Abstract
The objective of this paper is to explain the factors that led to the effectiveness of Chinese monetary policies during the financial crisis. As the crisis hit China, China’s economy faced two external shocks in the investment and export sector. The reliance on the international market, together with its constrained monetary policy and institutional problems, make it worthwhile to consider why China was the first country that recovered from the financial crisis. Through the analysis, the paper identifies three sources of the efficiency. The first concerns with the previous economic health. The second involves the well-coordinated fiscal and monetary policies and the last derives from China’s institutional characteristics. Moreover, it is argued that some policies made during the financial crisis may carry risks and other negative implications in the long run. The paper focuses on two of them, namely the implications on the real estate market and economic restructuring.
Highlights
The position of China’s economy around 2008 is far from ideal in the general sense
In the four years leading to the financial crisis of 2008, the ratio of export to GDP ranged 31 to 36 percent
Prior to 2008, Chinese monetary policy framework focused on quantity control, a legacy of planned economy
Summary
The position of China’s economy around 2008 is far from ideal in the general sense. China’s economy is heavily dependent on global trade and investment flows. The main question this paper wants to address is this: how is it possible for the monetary policies to be so effective against the serious odds? China is back on track having 11.9 percent growth of GDP by the first quarter of 2010 as a result of the expansionary policies. The purpose of the paper is to present a more wholistic picture of the. Situation, that is, its purpose is to understand the situation better in retrospection
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