China’s Economy after the Financial Crisis

In January 2010, Danish-Chinese Business Forum held two parallel member meetings at Nordea A/S in Copenhagen and in Aarhus. In Copenhagen, Global Chief Economist, Mr. Helge Pedersen, presented the economic and financial update of China, while macroeconomist in emerging markets, Mr. Bjarke Roed-Frederiksen, made the presentation in Aarhus. The member meeting in Copenhagen was opened with a welcome by Mr. Anders Jensen, head of banking Denmark.

China’s Response to the Financial Crisis
On 9 November 2008 the Chinese government announced a major stimulus package of 586 billion USD to boost the domestic investment, as a response to the financial crisis. As a result, China was the first big country to pull out of the crisis despite the country’s export dependencies and in spite of global trade still being discouraging.

The Chinese government is continuously striving to maintain a high growth rate of Chinese economy. Even under the recession, the GDP still stayed above the 8-percent target in 2009. On the basis of the strong comeback of the Chinese economy, Nordea forecasts that China will continue to experience a strong growth in 2010.

Future Uncertainties of China’s Economy
Beyond 2010 there will be more uncertain outlooks. The main issues of concern are: non-performing loans, asset bubbles, inefficient investments, consumptions demands, financial sector liberalisation and rural sector reform. According to Nordea, Chinese authorities risk to put the macroeconomic recovery at risk, as top policymakers are more eager than the central bank to keep the economy growing at a high pace. However, some implicit monetary policy tightening has already begun. The People’s Bank of China has verbally warned against excessive lending, whereas the regulatory body has tightened financial conditions somewhat via legislation. Moreover, the State Council has tightened both financial conditions and market regulation in specific sectors.

The presentations furthermore touched upon the potential of the CNY appreciation, as Nordea believes that the CNY appreciation is good for both external and internal imbalances. China’s trading partners may react with protectionist measures if the CNY is not allowed to appreciate, and an appreciation will strengthen the Chinese consumers’ ability to buy imported products.

The presenters also talked about healthcare reforms in China - a three-year 124 billion USD programme providing a basic health insurance. In the long run, the improved healthcare systems are expected to lower precautionary savings and thus lead to higher private consumption.