Libmonster ID: KG-651
Author(s) of the publication: L. V. NOVOSELOVA


Doctor of Economics

Key words: China, global crisis, crisis measures

The global recession could not but affect the situation in China, which has the 3rd largest national economy and is one of the largest recipients of foreign capital and the main exporter of finished industrial products in the world. China's GDP grew by 13% in 2007 and 9% in 2008, including 10.4% in the first half of the year, 9% and 6.8% in the third and fourth quarters, respectively. Industrial output growth declined from 16% in June to the lowest level in a decade at 5.4% in November 2008.

Due to a slowdown in economic growth and a drop in corporate profits, budget revenues also began to decline in the second half of 2008. In October 2008, for the first time in the last 12 years, tax revenues of the state budget of the People's Republic of China decreased (by 0.3%) compared to the same period in 2007, and in November this decline reached 3.1%. According to the results of 2008, the dynamics of state tax revenues slowed down by 1.7 times, showing an annual increase of 19.5% against 32.4% in 2007.1

There is a tendency to slow down the dynamics of foreign investment. If in January-October 2008, the inflow of foreign investment to China increased by 35%, in January-November - by 26.3%, and in general for the year-by 23.6%, amounting to $92.4 billion on an annual basis.

Finally, for the first time since 1998, there was a slowdown in the growth of China's international reserves - in the fourth quarter of 2008, their growth was only $40 billion against $97 billion. in III and$154 billion. in the first quarter of 2. Overall, in 2008, China's international reserves increased by $417.8 billion, or $44.1 billion. less than in 2007.

Negative trends in the development of the Chinese economy have a direct impact on the social situation in the country. According to official statistics, by the beginning of 2009, the number of people who lost their jobs in China was about 10 million people. However, in reality, this figure is significantly higher, since the data provided do not take into account migrant workers from rural areas, 15% of whom (and this is no less than 20 million people) lost their jobs in the period up to February 2009.3


Given the stagnation of foreign investment and export orders, the PRC is faced with an urgent task to ensure high economic growth rates, relying primarily on the activation of domestic consumption. This required special comprehensive measures aimed at stimulating solvent investment and consumer demand through the development of the investment process, the construction of large construction projects, the creation of new jobs, increasing the level of disposable incomes of the population, etc.

Already in the last months of 2008, the State Council of the People's Republic of China started implementing the 4 trillion yuan ($586 billion) package of anti - crisis measures announced on November 9, 2008 and planned for 2009-2010, which is used to finance the following programs::

- 1.5 trillion rubles-reconstruction of urban power grids and construction of infrastructure facilities (railways and highways, airports, irrigation facilities);

- $1 trillion-reconstruction of Sichuan Province areas affected by the May 2008 earthquake.;

- 400 billion - providing low-income households with affordable budget housing;

- 370 billion - implementation of projects related to improving the life of the rural population (electricity and water supply, rural roads);

- 370 billion - innovation and structural adjustment (support for R & D, development of high technologies, improvement of the service sector);

- 210 billion rubles. - environmental protection, including energy conservation, reduction of pollutants, construction of sewage treatment plants;

- 150 billion - education and health (construction and reconstruction of schools and hospitals, especially in the relatively poorly developed interior provinces)4.

Stimulating domestic demand is accompanied by measures to improve the supply of goods and services on the domestic market. To this end, in December 2008 - February 2009, the Reform and Development Committee developed programs to restructure and modernize 10 key industries in China, which account for more than 30% of GDP and 30% of urban employment. These include automotive and shipbuilding, petrochemicals, light and textile industries, mechanical engineering, ferrous and non-ferrous metallurgy, and information technology.5

The industry support mechanism covers a whole range of measures-from expanding and improving production capacities to targeted subsidization of demand in the relevant market segments, providing tax incentives, tax cuts, etc.-

* Due to the replacement of the renminbi-US dollar peg by a basket of currencies in March 2009, $1 was equal to approximately 6.83 yuan in November 2009 (approx. ed.).

page 9

changes in electricity tariffs, etc. For example, it is planned to invest $ 500 billion in the petrochemical industry over the next two years. RMB100 billion will be spent on improving technological processes to improve product quality, and RMB400 billion will be spent on building 20 new large enterprises.6 The value-added tax (VAT) refund rate for the export of petrochemical products is being increased.

In the automotive industry, the State Council of the People's Republic of China has allocated 10 billion rubles. RMB for the creation of a special industry fund to introduce new technologies and develop the production of so-called hybrid automobile engines using alternative energy sources. Administrative restrictions are being lifted, a 2-fold reduction in the car purchase tax is being undertaken, and subsidies are being provided to the population from the central budget for the purchase of cars (in 2009 - 5 billion rubles). RMB), developing consumer loans in the automotive trade, etc.

The steel industry support program is aimed at eliminating excess capacity with outdated production technology, accelerating technical modernization, encouraging corporate mergers and acquisitions to concentrate production, and reducing or completely removing export customs duties on the industry's products.

In December 2008, the State Council of the People's Republic of China allocated the first tranche of the anti-crisis program in the amount of 100 billion rubles. RMB. 34 billion rubles. RMB25 billion will be allocated for rural infrastructure development, RMB25 billion for transport network development, RMB13 billion for education and healthcare support, RMB12 billion for environmental projects and energy conservation, RMB10 billion for social housing construction, and RMB6 billion for innovation and structural adjustment.7

Using these funds, Shanxi Province has launched 36 housing projects that will resettle almost 14,000 low-income families and create 12,000 new jobs. In the Xinjiang Uygur Autonomous Region, construction of environmental protection facilities with a total cost of 250 million yuan has begun. The construction of a large railway bridge in Hubei Province, which is an important element of the Shanghai-Chengdu highway, has begun. In Liaoning Province, the construction of the first Hongyanhe nuclear power plant in Northeastern China is underway, etc.

Of the additional government expenditures allocated to finance anti-crisis programs, 1.18 trillion yuan is allocated from the central budget, while the rest is allocated from local budgets, bank loans, and non-state investments. In order to mobilize the necessary additional resources, the issue of targeted state treasury obligations was resumed for the use of the funds received in the investment sphere.8 In early 2009, the State Council of the People's Republic of China authorized the issuance of previously banned local government bonds totaling $ 200 billion. RMB to support projects of the anti-crisis program.


At the same time, since January 2009, to ease financial difficulties, Chinese companies have been allowed to issue and place corporate bonds worth less than 500 million on the interbank market. RMB. This significantly eased the minimum requirements for corporate borrowing on the stock market, which were established back in 2004. This measure is designed to facilitate the attraction of financial resources by small and medium-sized enterprises, which are most acutely experiencing a lack of financial resources due to the reluctance of banks to take on increased risk when lending to them.

In order to increase the money supply, in November 2008 the People's Bank of China (PBOC) adopted a so-called moderately soft monetary policy, which implies, in particular, expanding the financial independence of banks and increasing the ability of borrowers to access credit resources. First of all, the directive quotas for loans allowed to be issued by the country's credit and financial institutions during the year were abolished.

To support small businesses that are particularly sensitive to market fluctuations, conditions for credit operations for small and medium-sized commercial banks have been eased. The Banking Management and Control Committee announced that the loan-to-deposit ratio for these banks may exceed the established standard (75%) "within certain limits", and also recommended that banks strengthen credit support for small enterprises and the agricultural sector. 9

A decisive reversal has taken place in the policy of interest rates. If only recently, fearing the acceleration of inflation, the NBK purposefully tightened monetary policy and, accordingly, repeatedly raised the base interest rates on loans and deposits, then starting from September-December 2008, in order to stimulate bank lending to industry, it repeatedly resorted to measures of the opposite direction, namely, to reduce the level of interest rates including 3 times in September-October (each time by 0.27%), once in November (by 1.08%) and once in December 2008 (by 0.27%).

As a result, in a very short period of time, the base rate on one - year loans was gradually lowered from 7.47% to 5.31% per annum, and on one-year deposits-from 4.41% to 2.25% .10

At the same time, the NBK started reducing the mandatory reserve deposit rate for commercial banks. By the end of 2008, as a result of 4 consecutive reductions, its level was reduced from 17.5 to

page 10

14,5%. In October 2008, the authorities relaxed the requirements for obtaining mortgage loans.11

Focusing on stimulating both investment and consumer demand, monetary policy easing is supported by a variety of fiscal benefits within the framework of the so-called proactive fiscal policy. In particular, from August 2008 to September 2009, the government increased the amount of discounts on export duties 7 times after a sharp decline in exports due to weak external demand.12 In November 2008, it was announced that the practice of VAT refund for the export of products made in China was resumed. Starting from December 1, 2008, the tax is refunded to the producers of every 3rd product in the range of Chinese exports.

The tax system is undergoing changes designed to encourage enterprises to invest more in the development of production. Thus, starting from January 1, 2009, enterprises are exempt from VAT when purchasing new technological equipment for the implementation of investment programs. This reduces the tax burden on Chinese companies by $ 120 billion. RMB per year 13.

Special measures are being taken to facilitate the work of small and medium-sized enterprises. While previously small businesses and individual entrepreneurs in the trade sector paid VAT at a rate of 4%, and industrial enterprises paid 6%, now for both, regardless of their industry affiliation, a single VAT rate of 3% is established. For businesses with an annual income level of less than 300 thousand yuan, the income tax rate has been reduced from 25% to 20% 14.

In the same direction, the package of measures of the State Council of the People's Republic of China to stimulate the real estate market (December 2008) also applies. In particular, citizens of the People's Republic of China are now allowed to sell housing without paying taxes if the owner has owned this housing for at least 2 years (previously - at least 5 years). If the property has been owned by the seller for less than 2 years, the latter pays tax only on the difference between the sale price and the purchase price (previously - on the entire sale price). In order to activate housing purchases, citizens who have housing "smaller than average" (criteria are set locally) are allowed to buy a second home using concessional lending 15.

As part of the general anti-crisis policy of the government, tax relief is combined with additional large-scale expenditures of the state budget, which boost consumer activity of the population. In particular, we are talking about subsidizing grain prices and increasing financial assistance to farmers. In 2008, the central budget allocated $ 102.77 billion in subsidies to farmers. RMB, which is more than 2 times higher than in 200716

Special attention is also paid to expanding the program of subsidizing sales of household appliances. Launched in several pilot regions as early as December 2007, the program was extended to half of the country in 2009. At the same time, the amount of targeted subsidies for the purchase of household appliances by citizens from the state budget amounted to 15 billion rubles in 2009. compared to 9 billion yuan in 2008. In the coming years, the subsidy policy will increase domestic effective demand by more than $ 500 billion. RMB.


Credit and financial expansion - the main tool of the Chinese authorities in countering the global economic crisis-is characterized from the very first steps by determination and scale.

Already in November 2008, Chinese banks issued loans worth 476.9 billion rubles. Overall, in 2008, with an annual lending limit of 3.63 trillion yuan, the amount of newly issued loans reached 4.91 trillion yuan, which is 1.28 trillion yuan more than a year ago.

However, all this pales in comparison with the first half of 2009. In January-March, the average monthly amount of newly issued bank loans exceeded 1.5 trillion yuan, which corresponds to 5% of China's annual GDP (for comparison, this figure was 1% in 2007 and 1.35% in 2008). Although in the future the credit activity of Chinese banks significantly decreased, the average monthly size of

page 11


Growth / decline of the Chinese economy in 2009 compared to the same period in 2008, %


I sq. m.

I-II sq. m.

I-III sq. m (5)

Gross domestic product




Value added in industry












- government agencies




- non-governmental organizations


24,5 (1)


(including: foreign direct investment)

(-21,0) (2)

(-20,4) (3)



- 28,7(2)

- 22,0 (3)


Financial income of the State

- 9,9 (2)

- 6,7 (4)


Newly issued bank loans (billion yuan)


5840 (4)


(1) - estimate (2) - January-April (3) - January-July (4) - January-May (5) - January-August

Source: GSU data of the People's Republic of China (

New borrowing, however, did not fall below 2% of GDP.

At the same time, there was a noticeable change in the target orientation of credit resources. While at the beginning of the year they were largely short - term (by 40% in January) and were used to replenish the working capital of enterprises, over time they became more and more pronounced in terms of investment and were mainly used to support state-sponsored infrastructure projects. The share of loans for housing construction also increased. In general, according to Chinese experts, the amount of newly issued loans may reach 9 trillion yuan in 2009.

Acting as a direct catalyst for economic activity, the active credit policy has had a significant impact on the country's money market.

In December 2008, after a long reduction in the money supply, its return growth was noted. At the end of December 2008, the money supply indicator in a narrow sense (monetary aggregate M1)* amounted to 16.62 trillion yuan, an increase of 9.06% compared to the same period in 2007, which is 2.26 percentage points higher than in November. As for the broad money supply (M2 - M1 monetary aggregate + term bank deposits), it increased by 17.82% to 47.52 trillion yuan. In the future, the money supply continued to grow rapidly: in April 2009, the growth rates of M1 and M2 aggregates increased to 17.5% and 26%, respectively, compared to the same period of the previous year.

At the same time, the speed of money circulation in the economy was not so high. According to experts of the NBK, this was evidence of the receipt of part of the newly issued loans to the stock market of China, bypassing the real sector of the economy.18 Under these conditions, the allocation of budget allocations for investments was carried out at an accelerated pace: in January-May, they amounted to 562 billion rubles. RMB, or 61.9% of the total amount of funds allocated by the central budget to finance capital investments in 2009.19

Fiscal benefits, additionally provided by the government in the interests of saturating the economy with money, also seem quite appropriate. In January-August 2009, the amount of duties and taxes returned on exports increased by 8.6% and amounted to 263.35 billion rubles. RMB.

All this combined allowed the PRC to develop unprecedented investment activity in a short time. Already in the first quarter of 2009, reaching $ 2,356 billion. Compared to the same period of the previous year, gross investment in the national economy of the People's Republic of China showed an increase of 28.6% compared to 26.8% in 2008 as a whole and 26.1% in 2007. The same indicator for the first half of the year was 33.6%, and for January-August-33%, and in January-May 2009 (an increase of 38.9% compared to the same period in 2008), an absolute record of investment activity was recorded, starting from 2004.

According to the table, the main driving force of the investment process was financial support from the state. Despite the fact that 60% of China's GDP is produced today by non-state enterprises, which also provide 70% of jobs, the dynamics of state capital investment in the period under review was one and a half to two times higher than the growth of non-state investment, with a continuous (since October 2008) and significant reduction in the inflow of direct investment from abroad.

This is the fundamental difference between 2009 and the pre-crisis years, when the growth of non-state investment significantly outstripped the dynamics of capital investment in the previous year.-

* Monetary aggregate M1 - cash in circulation outside credit institutions + checks, demand deposits (editor's note).

page 12

government spending. Thus, in 2007, the growth rates of state and non-state investments in fixed assets amounted to 16.7% and 34.2%, respectively, in 2008, the same indicators were 22.8% and 28.7%. It is no coincidence that Chinese experts estimate that 80% of China's economic growth during the most difficult crisis period from January to June 2009 was financed by public investment.20 All this once again confirms the special role of the state in the development of the Chinese economy.

The rapid and massive attraction of huge investment resources to the Chinese economy has played a role. If in January-March 2009 the GDP growth of the PRC was 6.1%, which meant the continuation of the trend of slowing economic growth that began in the second half of the previous year, then in April-June this indicator increased to 7.9%, and in general for the first half of 2009, GDP growth in relation to the first half of 2008 amounted to 7.1%. Thus, there are certain grounds to say that China has passed the lowest point of the economic crisis, especially since, judging by the situation in the industry, the growing dynamics of economic growth in the following months has continued.

According to statistics, the growth of value added in the Chinese industry in relation to the same period of the previous year in January-August 2009 amounted to 8.1% against 5.1% in January-March. At the same time, record growth in production (26.6%) and sales (about 30%) was observed in the state-stimulated automotive industry. Against the background of falling sales of cars in developed countries, this for the first time brought the Chinese car market to the 1st place in the world. Such industries as the production of building materials (cement, glass, etc.), housing construction, chemical industry, non-ferrous metallurgy, etc. also developed at a faster pace.

It is also important that over time, there is a gradual tightening of investment activity in the non-state sector of the economy to the dynamics of public investment. If in January-March 2009 the ratio of growth rates of state and non-state investments was 1.7:1, then by the end of the third quarter - 1.4:1.Thus, the transfer of growth impulses generated under the government's anti-crisis program to the market sector of the Chinese economy has begun, which is the key to its progressive development.


China is trying to realize its comparative advantages in the face of the global crisis and thereby lay the foundations for further strengthening its own position in the post-crisis world. Having accumulated the largest foreign exchange reserves in previous years ($2.132 trillion in 2009), China is actively increasing capital exports, implementing the strategy of entering foreign markets adopted back in 2004, the essence of which is to "promote investment abroad and promote business cooperation with Chinese companies outside the PRC."

In 2008, Chinese investment abroad grew by 194%, although foreign direct investment declined by 20% globally. Of the total amount of direct investment exported by China to $53.4 billion, $40.65 billion is accounted for. They were directed to the non-financial sector, showing an increase of 64% compared to 2007. Overall, with $184 billion. By the beginning of 2009, following the United States, Germany, Japan, and others, China occupied the 6th position in the list of the world's largest capital exporters.

Since February 2009, China has acquired a series of crisis-hit assets in Asia, Europe, Africa and Australia. At the same time, 8,5 thousand Chinese companies-investors rely on the real support of the government, which not only allocates large funds (in 2009 - $2.1 billion) to stimulate the investment expansion of large state-owned corporations in foreign markets, but also consistently improves and liberalizes the regulatory framework for capital exports.

page 13

At customs: "One of the few things that can be seen from space is the Great Wall ... chinese imports".

In early 2009, the Ministry of Commerce of the People's Republic of China issued Rules for the Management of Foreign Investment, encouraging the export of capital and cross-border acquisitions carried out by domestic companies. The next step is expected from the State Monetary Administration, which, as expected by Chinese investors, will issue new temporary rules for managing foreign currency funds when making foreign investments by domestic companies, changing the procedure for exporting capital from permissive to notification 21. In general, in 2009, the export of investments from China may exceed their import.

Thus, by mid-2009, the Chinese economy, unlike most other countries in the world, began to show relatively complex signs of recovery.


At the same time, there are a number of circumstances that indicate that after the financial turmoil, it is still too early to talk about a real exit of China to the trajectory of sustainable economic growth.

Thus, in the context of the continuing contraction of external demand and falling exports( see Table), which has long been the" locomotive " of China's development, the government is forced to make the main bet in reviving the economy on pumping it with investment, the vast majority of which, of course, goes to the public sector. However, the efficiency of these costs is not so great. In particular, in January-August 2009, with an increase in industrial value added of 8.1%, the corresponding figure for private enterprises was 17.4%, for joint-stock companies-10.5%, and for state-owned enterprises-only 3.3%.

Hence, the tendency to decline in the state's financial income continues.

The 2009 budget provides for an 8% increase in revenues, a 22% increase in expenditures, and a budget deficit of 3% of GDP. However, in practice, the situation is different. In the first half of 2009, state tax revenues fell by 9.4% compared to the same period in 2008, while all budget revenues fell by 6.7%. At the same time, budget expenditures increased by 27.8% (especially significantly increased costs for the development of transport, agriculture, and environmental protection). As a result, according to international experts, the size of the budget deficit in 2009 may reach 4.9% of GDP against 0.4% of GDP in 200822

In addition, an avalanche of investment funds into the economy is fraught with disruption of market mechanisms for intersectoral resource redistribution. Statistics show that a number of industrial sectors, where even before the crisis accumulated excess production capacity (cement production, non-ferrous metallurgy), in the first half of 2009 had a production growth rate of more than 20%. This forced the State Council of the People's Republic of China to issue an order restricting their investment activity.

On the other hand, such a key industry for the development of industry and the economy as a whole, as the electric power industry, in the same period was characterized by a reduction in production by 3.55% 23. Stimulating the growth of an imbalance in aggregate supply and demand, this situation can turn into a kind of" technological blood clots " and serious problems.

Finally, the situation in the financial sector is alarming. The credit boom of the first half of 2009 raises fears of a new pile of so-called bad debts and disrupts the relative stability of the Chinese banking system, which was achieved with great difficulty in previous years.

In general, while the economic situation in China is much more favorable than in other countries, it still retains pockets of instability.

The prospects for the Chinese economy to finally overcome the consequences of the global financial and economic crisis directly depend on the extent to which it will be possible to transfer the stimulating effect of the growth of public investment to the dynamics of private investment and investment at the expense of enterprises ' own funds in the near future.

It is also important to restore the position of China's exports, whose prospects are directly dependent on the effectiveness of efforts made to overcome the crisis by other countries of the world - China's leading business partners.

1 Xinhua News Agency, 08.01.2009, 15.05.2009.

2 World Bank China Quarterly Update. June 2009, p. 6.

3 Op. cit. March 2009, p. 5.

4 Op. cit. December 2008, p. 14 - 15. Xinhua News Agency, 16.12.2008; 31.12.2008; 22.05.2009.

5 Xinhua News Agency, 13.01.2009.

6 China Daily, 22.01.2009.

7 World Bank China Quarterly Update. March 2009, p. 18.

8 11.12.2008.

9 China Daily, 15.12.2008.

10 China Daily, 15.12.2008.

11 Expert, 2008, N 45, p. 46.

12 Xinhua News Agency, 07.10.2009.

13 World Bank China Quarterly Update. December 2008, p. 15.

14 China Daily, 10.12.2008, 14.01.2009.

15 Xinhua News Agency, 10.01.2009.

16 Xinhua News Agency, 5.01.2009. Expert, 2008, No. 45, p. 44.

17 China Daily, 02.02.2009. Xinhua News Agency, 11.01.2009.

18 Xinhua News Agency, 15.05.2009.

19 China 15.06.2009.

20 Xinhua News Agency, 08.09.2009.

21 China Daily, 22.06.2009.

22 World Bank China Quarterly Update. June 2009, p. 14.

23 15.06.2009.


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