Analysts: World economy adjustment will affect China in 4 ways

At the China Macro Economic Forum (3rd season 2008), analysts says that the current world economy adjustment will affect China in 4 ways.

Analysis show that the current world economy shows 3 basis characteristics. 1) The world economy has entered an economy downturn region. 2) Global commodities surge in prices and fluctuations and also inflationary pressures. 3) Key countries financial crisis spreading and US economy's external unbalanced continuous correction.

Under the influence of the current economy downturn adjustment, the biggest and longest impact to economy bodies has 3 characteristics. 1) High reliance on external trade. 2) Export of manufacturing and processed products together with bulk import of commodities. 3) Large amount of foreign reserves.

For the Chinese economy, such impacts will show in 4 ways. Increase of commodities prices causing import of "price erosion" and with the depreciation of the US dollar and other factors causing China's foreign reserves "actual buying power" to reduce greatly.

1) The depreciation of the US dollar will cause large influx of funds into China causing fluctuations in exchange rates and cause inherent pressures.

2) Commodities price surge and huge fluctuations will have negative impact to the Chinese resource-intensive industrial enterprises especially the processing and manufacturing enterprises profit margins endangering China's current status of the world's manufacturing center.

3) Decrease in external demand and unfavorable development of trade conditions will have negative effects on the export industries balance sheets. All such impacts will endanger the banking systems credit quality and further endanger China's macro economic stability.

Analysts believes that the current global economy adjustment may have mid to long term risks. But in the short term, there will be also disorderly adjustments like currency crisis and trade policies against the normal cycles. This means that under the pre-condition of maintaining short term stability, there is a need to accelerate financial and economic reforms to counter the mid to long term effect of the current economic downturn adjustment.