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1、The Nature of Chinas Economy and Global Financial CrisisProfessor Jun ZhangChina Center for Economic Studies, Fudan UniversityStylized Facts Higher Saving Rates; Higher Investment/GDP ratios; Rising Export/GDP ratio; Low productivity growth in non-tradable sector; Employment created in manufacturing
2、 sectors; 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 Reserves-20002004006008001000120014001600180019501
3、9521954195619581960196219641966196819701972197419761978198019821984198619881990199219941996199820002002200420062008 The 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 import
4、ant drivers of Chinas boom has been the emergence 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 a
5、nd stimulated housing investments; Real estate investments 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
6、 to: Expansion of exports; Assets boom; Fixed exchange rates 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
7、 2002 2003 2004 20052006 Upstream4.9 11.0 11.2 11.1 12.8 16.6 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
8、historical high and supply-side inflation began to break out; 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, expor
9、ting sector faced inadequacy of finance and closures of business 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; Ex
10、pansion of banking credit triggered housing markets and stock exchange; 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
11、financial resources to support the productivity-enhancing sectors and create more jobs to sustain its high growth;The Recent Deceleration The 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