China has led post-crisis global economic recovery
Ten years have passed since the last global financial crisis, which originated from the US subprime mortgage crisis and quickly spread worldwide. Today, the global economy is still gradually making its way to a full recovery. Looking back, China not only survived but also offered some light in the context of a gloomy global economic situation by being a new growth engine for the world. Credit should be given to the country’s step-by-step economic reforms, especially the economic structural transformation and opening-up since the 18th National Congress of the Communist Party of China (CPC).
The financial crisis exported by the US deeply affected the world economy and the Chinese economy, as it resulted in the slowdown of external demand and economic growth rates. One direct impact on China was the export downturn. China’s economic growth used to be driven mainly by exports. The US and EU have significantly reduced their imports and China’s export growth rate has plummeted from a 20 to 30 percent range to negative growth.
At the beginning of the financial crisis, along with developed countries China also implemented active fiscal policies such as a 4 trillion yuan ($586 billion) economic stimulus package and loose monetary policies. At the same time, other policies such as expanding domestic demand, urbanization and launching infrastructure construction projects strongly stimulated the economy.
At first, these measures were effective, and China surpassed Japan to become the world’s second-largest economy. But the stimulus also brought side effects. Loose monetary policies and accelerated urbanization made the housing and financial markets targets for hot money. Soaring housing prices and excessive innovation with financial instruments created bubbles. On the fiscal side, local governments issued their own stimulus policies, leading to overcapacity problems. Too many redundant projects and a buildup in local government debt became prominent issues.
Since the 18th National Congress of the CPC, the government has sought to address these problems amid the new normal for China’s economy. Transformation of the economic structure and a new round of reform have brought financial crisis solutions to a deeper level and have helped in keeping the Chinese economy vigorous.
Chinese trade companies have been encouraged to enhance their innovation abilities and to pay more attention to the added value of their products. In the last year, the proportion of mechanical and electronic products in China’s exports has increased, while that of primary products such as refined oil and coal has been decreasing. The “Made in China 2025” plan has also helped in driving this upgrading of domestic industry.
The nation’s supply-side structural reform is key to transferring from a high-speed growth model to one based on high-quality growth, while also reducing overcapacity, cooling down the overheated housing market and deleveraging. An increase in financial regulation and supervision is also being implemented to tackle risks.
China has also launched a new round of reform and opening-up, which will continue to support globalization. One noteworthy aspect of this has been the construction of free trade zones such as the one in Shanghai. Free trade agreements with more countries such as the upgraded China-ASEAN Free Trade Area have also boosted bilateral and multilateral economic cooperation. Meanwhile, the Belt and Road initiative offers a new option for the world to come together. China will now be more open in multiple sectors including finance and manufacturing.
The 2008 financial crisis put pressure on the Chinese economic reform program, but the measures adopted to address the crisis were basically successful. As the reforms go deeper, they will provide longlasting fuel for the Chinese economy.
In the last 10 years, the domestic economy has become mature. The government has accumulated crisis management experience and strengthened its macroeconomic control abilities. China has grown into a vital force in global economic governance. Without exporting a crisis or conducting protectionism, China has led the global economic recovery and acted as a responsible major economic power by stabilizing its domestic economy and solving its own problems.