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What is the impact of the global economic decline on the world's fastest growing economy?

Article Excerpt
The world is very familiar with the unprecedented economic growth enjoyed by China over the past few years. However, China, similar to other countries, has seen its financial engine slow owing mostly to the global economic decline. For instance, China's economy grew at 6.1% in the first quarter of 2009, which is the slowest rate of growth in nearly a decade, down from the 6.8% realized last quarter and from the 10.6% level year-on-year.

Gross domestic product (GDP) reached 6.6 trillion Yuan (approximately US$939 billion) during the first quarter. Meanwhile, overall industrial output grew 5.1 percent for the quarter and gave encouraging signs of continued improvement. Recent China Government supplied data indicated that industrial output grew 8.3 percent in March 2009, supporting the premise that the Chinese market is rebounding somewhat. However, continued increases in unemployment throughout China may erode both the output for the second quarter and the enthusiasm for a rebound in the economy garnered during the first quarter.

At the end of 2008 China announced that it would be initiating an economic stimulus package valued at more than US$580 billion. A good portion of this package was earmarked to expand China's infrastructure (i.e., roads, airports, train lines, electric power, etc.). Shanghai airport has already announced plans for serious upgrades and in Beijing, where highways already exceed 20,000 kilometers, there are plans to construct another 5,000 kilometers over the next two to three years. Tianjin plans to build at least nine additional subways. China has also indicated that investments in Zinjiang power grid will double that of last year. China will also use part of the stimulus package to increase subsidy for auto, home and appliance replacements. With the fall off in exports, China is hoping to increase domestic sales.

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China's consumer price index (CPI) and producer price index (PPI)--two major indicators of inflation--appears to have declined 1.2% and 4.6%, respectively, while retail sales grew 15 percent. Other positive areas in China's economy were a 28.8% rise of fixed-asset investment compared with last year, to a level of $411 billion. Figure 1 highlights China's GDP versus other Asia/Pacific countries.

Another interesting measure of how well China is weathering the economic storm is the level of foreign investment recorded. Foreign direct investment declined 20.6% in the...

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