China is playing a defensive role in this crisis, not supportive.

Dec.03, 2008 in Market Outlook

China’s current situation:

In recent weeks China’s once unstoppable economy has slowed sharply. Export growth, one of the main contributors to China’s expansion over the past decade, has receded and seems likely to reduce overall growth next year, according to the World Bank. The stock market is in the doldrums and property values in many cities are off 30 to 40 percent.

China’s annualized growth rate, which stood at 12 percent during the Olympics, has already slid to 9 percent, an admirable number by American standards but ominously close to the 8 percent figure that Chinese economists say is required to provide jobs to the 20 million people who enter the work force every year. On Monday, J.P. Morgan cut its fourth-quarter growth forecast for China to 7.7 percent, and other analysts predict that number could hit 5 percent next year.
http://www.nytimes.com/2008/12/03/world/asia/…

China’s latest moves:

The State Council, as the Cabinet is called, intends to give an extra 100 billion yuan ($14.6 billion) of credit volume for 2008 to the three banks — China Development Bank, China Export and Import Bank and China Agricultural Development Bank — Xinhua reported.

China’s so-called control risk–not invest into any of troubling western financial institutions.

China’s sovereign fund ‘wary’ of western banks
China Investment Corp. chief says he doesn’t trust Western financials amid lack of clarity on outlook, effect of government policies
By Chris Oliver, MarketWatch
Last update: 3:50 a.m. EST Dec. 3, 2008Comments: 27HONG KONG (MarketWatch) — The fund directors behind China’s $200 billion sovereign wealth fund said they have no intention of channeling more funds into Western financial companies at this time, because of limited insight into what kind of shape they are in, and the effect of government bailouts, according to a media report.

China is not investing, it is consolidating it’s capital structure.

Also, China is manipulating it’s currency cheaper to benefit it’s export/import business to boost the economy.

When government controls everything, there is nothing much you can do about it. This move significantly hurts U.S and other European countries.

That’s why : Paulson urges Chinese to continue allowing it’s currency to rise.

However, DO NOT underestimated China.

China government has the biggest positive balance sheet and people have huge savings that can influence the it’s and the world economy.

Chinese don’t spend a lot and do not borrow. This culture finally came to the center of attention in this crisis. While everyone like Americans in the world are borrowing huge amount of money to spend, Chinese are still in a money saving mode. Which makes China a huge advantage to deal with this crisis, China is really one has more ammo for economic downturn. China’s Rate cutting will has a much bigger effect than U.S did.

Government analysts are looking to consumers, especially the country’s hundreds of millions of high-saving peasants, to pick up much of the slack. “If we can boost people’s confidence and they spend more money, it will not only be beneficial to China but it will help stabilize the world’s economy,” Zhu Guangyao, the assistant finance minister, said last week.

China has the biggest population with huge savings, it can create new markets themself and boost domestic demand.

The problem is how Chinese government is going to do to motivate people to consume.
Realistic or not, Beijing seems determined to give it a try. Although it is weighted toward bridge-building and highway-paving initiatives, the $586 billion stimulus package announced by the government last month includes a range of incentives intended to get Mr. Dang and his tightfisted brethren to unstuff their proverbial mattresses. And a biggest rate cut since 1991.

The recent moves are not obvious signals that China is start to help the western financial crisis yet, they are too busy taking care of their own economy.

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