Key word: Olympics

In August, a 4.7-billion audience worldwide saw over 80 Olympic and world records broken at the 2008 Beijing Olympics. Some worried that the huge investment in the Beijing Games would incur losses and a substantial economic downturn would occur following the Olympics.

Fan Gang: Normally the argument is that Olympic had a lot of investments, a lot of constructions. When all these constructions stop, then the economic will be hurt, like what happened in Seoul, in Tokyo or in other countries. But this is China, this is so big and the construction scale is so big. Olympic is really a small potato. Now there are lots of construction people already say, but then after Olympic, there’s more. So the demand for those investments is not going to be the problem for Beijing even. For other countries, China has 31 provinces and cities and so many constructions are going on and so many will come up. So I’m not saying Olympic has no impact but it’s really little.

Qin: Although the impact of Olympic on the general economy will be minimal or regional at least, what about its impact on the house and stock market?

Stephen Green: It's very difficult to see. The asset market generally performs well in the context where you have inflation and the pressures still remain very strong. And also the possibility that the government has to do more to control inflation, raising interest rates and other staff, price control or whatever it is. So that kind of context is difficult to be bullish, stocks or housing. It's difficult to say that changing in the context of inflation and pressures. So maybe we’ll see a little bit more weakness in the second half of this year and maybe next year we will see some stability return.

Key word: Property market

There were growing worries in some parts of China about the once seemingly irrepressible property market. In Beijing, residential apartment sales fell almost 50% in the first half of 2008 compared with the same period a year ago. By the third quarter, some Chinese industries began to feel the negative impacts of the crisis, these included manufacturing and real estate.

Qin: Now let’s talk about the subprime crisis because that has had a huge impact on the global economy. Does that have impact on China?

Anthony Couse: From China's perspective, it is early days. The government measures to curb the investment speculations or development from foreign investors into China was more than 18 months ago, so the government already had measures and empires to curb that speculation in the market from the developer's or investor's point of view. So it's kind of coincidental, the government was trying to cool the market down. Now we are seeing the impact of the global credit crisis. We are not yet seeing it in China. China feels the impact which is inevitable. In 2009, you will see that impact into China. I think it's really the latter part, the second half of 2009, we started to see it and into the first half of 2009, as these global corporations go through that planning phase in 2009.

Key word: Subprime Crisis

The credit crunch, which long ago moved beyond its origins in subprime mortgages, began to accelerate in September 2008.

Qin: Talking about the US subprime crisis earlier this year, people are predicting that the follow of the subprime crisis will start to diminish in the second half of this year. Are we seeing the signs of a diminishing impact?

Stephen Green: There has been quite a period, where news at the financial sector in the US has been more positive, so that the economy seemed to be doing ok.

Qin: Things started to picking up.

Stephen Green: Yes, the Dow was up. Everyone was saying this is the end, and now, in the last week or two, we’ve seen sentiment really turn again very negative. What are the reasons for that? Well, I think that the crisis is going to move out Wall Street, and it’s going to hit wider America, not only consumption, which I think is on a downturn that will remain very, very bad for next 12 or 18 months.

Qin: But do you think this is going to turn into a more general economic crisis for the US?

Stephen Green: Yes, we are looking at something that’s going to feel like a recession. Particularly, in the last 5 years, when you look at job growth in America, even though the stock market was performing very, very nicely, corporate earnings were fantastic; if you look at job growth, it’s actually very, very low. And so, I think we’ll see a very, very difficult year ahead for the US and certainly no easy solutions.

Qin: The US sub-prime crisis, what can we learn form that experience?

Li Ruogu: There are comments about the subprime crisis. But I probably have some different views on the issue. And I think the subprime crisis is not supervisory crisis, is not a supervisory problem. Again it is the internal control problem of the banks. They rely too much on the external rating agency to give their ratings of those sub primes; they should have their own internal rating agencies or internal rating system which can more correctly, accurately evaluate the risk. So let us do something to change the internal control and also the CEO selection process. And to select the right person to run a right system, this is one thing. There are a lot of risks against this instrument. So they should have an allocation, or previsions to mitigate if something happened to their problem. So they have overall no this kind of things. So this is the lesson the banks, or financial institutions can learn from this subprime crisis. After the crisis, United States suggest we should have more unified supervisory framework giving central bank and more supervisory powers, which I think is correct.

Key word: Recession

Up until September, the government had been consistent in combating inflation and economic overheating. However, the Chinese economy took a sharp turn after the precipitation of nearly all economic indexes in October and November. China's import and export value dropped for the first time in seven years in November 2008, as the financial crisis began to escalate. China’s proactive fiscal policy was key to preventing the economy from falling further. Recently, the government has lowered interest rates, increased export rebates and cut property transaction taxes to boost domestic consumption.

Qin：The US subprime crisis has caused the reduction in consumption demand, and that might affect China's export to the US and Europe. What is your take on that?

Long Yongtu: As a matter of fact, China’s export market has been diversified in the last few years even though US market is still a very important market. So it’s not a decisive market. So there will be some negative impacts on China’s export. However, it might become a kind of pressure for the Chinese manufacturers and exporters to improve the quality and re-adjust the structure of the export because the Chinese government has always advocated this kind of re-adjustment and also moving from no-value-added products to middle and high value added products for export. And without this kind of pressure, it will be very difficult for the Chinese manufacturers and exporters to achieve that goal. Now with the kind of declining export demand, that might impose some really good, to some extent, positive pressure to the Chinese exporters so as to improve the quality as well as the high value added products. In that sense, maybe it is a positive thing. Of course we also see there might be some negative impacts on some of the manufacturers because of the employment of some workers might be negatively impacted. As that’s the price you will have to pay for any economic adjustment.

Key word: GDP

China's GDP growth is expected to slow with an economic growth of only slightly over 9 percent in 2008. In December, Goldman Sachs led the international institutions by adjusting its forecast for China's growth in 2009 to 6 percent. The government introduced a 4-trillion-yuan stimulus package in order to cope with slumping business.

Qin: You predict that China will sustain an 8 percent annual growth over the next 20 years, but now things have changed. Internal factors and also outside factors like the US subprime mortgage crisis that hit the global economy. And China is one part of the global economy. Do you still hold that prediction?

Fan Gang: Yes, I still. NO.1, we do see that in the long run, China’s own consumer market will pick up. China will less depend on the export. NO.2, the relationship between China’s growth and US economy has already changed very much. Export to US now only count for 20% of China total export, and other emerging market plus the Europe now become more and more the destination of China’s export. So we look for the long-term factors, not this short-term. Short-term you always have the kind of short-term fluctuations.

Qin: There is also an argument that China's economic growth is caught in a certain pattern. You grow very fast in the beginning. Until one point when central government steps in and imposes these tight measures to cool it down, but then you grow even bigger. What are your thoughts? Is it healthy?

Fan Gang: Which economy didn’t have this circle?

Qin: Isn't this a sign of economic crisis?

Fan Gang: In past 30 years, China has been very successfully prevented any crisis. We didn't see the wide spread bankrupt crisis. In the middle 90's,we got the huge problem of non-performance loans. A lot of company got bankrupted. But basically this economy continued to grow at 8-9% at that time. Basically I was identified that it still has a soft landing rather a crash, so I expect that kind of situation may continue for a while. I don't expect the institution will be improved so quickly and so fundamentally to stop this kind of things very soon, but I will say to take a right policy, macro-policies and at the same time to continue reform. I believe this kind of growth can still continue.

Few years in the past have been as accessible to change as 2008. Policymakers have had to promptly shift their focus - in just a few months' time - to stay off an economic downturn. As such, the Chinese government is stepping up efforts to keep its own economy running smoothly.

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