China, Economic Crisis?

While the financial crisis of South America has been dispersed, the economy of China shows a serious situation. It is the economic crisis of China.

Through joining the World Trade Organization (WTO), China tried to transform into the capitalism open system, but the reform was failed. International financial circles and Chinese experts insisted strongly that China is possible to confront the financial crisis.

Gordon Chang, author of ‘The coming collapse of China’ warmed that China will be highly risky for becoming the 2nd Argentina. Both of countries has been in a similar situation whish has the financial system with NPL and performed the only economic growth depending on financial extension”. “If the foreign capital has decreased, the China will confront the default crisis within 5 years” predicted he.

Joe Studwell, author of ‘China Dream’ He takes to task these predictions of growth – and instead foresees an economic crisis for China in the wake of the foreign-investment gold rush of the last ten years. The china government has taken passive measures in reforming the non-performing baking system and non-competitive government enterprise.

According to the China economy report published by World Bank last month, the government has over 60% of shares out of total prices of China stock market. Excessive shares of Chinese government not only block the request of management improvement of general shareholders, but also delay a disposal of NPL of banks.

THE ECONOMIST reported that the crisis in various fields such as finance and labor is caused by a disparate combination of socialism and capitalism.

That is, China has taken measures to encourage corporate activities of the private field and change the labor and capital effectively. However, measures were under control of the government. China established the China Stock Exchange in Shanghai and SHENZHEN, but had a limitation of socialistic operation because only government and institutional investor played a decisive role in a fluctuation of stock price.

Because of it, THE ECONOMIST indicated the China economy as an innate deformed child born as the socialism invades the capitalism. The china economy cannot be successful without private-initiated-western capitalism.

Stanley Fischer, a vice president of Citi Bank interviewed with Wall street journal “If China succeeds in transforming into a capitalism, China will be a real growth engine of Asia. China may carry out a dramatic reform successfully. However, the reform of China will never be easy”.

Mi-Kyung Jung mickey@donga.com