International Financial Crisis

International Financial Crisis

Introduction

The financial crisis of the year 2007-2008 is also known as the Global Financial Crisis and is also considered to be the greatest and worst financial crisis that occurred after the Great Depression in the 1930s. There were a number of threats that were accounted by this financial crisis which include bailout of banks by the national governments, collapse of major financial institutions, and major downturns in the stock markets all over the world. The housing markets also suffered due to this financial crisis in most of the areas which also resulted in prolonged unemployment for a number of people (Lin, 2013). This financial crisis played a vital role in a decline in the consumer wealth that was calculated in trillions of US dollars, and failure of important businesses. This global financial crisis also contributed towards the economic activities that led to the European sovereign debt crisis and the global recession between 2008 and 2012. In the United States, The housing bubble which reached the peak in 2006 caused the values of the securities related to the U.S. real estate pricing to plummet and also damaged the financial institutions all over the world. It is significant that the financial crisis was triggered by involvement of complex policies that encouraged the provision of loans for subprime borrowers, ownership of homes, overvaluation of the bundled subprime mortgages based on the theory that the process of the houses would continue to escalate (Dolezalek, 2012).

Trading practices that were questionable both from the point of view of sellers and buyers, lack of adequate capital from banks or insurance companies to support the financial commitments that they are making, and compensation structures that lead the short term flow over value creation in long term. There were also increased questions regarding the damaged confidence of the investor, declines in credit availability and bank solvency that has a very negative impact on the global stock markets. This financial crisis also declined the rate of credit as a result of which the rate of international trade also declined. It is obvious that the global financial crisis had negative impact on the global economy and most of the countries of the world were negatively affected by this crisis. A very important thing to note is that the developing countries were also affected negatively because of this financial crisis. China is also a developing country that was affected by this financial crisis in many ways. The core focus of this paper is to highlight the effects of this financial crisis to economy and business activities of China. The overall impact of the global financial crisis on China is discussed along with the causes that led to the negative impact to the economy of China.

Discussion

China is the largest developing country in the world and is also an export driven economy. Most importantly being an export driven economy, it was impossible for China to tackle the global financial crisis. This is because China is very much dependent ...