Special Report: Global Financial Crisis

 　by Xinhua Writers Zhou Erjie and Liu Hua

    HONG KONG, Dec. 18 (Xinhua) -- In September 2008, the global financial turmoil emanating from the U.S. sub prime mortgage meltdown worsened dramatically as several financial institutions imploded. It soon evolved into a full-blown economic downturn in developed countries.

    The ripple effect of the crisis reached Asia, taking its toll on the regional economy and prompting a series of policy measures by Asian countries to stabilize financial markets, restore investor confidence and mitigate the impact of the crisis on the real economy.

    FALLOUT ROUTS ASIA

    Asia, like the rest of the world, has been hard hit.

    In China, the main growth engine of the emerging Asian economies, GDP growth slipped to 9 percent in the third quarter of2008, down from 11.5 percent in the same period of 2007. It was the lowest growth rate in more than five years.

    Japan's economy has plunged into a recession. Its GDP shrank for a second consecutive quarter in the third quarter of 2008, down by an annualized 0.4 percent in real terms, following an annualized 3.7 percent contraction in the second quarter.

    The aggregate GDP growth in other eight largest economies in emerging East Asia dropped to 3 percent, from the peak of 6.2 percent in the third quarter of 2007, according to the Asian Development Bank (ADB).

    Through much of the time in 2008, stock markets across the region continued their downward slide, as the global crisis triggered massive sell-offs and caused investors to be fearful of a deepening global economic downturn. There were a couple of times in 2008 when virtually all stock markets across the region plummeted on the same day.

    In some of the worst-hit Asian markets, Indonesian and Thai stock price indexes fell by nearly 50 percent, followed by Singapore, Taiwan and Hong Kong at about 40 percent. China's Shanghai Composite index fell 30 percent from July to end-November2008, despite government measures to stimulate growth and restore investor confidence.

    Since the freeze in global credit markets began in mid-September, most currencies in the region have depreciated sharply against the U.S. dollar. The South Korean won depreciated most -- 29 percent from July to end-November -- on a widening current account deficit and a sharp withdrawal of foreign portfolio investment flows. The Indonesian rupiah fell 25 percent during the period.

    In its latest Global Economic Prospects report, the World Bank said the global economy is shifting from "a long period of strong growth" led by developing countries to a time of "great uncertainty."

    SWIFT ACTIONS

    To combat the crisis, authorities across the region have announced or started to implement a series of policy measures, from deposit guarantee, monetary easing, liquidity injection, to intervention on the foreign exchange market and fiscal stimulus plans.

    Most notably, China unveiled on Nov. 9 an unprecedented economic stimulus package worth 4 trillion yuan (about 586 billion U.S. dollars) over the next two years, to shore up domestic demand in a fast deteriorating external environment. About 120 billion yuan (about 17.6 billion U.S. dollars) of the package will be disbursed by the end of 2008.

    The plan was well-received globally. Analysts said the grand scale of the package will have a significant impact on China's economic growth, adding an estimated one percentage point to GDP growth per year.

    In similar moves, Japan unveiled in December a new 23 trillion yen (about 256 billion U.S. dollars) stimulus plan, bringing the country's total stimulus package to more than 550 billion dollars. South Korea announced a raft of stimulus measures, including an 11billion U.S. dollars increase in public spending and tax cuts. Singapore announced it would provide additional loan support of 2.3 billion U.S. dollars to improve credit access for local firms.

    Rate cuts, another measure to stimulate the market, were also widely implemented in Asian economies. In December, South Korea lowered its main interest rate by an unprecedented full percentage point to a record low of 3 percent, its fourth cut in two months, as the country's policy makers struggled to shore up its defenses against the slowdown in export markets. Around the same time, Taiwan lowered its benchmark rate by three-quarters of a percentage point, to 2 percent, its most aggressive reduction in decades and its fifth cut in two months.

    As the financial crisis worsened, Asian leaders found it increasingly necessary to show unity and take concerted efforts on the matter. The last few months of 2008 saw a series of summits and conferences that brought leaders or financial ministers of Asian nations together on the economic agenda.

    Ministers from the 10-country Association of Southeast Asian Nations (ASEAN) met in Dubai in October, leaders of Asian countries met with their European counterparts about a fortnight later in Beijing and the latest one took place in the Japanese city of Fukuoka on Dec. 13, where leaders of China, Japan and South Korea held their nations' first joint summit meeting.

    The leaders of the three nations promised new stimulus spending to increase domestic demand and pick up the slack in global growth left by the United States' slowdown. Japan and China also agreed to open lines of foreign currency credit to South Korea, whose economy has been hit hardest.

    TOUGHER PROSPECTS IN 2009

    On outlook of 2009, the ADB made it clear in its semiannual report, entitled Asia Economic Monitor, that growth in Asia was slowing far more rapidly than expected.

    The report, released on Dec. 11, warned that the deteriorating external environment would further hurt developing Asia's immediate growth prospects. It put aggregate GDP growth forecast at 5.8 percent in 2009, down from this year's estimated 6.9 percent.

    "The external economic environment for developing Asia is likely to worsen as major industrial economies contract further, global financial conditions remain constricted, and world trade growth slows sharply," the report said.

    "The risks to the region's growth outlook are strongly tied to the global outlook through both trade and financial links," said Jong-Wha Lee, Head of ADB's Office of Regional Economic Integration (OREI). "Further financial disruptions could also exert a significant influence on consumer and investor confidence in the region."

    He predicted that 2009 is likely to be a difficult year for developing Asia, but it will be manageable if countries respond decisively and collectively.

    The economist called for swift action by policy makers to stem both the threat to the financial systems and the real economy, which "will allow most of the region's economies to sustain a healthy if slower expansion."