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The Impact Of The Global Financial Crisis On Chinese Economy

3304 words - 14 pages

The impact of the global financial crisis on Chinese economy

In the past two decades, China has enjoyed the one of the world’s fastest growing speeds. And for right now, China has been the most major contributor to the world economic growth. But in the recent years, the global financial crisis already did a huge damage to the Chinese growing economy. Especially in the aspect of exporting sector, China has been hit hardly by this crisis. The dramatic fall of external demand led to dramatic slowdown of the economy, and tens of millions of worker in the factor was laid-off during the crisis. Considering to Chinese government, it is critical for them to keep a stable growth which is viewed as the way to maintaining social stability. Because China, right now, is the major economic power in the world, and holding extremely huge amount of foreign exchange reserves, it is important to care about Chinese economy situation.
This literature review is designed to cover the recent research paper focus on the topic of the global financial crisis and how it influence Chinese economy.
The correlation of GDP growth between China and G-3 economies
Ligang Liu (2009) used the method of correlation analysis to illustrate the correlation between China and G-3 Economies, from 1981 to 2008. As he mentioned, trade and foreign direct investment are two important sources of economic growth in China. G-3 economies are not only important sources of capital inflows to China but also important markets for China’s exports. In 2008, the trade between China and G-3 took about 50 percentage of the Chinese total exports. This number indicates that Chinese economy and G-3 economy have a strong interdependency relationship.

From the table which concludes results of Li’s work, it shows that economic growth in China is quite correlated with that in the USA in the 1980s, but it is not correlated with economic growth in the EU and Japan. What is interesting is the correlation coefficients between China and the G-3 declined in the 1990s, suggesting that China was moving on its own path of economic growth independently from the G-3 economies. However, the correlation with the USA and Japan has become highly positive since the 2000s. In particular, the correlation coefficient with Japan reached 0.42, representing a high degree of economic comovement between these two economies. In contrast, the correlation between China and the EU was probably a result of the weak economic performance in the EU during this period. China’s economic growth accelerated at this time, especially after its entry into the WTO. For the G-3 economies as a whole, the correlation coefficient was 0.23 in the 2000s, higher than the correlation coefficients in the 1980s and the 1990s. These measures suggest that there is an increased degree of economic linkages between China and the G-3 economies.
Chinese dependency on external demand

Chinese economy started to boost after the policy reform and opening up...

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