Impact Of Crisis On Import And Export Economics Essay

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The global financial crisis affects China's economy and cause the Gross Domestic Product to decrease dramatically. In the second half quarter of 2008, China's economic growth rate came to a sudden halt and eventually affects the whole country's economy slowdown. In the year 2008, China's annualized GDP growth dropped to 9% (6.8% in the fourth quarter) from 13% in 2007. (Refer to Figure 1)

GDP.PNG

Figure 1: China GDP Annual Growth Rate in the year 2007 to 2008.

Impact of crisis on Import and Export

Among all sectors, China was too depended on the import and export of the country which is high above 70%. Therefore, import and export sector is the sector that hit most directly by the global financial crisis. In the year 2005 to 2007, the contribution of net exports such as goods and services to the GDP growth was more than 20%. However, the exports of goods and services had fallen into recession due to the impact of global financial crisis after the Lehman Brothers collapse. The growth of China's gross import and export value drop dramatically since July 2008 and eventually become negative in November 2008. Due to the declining demand for industrial raw materials and commodity price, it affects the shrinking of China's internal demand and therefore, imports have decreased faster than exports.

Impacts of crisis on Consumption

Besides, this global financial crisis also impact on China's domestic consumption. The consumption of Chinese people was declining since global financial crisis. (Refer to Figure 2) Based on the China's Consumer Confidence Index (CCI), the consumers' confidence has begun to drop which dip down from 94.1 to 86.5 between June 2008 and June 2009. The year-on-year growth rate of the total retail sales of consumers goods also drop from 23% to 15%. This happened because of Chinese people had increased their family's saving by a large margin and trying to curb of expending due to their expectation of declining income and worsening economic situation. (Refer to Figure 3)

Gross Domestic saving.PNG

Figure 2: Household final consumption expenditure in China on January 2006 to January 2010.

Gross domestic consumption.PNG

Figure 3: Gross Domestic Savings in China on January 2006 to January 2010.

Impacts of crisis on unemployment rate

In addition, Chinese labour market was also seriously impacted by the global financial crisis. Unemployment rate increase sharply indirect result in China's GDP decrease. The population that was most negatively and directly hit by the global financial crisis was the migrant workers and college graduates.

According to the Chinese government, the registered urban unemployment rate keeps on declining since 2003 and increased from 4% to 4.2% in 2008 and 4.3% in 2009. However, the real unemployment rate is bound to be far higher than the registered one since the employment of migrant workers, urban informal sector and self-employed who did not covered by the social protection system, which is not under the registered urban unemployment rate. Therefore, investigation unemployment rate which is calculated through employment survey system which is more likely to reflect to real situation which have a much higher unemployment rate.

High unemployment rate were seriously affected by the shrinking of import and export. Studies show that in the year 2008, the shrinking of exports in various sectors results in the loss of 23.5million non-agriculture jobs, about 5.2% of the total number in year 2007. During the past 20 years, Chinese migrant workers have become an indispensable component of the labour force. The number of migrant workers expands by 79% in the year 2000 to 2008. In Southeast China, the export-oriented manufacturing enterprises were the ones who hit most directly by the global financial crisis. Since most of them are labour-intensive in nature and hire mainly migrant workers, the loss of foreign orders makes the organization getting worse and started to fired migrant workers to reduce their production cost due to the lack of labour unions to protect migrant workers' rights and also low cost of firing them. In addition, migrant workers have not accessed to the urban social protection system, such as unemployment insurance enjoyed by their urban counterparts. Consequently once they lose their jobs, they have no choice but to go back to rural area.

Apart from the rural migrants, unemployed college graduates were also increasing in these few years. Therefore, China had started the program to expand the college enrolments since 1998. The expansion of college has provided a lot of opportunities for student to enter colleges. On the other hand, it also creates pressures on job opportunities. In the past a few years, millions students could not find a job before they left university. Unemployment rate for the college graduate usually reached about 30% upon graduation and reduced to about 10% after 6 months of graduation. Unemployment of college graduates have become a big issue even before the global financial crisis. Therefore, after the crisis, the job markets for college students have been further deteriorating. By the May of that year, graduates who signed employment contract had less than 40%.

Impacts of crisis on poor

Before the financial crisis has seriously affected China's economy, the poverty incidence decreased from 31% to 2.5% during the past 30 years. Poverty incidence decreased due to Chinese government successfully implemented the poverty alleviation program. The number of rural poor decreased must thanks to China's fast economic growth and definitely anti poverty policies. Anyway, in order to alleviate poverty, improving the rural economic development as well as increase the farmers' income quickly play an essential role.

Global financial crisis in 2008 impact on poor in China is initially demonstrated from farmers' drop in income growth. Since the global financial crisis led to a huge wealth evaporates, the worldwide demand for the agriculture goods begins to decrease in the next half year. This caused the price of agricultural goods decreased all around the world including China. To this end, the Chinese people's demand for agricultural goods started to decrease so caused the farmers' income growth decline and further stop the farmers to improve their live.

Due to the global financial crisis happened, there are more and more people are unemployed, especially the migrant workers. The burst of this financial crisis seriously influenced lots of export-led private companies in China have closed down, so lots of laid-off migrant workers cannot find new jobs during this period. When the number of unemployed migrant workers increase, will cause their income rate decreased. It is the impact on the poor in China. There are 140 million migrant workers in China and young migrant workers that below 30 years old accounted for 52.6%. There are 82.9% among of them have only junior higher school or below education background. The people which low education background, they are easier to loss their job than other people which are higher education during financial crisis period. Hence, the economic conditions deteriorating will cause poverty in many laid-off young migrant workers.

Because China has not yet been perfect education loan system, so there is about 50% students which are come from poor families in countryside area need to use all their parents' incomes or savings to continue their tertiary education. During crisis period, unemployed college graduates from countryside area have more financial pressure than other middle-income families' students. A national survey data displays that students that are come from countryside area also called rural area have higher unemployment rate. For instance, from Table1, the unemployment rate for the students from rural area which are graduates from 4 years college is 9.1% is higher than 6% of the students from urban area. Thus, unemployment of college graduates more impacts on rural poverty during financial crisis.

Table1. Unemployment by education

images 4.jpg

Lastly, the crisis influences on urban poverty not so serious than in rural areas. However, Table 1 shows that the students from urban area which are only have senior high school or below education background have higher unemployment rate than students from rural area of the same education background. Like many of the people who come from poor families in city region, its adverse impacts on the poor families cannot be underestimated.

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