A Financial Rescue in China

To research the economic trend in China, we must analyse it according to Chinese logic . The Chinese economists are used to use three carriages(investment, exports and consumption)  when proofing the economic. Unlike USA, consumption made a small contribution to GDP in China. Before 2007, investments and exports accounted for 80% of GDP while consumption only occupied 20%.After the Subprime Mortgage Crisis in 2008 ,the export fell dramatically  which made a great impact on economy. Consumption cannot be changed in a short time because of the  weak consumption power of the generally public and incomplete social security system.

So the main idea to rescue the financial market relied on investment by the government. However, the total local government’s debts are about 40000 billion CNY at the end of 2007 .There are 2  direct ways to raise money :one is to sell lands, another is to increase the tax revenue and expenses of enterprises. If local governments want to sell lands in high price, they should force up the housing prices. This can be achieved by putting in the staggering amount of credit. Large amount of credit into the market may cause the public panic about the currency depreciation, so money flows into the market and activate the real estate. The real estate is the breakthrough of the financial rescue in China. At the same time, government has released many preferential polices in a housing loan and tax rate. People queued up to buy houses which resulted the increasing housing price. Local governments raised large amount of money to investment  fund  rapidly as housing has become a financial products .

So the way of saving market in China is to raise enough money through real estate and tax revenue to support the investment plan, then activating the domestic demand through investment and consume-encouraged policies.