China's Response to the Global Financial Crisis

In September 2008, the world entered into aOn May 10, 2008, the State Administration of Foreign
massive financial crisis, triggered by the loss ofExchange announced that it will invest in a bond
confidence by investors in the value of securitiseddenominated in Special Drawing Rights with the IMF
mortgages in the US during 2007, of which caused aan international organisation that supervises and
worldwide recession by April 2009. Although theprovides advice to countries about economic policy
worldwide financial crisis originated from the Unitedand lends to countries experiencing balance of trade
States, its effects were felt on a huge scale byproblems. Hu Xiaolan, a vice president of the Bank of
economies around the world, including China.the People's Republic of China, seemed OK with the
China has a huge trading surplus with foreignprospect of using the renminbi to play a greater role
countries, especially the United States. The balance ofwith international markets, and stated in a press
trade between China and the United States was, byconference: It's not simply a case of a country
February 2009, US$34.8 billion in favour of China. Thewanting to internationalise a currency. It needs the
President of the United States in 2009, Barackrecognition of the market and the confidence of
Obama, had accused China of fixing their exchangeinvestors in the country's policies.
rates to take advantage of foreign trade andThe managing director of the IMF, Dominique
investment. It is true, of course, that the purchasingStrauss-Kahn, said in a press conference on April 23,
power parity in China is equal to about ten times as2009, that the slowdown in China's growth, as in
much as many Western countries. In fact, in 2008other countries, has in effect a very deep slowdown
China was ranked the second large economy in thein the imports, and the effect on the world economy
world using the PPP as a measurement, second onlyis important. He also noted that he won't draw any
to the US.kind of consequences [about the] role of China in
China's phenomenal growth rate during the early 21stAsia and the way China will help, or not, the Asian
century was supported mainly by manufacturingpart of the world to get out of the crisis. It is a
exports. Following the financial troubles experienced inglobal crisis. There is no way for Asia to get out of
the West and the bankruptcy of several banks,the crisis without the rest of the world getting out
letters of credit became unavailable to importers,of the crisis. That is why we need a global view, and
especially in America. The Baltic Dry Index which isin this global view, certainly, the Chinese economy
used to calculate the price of shipping goods felltoday plays a big role.
drastically during the second half of 2008, losing 90China seems to be taking its role in the ongoing
percent of its value within six months.world-wide economic crisis seriously. The People's
This was mainly due to the collapse of world trade,Bank of China submitted a report on their website on
an event made official by the International Monetarythe 1st of April, 2009 about China's commitments
Fund on January 29, 2009. As a result, by Januarymade during the recent G20 summit:
2009, China's exports had dropped to their lowestPresident Hu Jintao... made a solemn commitment at
level since April 1999. JP Morgan's chairwoman ofthe Summit, saying that, "as a responsible member of
China equities Jing Ulrich, stated in a report by thethe international community, China will continue to
BBC: Export growth is likely to be flat in 2009, withtake an active part in the international cooperation to
negative year-over-year growth in the near-term.keep international financial stability and promote world
Nevertheless, during December of 2008, China hadeconomic growth, support international financial
still managed to boast a US$39 billion trade surplus,organizations in increasing financing capacity in
despite the recent drop in exports. Economistresponse to the changes in the international financial
Stephen Green, on the other hand, argued thatmarket and extend greater support for the
China's trade surplus might be an illusion, since capitaldeveloping countries influenced by the crisis. We are
inflows amounting up to US$67 billion, disguised aswilling to actively participate in the trade financing plan
trade, account for the net balance of trade in China.of the World Bank International Finance Corporation
The vice chairman of the State Development Planning(IFC)".
Commission of China, Zhang Guobao, stated in theThe article by The People's Bank of China also stated
People's Daily newspaper: "The international financialthat China has actively participated in the World
crisis... is equally a challenge and an opportunity. TheBank's trade finance program, provided liquidity
slowdown... has reduced the price of internationalassistance to trade finance programs of regional
energy resources and assets and favors our searchmultilateral development institutions provided over
for overseas resources." The government of ChinaUS$650 million to... multilateral development institutions
began buying up bargain assets overseas byin cumulative terms [and] launched bilateral trade
concentrating on energy and resources companies infinance programs.
need of bail-outs. The China Development BankChina remains in a strong economical position in the
financed China's biggest-ever foreign investment aaftermath of the credit crisis, and it is said to have
US$19.5 billion dollar bid for 18 percent of Rio Tinto,been an oasis of relative economic stability. Despite
an Australian mining company in desperate need forhaving its domestic economy weakened as a result
investment to finance its US$19 billion worth of debts.of the crisis, by May 2009, data suggests that China
Paul Cavey of Macquarie Bank, stated: The amountmay be on the rebound. The comments made by
of money coming out of Beijing suggests they areChinese President Hu Jintao and Zhou Xiaochuan
confident that we are at the bottom of the marketsuggested that China has a clearly made plan to
adding that they still have a lot of money to playrecover:
with.- More money will be lent to the International
Rio Tinto announced on Feburary 12, 2009 that theyMonetary Fund
are unanimously recommending to shareholders a- US$95 billion in currency swap deals with six
transaction with Aluminium Corporation of Chinacountries (trading in CNY instead of USD)
("Chinalco"), a leading Chinese diversified resources- US$52 billion in foreign acquisitions, two thirds of
company. The transaction delivers cash proceeds towhich are focused on natural resources
Rio Tinto of US$19.5 billion, raises significant funds at- Multi-billion dollar lines of credit to countries rich in oil
a time when financial markets are distressed, createsresources.
a partnership between an Australian company andHow will China play out in economic terms in the
Chinese company, subject to regulatory approval.months and years to come? As Zhang Guobao
The Chinalco Rio Tinto partnership is just onesuggested, the international economic trouble might
example of many Chinese government bailouts ofbe an historic opportunity for net surplus countries
foreign companies. The Chinese government had alsosuch as China to have their voices heard on the
sank $39 billion in three separate deals to secureinternational stage, much like the recent G20 summit.
future oil supplies from Russia, Brazil, and Venezuela.As a result, China will most probably be playing a
China seemed to be more interested in naturalmore prominent role in international affairs from now
resources than investing in banks, as noted by topon.
economist in Asia, Andy Xie.