How is China affected by the global financial crisis?

Recently, from the newspaper to the internet, news about financial crisis is flooding around us.

In China, one of the most frequent questions people care is “How is China affected by the global financial crisis”.

Based a report, a framework is concluded that:

China‘s economic growth is supported by three primary legs:

1. Export-led growth

2. Real property growth

3. Government spending

China is supported by a three-legged stool, but two legs are now broken.

The first leg is clearly broken. US and European consumers can no longer consume at past level.

In China, many manufacturing plants begin to cut stuff. Most of their products are sole to Europe and U.S where the demand has shrank due to the financial crisis. I went to Sichuan Province a few days ago and found that many farmers who worked in coastal cities have came back home. It’s said that in those cities, many factory which are sustained by exporting, like some toy factories, close down recently. So workers lost their job. They have to come back home and seek new opportunities for job.

The second leg is also broken. in party because of the first. Rising unemployment, declining Chinese consumer confidence, and significant price declines in real property have slowed sales.

So what is left is government spending. Government plays a more significant role in the Chinese economy than Western economies.

And domestic demand in China still has large potential for growth, and that would help support the local economy’s expansion in the midst of the global crisis. China will invest nearly $300 billion in its overburdened rail system as a stimulus measure aimed at blunting the impact of the global financial crisis. New rail investment will become a shining light in efforts to push forward economic growth. China will also increase its provision of low-priced housing and medical care, in a bid to free up spending power and boost consumption.

But can increased government spending make up for the other legs of the stool?

Well, we shall see.