How Will China Weather the Financial Crisis?

These days, it seems that no country is immune from the global financial mess, including China/st1 :country-region>.  While the current situation in the China/st1 :country-region>'s markets doesn't look too much better than others worldwide, the long-term outlook might be more promising.  /p>

For the second time in less than one month the People's Bank of China cut interest rates, but even the lower rates hasn't seemed to stimulate economic growth in the short-term.  The Shanghai Composite Index dropped over 3% after the announcement, and in just a year, the index has dropped from over 6000 to around 2000.  Not surprisingly, the average wealth of China/st1 :country-region>'s 50 richest dropped from about 3.61 billion last year to $2.43 billion in 2008./p>

In terms of economic growth, the International Monetary Fund (IMF) anticipates China/st1 :country-region>'s economic growth to slow to 9.8% in 2008 and 9.3% in 2009.  Although these projected GDP growth rates are lower than the previous years' double-digit growth, Wang Zili of the People's Bank of China told the Beijing Reviewthat this economic slowdown might yield positive results.  He says, the previous "breakneck growth was only contingent on high input, heavy pollution and resource depletion, which are unsustainable.  With resource and pollution treatment costs surging and the global economy cooling down, the Chinese economy is destined for a restructuring of its growth model."/p>

This observation results in a basic question: how will China/st1 :country-region> restructure its economic growth model, and what types of changes should we expect?/p>

In terms of financial markets, China/st1 :country-region>'s State Council has already been revamping the system, approving a plan that would allow short-selling and margin trading.  Considering that the U.S.has temporarily banned short-selling in light of the current economic climate, this move demonstrates the government's confidence in the recovery of China/st1 :country-region>'s markets.  This additional openness might also increase international investments in China/st1 :country-region>. /p>

At the same time, exports from China/st1 :country-region> will probably also take a hit, since consumers worldwide don't have the same abundance of disposable income.  Additional pressure from the IMF on China/st1 :country-region> to devalue its currency could also be difficult for exporters, since higher prices could translate into fewer sales.  The increased energy costs could cause another difficulty for exporters./p>

Maintaining economic growth in various sectors of the economy in a way that does not destroy the environment remains a daunting task for China/st1 :place>, especially in this turbulent economic time worldwide.  It's quite possible that China/st1 :country-region>'s economy could undergo a tremendous evolution within the next few years, which may or may not be reflected in the GDP growth rate.  /p>

Despite the economic challenges worldwide, China/st1 :country-region>'s willingness to lower interest rates and open the market are a strong first step in promoting economic growth both domestically and abroad./p>