The impact of the financial crisis will be driven by the export-oriented industry to the inward-looking industry
In December 2009, Yao Jingyuan, chief economist at the National Bureau of Statistics, warned that the financial crisis was shifting its impact from China’s export-driven industries to more domestically focused sectors. He emphasized that the pressure on China's economy was immense, with challenges never seen before. At the Fudan University annual meeting, he noted that the situation would likely worsen in the following year.
Yao pointed out that the crisis had started affecting China through its exports, which accounted for about 40% of the country's GDP last year. This year, the impact was mainly felt in coastal southeastern cities, but by next year, the central and western regions would also feel the effects. As a result, external demand would become even more challenging, potentially dragging down domestic demand as well.
Lu Zhongyuan, deputy director of the State Council's Development Research Center, echoed this sentiment. He said that both internal and external demand were declining, and the export situation was particularly grim. He predicted that the Midwest would be hit harder in the coming months, making the 2009 economic outlook even more difficult.
Lu also highlighted another challenge: the correction in stock and real estate markets. While the stock market had seen an overcorrection, the property market still needed further adjustment. He stressed the importance of avoiding overlapping corrections between the two markets and restoring confidence in the asset sector.
Despite the challenges, Lu noted that while domestic demand had fallen, it was mainly due to reduced investment rather than consumer spending. Retail sales were still growing steadily at around 1%, and although stimulating consumption in the short term was difficult, boosting investment was crucial for immediate growth. Long-term efforts, however, should focus on encouraging consumption.
On the issue of the RMB exchange rate, the Central Plains (likely referring to the People's Bank of China) stated that the currency should remain stable and not be devalued or overappreciated. A devaluation could lead to capital outflows and might not help exports, as the current decline was due to global demand, not exchange rates. The RMB should maintain a slight downward trend with a wider fluctuation range, but not necessarily depreciate.
Hua Min shared a similar view, stating that the RMB must stay stable. Devaluing the currency wouldn't stimulate exports, given the global demand slump, and China's economic fundamentals weren't yet strong enough to support a fully internationalized currency.
Despite the difficulties, Lu expressed confidence in China's economic potential. He expected GDP growth to reach 9% in 2009, with consumer prices rising by 2-3%. He believed that the Chinese economy would enter a period of adjustment, with a U-shaped recovery being the most favorable scenario, depending on time, internal strengths, and external conditions.
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