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How China grew despite the global slump
By Fan Gang (China Daily)
Updated: 2010-02-02 08:05
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China's GDP is estimated to have grown 8.7 percent year-on-year in 2009 - once again the highest rate in the world - with the fourth-quarter increase reaching 10.7 percent, compared to 6.3 percent in the fourth quarter of 2008.
For much of the world, China's ability to shrug off the global financial crisis and maintain a strong growth trajectory in 2010 and 2011 seems too easy.
But securing China's growth has been anything but easy. The strong, decisive, and deftly timed stimulus policies at the start of the financial crisis did, of course, play a major role in China's quick rebound.
As early as October 2008, when the crisis first hit, China's government adopted a comprehensive policy package designed to prevent the economy from sliding further. The fiscal deficit was equivalent to 3 percent of GDP in 2009, which generated 3 percent GDP growth, while the deficit in 2008 was literally zero.
The country's so-called "moderate relax" monetary policy also played its part by allowing bank lending to expand by almost 34 percent in 2009, with M2 money supply growing by 27 percent.
Monetary growth may increase inflationary pressures and the risk of an asset bubble down the road, but it helped ensure that China's economy did not fall into a vicious downturn when the financial crisis hit.
Other policy moves aimed at boosting demand in the housing and auto market also proved effective.
But China's crisis management is only part of the story. It does not explain why other countries that took even stronger measures failed to generate a similarly rapid recovery, or why China's government seems to have more room than others for policy maneuver.
China's budget was actually in surplus and its government debt-to-GDP ratio was only 21 percent before the crisis (now it is about 24 percent), much lower than any other major economy. That gave Chinese policymakers freedom to spend money to confront the crisis.
Moreover, the level of non-performing loans in Chinese banks was quite low when Lehman Brothers collapsed, which allowed Chinese policymakers to let it increase in order to battle the crisis.
Moreover, the Chinese economy was in good shape when the global crisis hit. Cautious macroeconomic management during China's boom, including early self-adjustment, put China in a favorable position.
China's economy had been booming since 2004, but officials did not step aside and "let the market decide". Instead, they adopted counter-cyclical measures aimed at preventing the economy from overheating.
Overheating in the housing market was brought to an end in late September 2007, nipping a nascent nationwide bubble, and a stock-market bubble was punctured the following month.
Moreover, numerous local investment projects were stopped, while measures to slow the growth of net exports - including a 20 percent revaluation of the renminbi and a significant cut in tariff rebates for exports - brought down annual export growth from around 30 percent to a more reasonable 17 percent in late 2007.
As a result, by the fourth quarter of 2007 - one year before the global financial crisis hit - China's economy started to cool. The quarterly growth rate decelerated from 13 percent in the fourth quarter of 2008 to 9 percent in the third quarter of 2009.
