteen economists surveyed by Bloomberg News, China's
economy will expand 6.6 percent in the second quarter, 2009.
China's interim achievement in crisis management in such a short period
of
time is almost beyond imagination in the western world. Habitual
ideological fighting in the political arena often prevents government
from taking any swift actions. Compromising between different ideologies
tends to compromise effectiveness of the actions in the end. This might
not be a negative point in the prosperous era, but during any crisis it
does put a heavy brake on the recovery that could be rather fast otherwise.
Crisis is a fire. If not being contained immediately, a fire can be
catastrophic. We should have learnt the same lesson more than once in
the history. Perhaps, we will have to learn the same lesson again and
again in the years to come. Let's pray for permanent disappearance of
crisis. Let's call for all politicians to abandon their ideological
beliefs and do what is best for the society when the country is in
crisis.
Market Dynamics
China's economic model is unique. It blends free market mechanism of
capitalism into its traditional socialist system. In the
other word, Chinese government as the controlling shareholders of many
large scale enterprises has proactively engaged in the capital market
activities. Such unprecedented marginal market system has lead China to
enjoy a decade long rapid economic expansion. This type of market
dynamics is also playing an important part in its strong resistance to
the current global recession.
China had just eased off its inflation concern right before the global
recession took place. A number of pre-crisis interest rate hikes had
successfully pulled down its Consumer Price Index from a nearly 10% jump in the first
quarter to around 5% in the third quarter 2009. The comparably high
interest rates in the perfect timing placed China in a substantially
favorable monetary position to face off the global position. Chinese
central bank has done a series of rate cuts since last October but still
has plenty room to cut further if needed. It is notable that excessive
rate cuts could potentially generate fresh bubbles in the capital market
and cause a new round of inflation concern. That is why the central bank
has been extremely cautious on the pace of the rate cuts. The
administration has been focusing more on using finance than banking
means to stabilize the economy. I must praise this wise initiative.
As a side effect of the pre-crisis interest rate hikes, a huge bubble in
China's stock market was also busted right before the global recession. This
seemingly unfortunate matter actually created a healthy financial
environment that is more capable of withstanding negative global
economic impact. In contrast to the world's major stock markets, China's
stock index has enjoyed a 35% gain since beginning of the global
recession.
As stock index is deemed as a "wind vane" of the broader economy in consumer's market, it is reasonable to suggest a stabilized stock market
can positively affect consumer sentiment, which is particularly of great
significance in a global financial crisis.
Conclusion
1. A set of unique features in China's social structure, including low
inequalities, largely nationalized economy and media "opacity", has
fundamentally made China resistant to the global crisis.
2. China's single party political system permitted its government to
take prompt actions that were necessary to prevent the economic down turn from
being escalated to a recession.
3. China had just eased off an inflation concern and successfully
undergone a critical correction in stock market right before the global
recession took place. Such healthy vicissitude of market dynamics greatly
strengthened China's capabilities to face off the economic crisis.
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