In September 2008, the world economy faced a giant financial sufferings, which made the government of various countries struggled to overcome the slowdown of economy. The US investors lose their hope on china’s economy and value of sub-prime mortgages. It results in the crash of stock markets around the world and became highly volatile. The major effects are caused by bank failures and massive layoffs. The world economy is interconnected so that if one country is suffered economically then the other countries would face its impacts on their economy.
Causes for the Economic Crisis in China:
China is one of the developed countries of the world. It is known for its population and economy. Even though china’s birth rate is reduced, the rapid increase in aging population results in shrinking of workers. The peoples are in need of increased access to education and the environmental pollution like poisonous smog becomes a threat for the habitation of people.
These are the main reasons for the suffering of china’s economy. China is relatively poor and also lags in GDP per capital. Its GDP is almost $8,280 that is one-third of South Korea and one-quarter of Japans’ GDP. As a result of this economic slowdown, china’s government faces a difficulty in preparing budgets.
But these economical suffering has also some positive outcomes such as, it can increase employment and at the same time wages for the workers will be increased by giving higher paying jobs. The rural people of china were not ready to migrate themselves to cities because of agriculture and farming. If the workers are earning more they can spend more so that economy is powered inside the country rather than selling product for foreigners.
The infrastructure of the china is well developed and as well unused. The government allocated budgets and spend billions of dollars to improve the infrastructure of cities but it doesn’t worked properly because the developers built cities, factories, bridges and airports which nobody are ready to occupy or utilize or they don’t need. So these infrastructure became a useless properties of government.
China’s currency falls down like a stream towards American dollars because the investors are not ready to invest their money in china so that they decided to move their money out of the country. They sold their Yuan to buy dollars this reduces the demand of Yuan and increases the demand of dollars. The other people who wished to keep their money themselves also decided to move away because of the low value of Yuan. As a result of this, the cost of living is gradually increased.
Efforts of China to Rectify the Crisis:
China put its efforts to rectify the slowdown of economic growth rate by upgrading its thermal power plants to higher standards and closed them if it is lower standards. China planned to expand healthcare, education and social security massively in the area of major military buildup and also construction of china’s first aircraft built carrier. Although china has less growth in economy, China faced a low budget issue comparing to Japan and US, Japan runs in large budgets and US runs in 9% of GDP. The Europe, US and Japan are very rich but china is poorer than the Brazil.
China’s Economic Impact on World Economy:
China’s economic crisis not created much impact on world economy badly but it affected roughly. China has severe effect on domestic economy but not in world economy. It indirectly had effect on world economy by affecting the countries such as US, Japan and also Europe as these countries are the core of goods exchange, accumulation of global capital and stocks. But china is not the core for accumulation of global capital as it is a large producer of goods and exports. The suffering of manufacturing sectors of china reduced the production quantity of goods and exports, so the FDI (foreign direct investment) was affected because of poor production. The decline of prices of asset results in uncertainty as because of business peoples are not ready to invest for the future losses of china in many ways such as equipment replacement, hiring workers and expansion of productions and exports.
The impact of china’s economic crisis will be the reduction of exports to china and reduction of imports to china. This is very bad for the investors who directly related in trade with china but not for the people of whole world. The major imports of china are agricultural and natural resources, it reduces the demand for resources which leads to dropping of commodity prices. This is a threat for the producers of that resources such as farmers, workers owners etc. But the people of china had low cost of living such as energy, food and other raw materials so that it would be a offset for the economic losses of the country.
The economic growth rate of a country plays a major role in the development of other countries. The economic slowdown in china indirectly triggered the economic expansion in US and Europe and many of countries which are still developing by the availability of cheaper raw materials for the producers (non-Chinese) around the world. So that china’s economic crisis had both positive and negative impacts on world economy.