How did the financial crisis effect on the Chinese economy

As we all know that in 2007, the financial crisis started. It started in the U.S., and it is called “Subprime Lending Crisis” and it is because of the collapse of the housing bubble (Wikipedia). In 2008, the financial crisis has been spread all over the world, including China as well. Some people think that Chinese economy is not strong enough and it will collapse, whereas some other people think that Chinese economy is very strong, although it might be influenced in some ways.
First of all, Chinese economy has been influenced by the economy crisis, and there are several negative influences such as “notably shrinking external demand, overcapacity in some sectors, difficult business conditions for enterprises, rising unemployment in urban areas and a greater downward pressure on economic growth” (Youtube.com) . Those five problems are the most important issues caused by the financial crisis in China and it has effected on Chinese people’s life and work.
In the beginning, “notably shrinking external demand” simply means that there are no more a large number of goods need to be exported. In this case, working opportunities for workers, especially in manufactory and light industry, are reduced. A big pressure is given to Chinese workers because they could not support their families and the government has pressure too.
Secondly, “overcapacity in some sectors”, which means some sectors are producing too much product to sell. Even though some products are really popular in market, managers should be aware of exceptions and special situation are always happening. When the financial crisis comes, factories should be careful about whether consumers have the ability and willingness to pay for their products. People would want to save their money and spent it on their needs. As a result, if factories spent a large amount of money for their products and hope the customers will “pay” back, that is unwise.
In addition, “difficult business conditions for enterprises” is a little similar as the above one. All enterprises hope to earn more money; as a consequence, they put more money and people into their production work to make more money. On the other hand, when financial crisis comes, they can not afford the number of lost consumers, and then thinking about how to pay the money back to the bank and not letting themselves broke becomes their first job.
Furthermore, “rising unemployment in urban areas” can be the consequence of the second and the third point. When companies are on the edge of being broke, the bosses have to cut the numbers of their employees for they do not have enough money to pay for their salaries. Employees do not have job to earn money and they can not feed their families. At the same time, the government has to take care of those unemployment people, and this will make the finance of this city, province, and even the whole country gain more pressure and stress.
Lastly, “a greater downward pressure on economic growth” is the consequence of all issues. When factories can not afford to produce enough products to support themselves; enterprises are too poor to raise themselves and the only way is bankrupt; and unemployment people are getting more and more, the whole country’s economy is having a big downward.
On the country, Chinese leaders especially leaders in economic field, have made some useful and effective policies. Those policies have made Chinese economy keep being strong. As Jing Ulrich (March 4, 2010) said, Chinese economy won’t collapse.
As Wen jiabao, who is the Chinese Premier said in Davos in 2009, China has mainly relied on “expanding effective domestic demand, particularly consumer demand, to boost economic growth.” (Youtube.com).
Firstly, “substantially increase government spending and implement a structural tax cut.” The Chinese government has put 4 trillion RMB which equals 16% of China’s GDP in 2007 into five sections which are “housing project, projects concerning the well-being of rural residents, railway construction and other infrastructural projects, environmental protection project and post-earthquake recovery and reconstruction”. The Chinese government has also decided a policy which is cutting tax massively. This policy can save 500 billion RMB for enterprises and citizens each year. In this case, people can have more money for shopping, which will stimulate the economy. Factories and enterprises will have spare money to buy their facilities and pay salaries to employees. As a consequence, people can have money to pay for debt, and raise their families.
Secondly, “frequently cut interest rates and increase liquidity in the banking system.”
Cutting interest rates will save the bank a lot of money and then they can lend money to people who need it. This policy is good for both banks and residents. Banks will have more businesses and they can get interests from their clients. Residents can borrow money from banks and they could either buy cars or houses and bosses of companies can use the money to help with their businesses.
There are more than two of these policies of recovering the financial crisis. In 2010, China has replaced Japan as the second biggest economy (NZhearld, August 17, 2010). The truth has proved that although the financial crisis did influence Chinese economy in some ways, China still has the power and the wise to keep its economy from being collapsed.