When the Olympic Games was on very hotly, the whole world’s attention was attracted by the wonderful and exciting games. However, even before the end of the Games, someone began to think about the situation of China’s economy after the Olympics

During Beijing Olympic Games, continual drop still occurred to China’s stock market. On Aug. 18th, the Shanghai composite index closed at 2319.87 points, with a large drop of 130.74 points or 5.33% compared with the day before. The Shanghai composite index has dropped by 14.9% since the opening of Beijing Olympic Games. Aug. 15th was the only day on which the index didn’t drop.

The main reason is that many people hold negative attitude towards China’s economy after the Olympic Games. They worry about that China’s economy, which grew very fast in the past 30 years, took the chance of the Olympic Games. Its foam of real estate will break in the trend of increasing price. And its economy will suffer the sudden cooling, just like the force landing of the airplane. Some people even make the analysis saying that the former annual growth rate of 10% of China’s economy will reduce to below 8%.

Red Light for the Export

First, there is a red light in China’s export industry. If the economy of the dominant countries, such as the USA, Japan and Europe continues to be depressed, export, which is the axis of the China’s economic growth, will shrink sharply in the scale.

The trade surplus in this first half year has reduced by 11.8% compared with last year. The growth rate, which increased to 40% per month last year, fluctuates around 20%. Chao Rung Zae, leader of EM analyzing team of Hanwha Securities said: “The export growth rate in July increased by 0.8 percentages compared with the month before. But this mainly attributed to the export for the Olympic Games.” In the other words, if China wants to maintain its economic growth tendency, it must offset the shrink of the export with the investment and domestic demand. However, at present this part is also unreliable.

Inflation and Great Drop in the Real Estate----the Key Variables

China’s government had expressed that hard landing of economy would not happen because of the prosperity of the investment and domestic demand. However, according to the experts, some variables still exist.

The first key point is the inflation (continual increase of the price). Kao Yung Soo, leader of Asia Economy team of Korea Asia Bank said: “If the inflation deteriorates further, China’s government will largely increase the intensity of credit restriction (e.g. by raising the interest rate). This is the main reason of the hard landing of economy.” Samsung Economy Research Institution gave a warning in its newly released report, saying: “China’s government adopts the policy of restriction for stabilizing the price. The economic growth rate may reduce to 7.2% per year.” In addition, the newly released Producer Price Index (PPI) in July was 10%, which was the highest point in 12 years. And the PPI will transfer to the consumer price later.

The second key point is the price of the real estate. At the end of this June, the price of newly-built residence in Shenzhen reduced greatly by 36% compared with last October. And the debt ratio of the real estate agent exceeded 400% in average. The problem of real estate has become another variable that presses China’s economy.

The Possibility of China’s Sub-prime Debt Crisis

In China, the real estate agents firstly win the tenure of the real estate from the government, and then they apply for the loan from banks for the investment. It is known that 80% of the capital invested by estate enterprises is from the bank loan. If the decrease in the price of the real estate and the depression of the sale continue, gradually there will be agents that can not repay the loan of the banks. Bad account of the banks may increase sharply. Some people even worry about that there may be China’s sub-prime debt crisis. If that situation continues, the investment will keep on shrinking and become a hurdle to the economic growth.

Foreign Capital, to Leave or Not to Leave?

According to the statistics released from People’s Bank of China on Aug. 14th, the foreign exchange reserve of China increased by 5.6 billion USD in this July, which was far below the Foreign Direct Investment (FDI) of 8.3 billion USD and the total trade surplus of about 25.3 billion USD. An expert from the Chinese Academy of Social Sciences said: “The fact that the increase of China’s foreign exchange reserve in June and July was far below the FDI and trade surplus is a good proof of the withdrawal of the hot money.” If the investment capital really withdraws from China, the great drop of the stock market and the real estate price will bring huge damage to China’s economy.

Optimistic Attitude toward China’s Economy

Many people still hold optimistic attitude toward China’s economy. They think that China’s economy will keep stable. Most of these people are experts in the stock market. They protest that the growth tendency of China’s economy will continue because the investment and domestic demand are relatively stable.

According to the data newly released by National Bureau of Statistics, the retail in this July increased by 23% compared with the same period of last year. It is the largest increase in 12 years. Chao Rung Zae said: “Though the worry about the decrease of China’s economic growth caused by the slowdown of the export exists, the growth rate of the domestic demand is beyond expectation. This can eliminate people’s anxiety about the depression of the economy.”