Outline the way that China has been affected by the recent financial Essay

Outline the way that China has been affected by the recent financial crisis of 2008 and subsequent recession. Explore their econ - Essay Example In 2008, the problem was in the sub-prime market in major investment banks in Wall Street. The turning point in 2008 in the crisis was the fall of Lehman Brothers. The world was soon involved in this crisis as many government rushed to implement nationalization policies in their countries to prevent further damage. A number of bad debts also arose during this period because there was a great deal of selling of financial assets with the mortgages that were given out and they were sold all over the world but this became a complex procedure as more and more countries were lending and banks and other financial institutions did not have an idea as to how far in the globe their loans were going. A credit crunch arose in the world which led to a break in the lending system in the world as there was no money to give. This had a detrimental effect on the entire world’s economies including China (Krugman 2009). A fall in output occurred due to the burst of this real estate bubble. This lead to nationalization all over the world as aforementioned and governments made failed attempt after failed attempt to assuage the situation. The government injected more and more money in the economy because demand had fallen and banking systems were trying to hold on. Chinese government increased their spending as well as made tax cuts wherever they could in order to improve the situation of the economy (Soros 2008). The focus of economies including China shifted in two ways. The debt was the responsibility of the public not the private sector since the government had nationalized the economy. And finance was no longer the epicenter, it was the government. Bankers were unwilling to lend and buy bonds because they were fearful of the future due to the crisis. Therefore the financial markets continued to worsen in 2009. China seems to be doing well after just a short duration of time while the other countries are still suffering the blows of the crisis. China in fact had growth of double digits even though it is vulnerable to the changes in the economies of the world. The government in China had to inject money equal to 14% of the GDP in order to boost the economy when the markets in US and Europe fell and they didn’t demand any exports. Social aspects of this injection was relatively little, only about 20% of this stimulus, and the rest went to investment in fixed asset such as concrete, steel and this also lead to the world’s speediest rail system being built in China. Even though this sector was working with excess capacity, the government considered this action to be the correct one (Goodstadt 2011). In 2009 as well, China underwent its own real estate bubble. In this bubble, the prices of apartments shot up by 50 to 60% of their original price, especially in Shanghai and Beijing. New complexes that were being built were abandoned because demand was falling, and so there were half built places all over the country, and there was no sign of growth as no one was constructing which is the first step in order to have a house to sell (McLean & Nocera 2010). The prices of houses were also way beyond the incomes of people and households in the economy. This lead to expansion of credit in China, but one which was cheap, and wages were bogged down artificially so that household transferred their income to businesses and rather than consuming,