Jump to content

Urban poverty

Social stability as the key to sustainable growth: transition to democracy and a system in line with international norms needed

Will the Olympic games be a turning point for China’s economy?

Authors: C.H. Kwan
Publisher: Japan Center for Economic Research , 2008

Full text of document

This Brief examines some challenges that China may face after the Beijing Olympics in August. The Games could represent a turning point for its economic, political and social life. In order to keep its high economic growth rate in the medium and long run, China must improve both structural reforms and economic and social equality. However, the country´s macroeconomic performance has been negatively affected by the recent world economy slowdown triggered by the U.S. subprime mortgage meltdown.

Some relevant aspects of China´s economy prior to the Olympic Games include the following:

  • in 2007, the rate of economic growth stood at 11.4 percent, while interventions in the foreign exchange market led to an appreciation of the Renminb (RMB)
  • money supply increased rapidly, provoking an expansion of liquidity
  • inflation had risen and, most importantly, asset prices had soared
  • share prices have been adjusted due mainly to the tight of monetary policy combined with the appreciation of the RMB
  • exports might decline due to the deceleration of the world economy
The author compares China´s economic performance with Japan´s prior to the 1964 Tokyo Olympics. China has increased its already high level of investment in preparation for the Olympics. However, there is an uncertainty regarding the country´s ability to maintain its investments after the Games that could lead to a decrease in growth in Beijing and nearby areas.
 
It is argued that the growth pattern can change on the supply side shifting from the expansion of input volume to an increase in productivity, while on the demand side a more balanced pattern, notably in consumption, should be pursued.
 
The income inequality in China needs to be faced. The author observes that a “harmonious society” will be achieved by establishing a mechanism that has to be effective enough to resolve conflict of interests. However, it will not be reached without a greater participation of civil society in the political process through democratisation.