Published by Andrew Duan @ CIBC(China International Business Consulting)



When the worldwide financial crisis began to unravel last year, the Chinese government immediately initiated its 4 Trillion Yuan ($590 Billion) stimulus package. Directly after this announcement, many new policies began, aiming to speed the recovery process. However, questions still remain with regard to Chinas Economy. Is China really not affected by the recession? Has the stimulus bill been working? How will China's market, consumption, and investment industries look in 2009?

The question of how much the recession has affected China so far can be analyzed through the lenses of Chinas banking and finance systems. It is essential to realize that, unlike the US, China does not have the risky financial instruments (derivatives and asset back securities) which are ubiquitous among developed markets. In fact, Chinese citizens hold a strong belief that the national banks within China are extremely well capitalized. So while Chinas foreign reserves and holdings may be affected by the dollar and the USs financial markets, the foundation of Chinas corporate structure remains rather strong.

Recently, through research done by the IMF, results were published indicating that unlike foreign countries swamped by over-consumption, Chinas consumption is very low compared to countries such as the US. And China will come in and boost the declining consumption levels visible within the global economy. Beijings strategy to boost consumption has been visible, through both its investments on domestic investments and stimulus bills to Chinas citizens.

Accordingly, due to newly implemented policies, much of Chinas infrastructure, including highways, railways, airports, rose close to 35% in the first half of 2009.  Aside from transportation, China has also tackled other industries efficiently to both boost levels of employment develop rural areas.  In the energy sector, China has 11 nuclear plants operating, and is in the midst of building a dozen more. With respect to wind power, China has been dominating by having the most wind power capacity in the world. In the manufacturing sector, China has finally launched commercial production of its own regional jet(ARJ21), planning to deliver 30 jets regional clients by 2012.

Moving from the corporate and government fractions of Chinas government, the consumer side has shown strong indicators of strength, especially in the auto and housing markets. From January to May 2009, auto sales jumped 15% due to government tax cuts. The auto market for foreign automobiles continues to grow in China, as even though GM have declared bankruptcy, its China operations are actually expanding. In 2009, GM China projects over 10 million units of car sales. In the real estate market, while property prices did drop in 2007 due to government policies to cut speculation, Chinas seven largest cities property prices bounced back, rising over 70% on a year to year basis in 2009.

So far, while Chinas GDP has not been growing up to par in comparison to its previous years, but compared to other countries, the growth is incomparable. Industrial Output grew by 9% in May, while retail sales jumped by 15%. Investments jumped by 33%.

Overall, it is evident that due to Chinas strong foundation and government aid, economic stability within China will be retained faster than many countries. The World Bank forecast chinas GDP to grow by 7% in 2009 (compared to many countries negative growth). For now, experts are hoping that the consumption and investment momentum in China will not only benefit the people there, but also contribute to the global recovery as a whole.

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This article is contributed by China International Business Consulting (www.CIBCglobal.com) a one-stop service for foreign businesses entering China.