China’s Way of Handling Financial Crisis

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The ministry of commerce in China has chalked out a special way of dealing with the present financial crisis. It favors the setting up of a “chain of markets”, that would sell second hand goods, such as home appliances, vehicles and cloth etc.

The ministry of finance has ordered the enterprises owned by the state as well as banks to stop offering incentives in the form of stocks and also enforcing stock options to those employees who were offered earlier. The ministry has also requested these companies to keep the salaries of the management at a “reasonable level”. This order will result in some sharp cuts in executive salaries.

The second hand goods markets are limited to some areas only as the Chinese are hesitant to use used goods. The ministry of commerce’s decision to set up second hand goods market will encourage people to sell off their used refrigerators; television sets etc and go in for new ones. The ministry is expecting a decline in the purchase of new items by those affected by the slowdown. Encouragement could be given to such people to purchase second-hand goods. Others will be in position to buy new goods by selling their old ones.

Large number of Chinese companies has suffered from export market losses and their exports have dwindled. In south and east China about 20 million migrant workers in “low-skill operations” have been laid off due to the imposition of severe cutbacks in production or closing down of the units.

Premier Wen Jiabao has allocated huge amounts of money for providing subsidies to those farmers who are buying new household gadgets, vehicles for carrying grains, farm implements etc. This he feels would increase domestic consumption and also help companies to face up to the onslaught of the slowdown and also conserve jobs.

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