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Will Chinese Economy Slump into Recession after the Olympics?
    2008-06-24 19:42:21     CRIENGLISH.com

The Olympics have been the buzz word throughout China's business sector for much of this decade. Given its huge potential, no one has any doubts about the prospects of linking business with sports. But what will happen two-weeks after the Games have ended? Will the Chinese economy slump into recession as many host countries have in the past, and how will the government minimize the risks of an economic downturn? Let's follow our reporter Wang Lei to take a look.

Reporter:

As host country to the 1992 Barcelona Summer Olympics, Spain yielded a great harvest in terms of market income. In particular, the Olympics boosted local tourism. In 1992, the coastal city ranked 16th among Europe's Top Tourism Cities, but after the Games, Barcelona jumped to the third position. However, the tourism boom was overshadowed by an economic downturn. On top of that, the local property market suffered dramatically by the Games. Soaring prices had a negative impact on the accessibility and affordability of housing.

Post Olympic downturns have also been experienced here in Asia. After the Tokyo Olympics in 1964 and the Seoul Olympics in 1988, the economies in both Japan and South Korea slowed by more than 2 percent on a year-on-year basis. In contrast, both nations had been enjoying double-digit growth in the run-up to the Olympics.

One of the sponsors of the Beijing Games, the Bank of China, has carried out a study of 12 Olympic Games spanning 60 years. In nine of the 12 Olympics, the hosts' annual GDP growth during the eight years following the Games was 0.4 to 2.5 percent lower than the eight years prior to the event, revealing that an economic slowdown after the mother of all sport meets is commonplace.

So is China on the road to an economic downturn?

Fan Gang, a central bank advisor, told a recent Olympic forum in Beijing that the Chinese economy is set to grow healthily and steadily after the summer Olympic Games and a post-Olympic economic downturn is highly unlikely.

"Economic slowdowns are related to the scale of the economy and the scale of investments. China is a big country. Beijing is small. Even if Beijing's investments on infrastructure drop sharply after the Games, it will not have a significant impact on the nation's economy."

Fan Gan says deceleration occurs largely in small nations that have a great reliance on investment, so as investments shrink after the Olympics, the economy slows. He also anticipates it would be unlikely for Beijing to slash fixed asset investments since the city is still in the early stage of urbanization and its appetite for infrastructure will still be huge after the Olympics.

His view is shared by Dr. Li Daokui, the director of the Center for China in the World Economy at Tsinghua University. He says an economic downturn always takes shape in developed economies, where room for future growth is limited.

"For countries like China whose economic development is still in the initial stage, there is much room for economic growth. So I believe even after the Olympic Games, the Chinese economy will progress at its own pace and on its own track."

In a recent interview with the Chinese media, Andrew Michael Spence, the 2001 Nobel Prize winner for economics makes a prediction about the economic fallout in China after the summer Olympics.

"I don't think that falling-off will likely be very big in the Chinese economy case. There are two things to say. One is it's a big market now, so you can sustain growth on the domestic market. And secondly, for the point of the view of the rest of the world, China now is an important source for global growth, so everybody has a common interest or a shared interest in the Chinese economic growth."

However, economists warn that enterprises that target tourism may need to change their market strategies.

Jin Zhiguo, the president of the official Olympic sponsor, Tsingtao Brewery in east China's Shandong province, is implementing a "Going Global" strategy to coincide with the Olympics.

"We are introducing a market-based manufacturing model to deal with the Olympic and post-Olympic markets. We are moving factories to cities that are close to our markets."

Jin Zhiguo adds that Olympics sponsorship has prompted an upgrade to the product's structure, so his company will sustain momentum even after the Games.

For Biz China, I'm Wang Lei.

 
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