BIZCHINA> Review & Analysis
Post-Olympic blues no real threat to economy
By Yan Yan (China Daily)
Updated: 2008-09-02 10:40

Days after the end of the Beijing Olympics, contentions still remain high about what kind of effects the Games will have on the Chinese economy. In fact, a sports event, in whatever scale, cannot have as much influence on the economy of a country of China's size as people expect.

In the history of Olympics, many host countries once encountered economic bubbles produced by the so-called post-Olympic effect and suffered prolonged economic sluggishness. Such a phenomenon is attributed to their high-level investment prior to the Olympics and a dramatic investment decrease after the Games ended.

With the conclusion of the Olympics, the chances for employment expansion and development of related sectors as the result of enlarged investment in these host countries also came to an end. Consequently, quite a number of people had to find new jobs, aggravating employment pressure. If there were still some new investment projects that could continue to boost economic development, the post-Olympic effect would not emerge in these countries. Otherwise, the steep fall in investment, accompanied by increased employment pressure, would plunge them into a long period of economic slowdown.

To probe into what kind of effects the Beijing Olympics will produce to the Chinese economy, we should make a thorough analysis of the proportion of the country's investment in the Games as well as the investment-led industries and employment to its economic aggregate.

According to the municipal bureau of statistics, the GDP of Beijing accounts for less than 4 percent of the country's total, and its 300 billion yuan ($43.80 billion) investment over the past seven years only contributed an average 0.8 percent to the capital's GDP growth. Beijing's GDP, however, maintained an annual 10 percent growth rate in these years.

As the host city, Beijing is the largest beneficiary of the Olympics. Given its relatively small scale in the country's total economic bulk, the short-term "Olympic economy" is unlikely to produce a big influence on the country's economy. We should not take seriously either the argument that the post-Olympic effect will plunge China into an economic recession or that it will still vigorously push forward its economy. Economic development of a country is always propped by its basic economic situation.

The small influence of the post-Olympic effect on China's economy does not indicate that the country's economic development is free from problems. On the contrary, the country still faces a series of problems in its economic development that need our attention. The possible threat from the high-perched inflation economy still exists.

It is predicted by the Chinese Academy of Social Sciences that the country's consumer price index (CPI) is still on the uphill trend. Irregularities and malpractices in the financial market have made its stock market the source of sadness for many individual investors, who no longer regard the market as an effective investment platform.

In the last six Olympics host countries, all the stock indices rose after the end of the Games. That was because of the slowdown of industrial production, decline of inflation and decrease of bond returns in these countries.

The increase of liquidity and lightened inflation pressure after the end of the Olympics always create favorable conditions for the stock market of the host country to rise. But as for China, these short-term effects would not change the fact that the reform of the country's capital market still has a long way to go.

The high-perched property prices are still one of the largest factors hijacking the national economy and the improvement of people's living conditions. Curbing the skyrocketing prices of commercial houses has been on top of the agenda of the government and a series of measures have also been taken for this purpose.

For instance, in Nanjing, capital of Jiangsu province, the local government has taken to the practice of making public all the construction costs for commercial houses and their ultimate prices and then prohibiting developers from raising them. But the best solution to this thorny issue seems to be the full marketization of houses and reduce government intervention.

The rise of the prices of energy and raw materials has caused certain impacts upon the world's economy. As a big consumer of energy and raw materials, China has been influenced more. The US economic recession and the world's economic slowdown have undermined China's export market. For China's economy whose growth is driven to a large extent by export of commodities, that means the country would lose an important external growth motor. How to create a new driving force for the rapid and sustained economic development of the country poses a challenge to the government.

The author is an economics commentator based in Hainan province.


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