Commentary: Post-Olympic Letdown

The build-up to the 8-8-2008 in China has been intense since Beijing won the honor of hosting the Summer Olympics seven years ago, and Chinese authorities have been looking to the games as a chance to present the country as a full member of the club of developed nations.

But despite the added prestige and economic benefit that the summer games are bringing to China and the host city, many are predicting a post-Olympics slump in China's economy. How far the country descends from the two-week spotlight of world attention back to the reality of the global economic downturn remains to be seen.

Soft landing

"Some people have been forecasting a significant falloff in economic growth and production. I don't think it's going to be a very large drop-off, but I do think that just given what's going on in the rest of the world as well with the Olympics being completed, there's going some marginal slowdown as a result of that," said George Davis, director of foreign exchange analysis with RBC Capital Markets.

"I don't think we're going to fall straight off a cliff in terms of the Chinese economy, but I think we'll see a moderate reduction in activity."

There is also the sense that China has been defying gravity lately by remaining relatively unaffected by weakening growth elsewhere.

"I think that now the external situation has changed fairly dramatically," Davis said. "We look at the fallout in the U.S. economy in the subprime crisis. We look at evidence that we're starting to see a slowdown in the U.K., in Europe as well as a lot of the Asian economies, such as Japan, so I think the general environment right now is one of economic contraction, and that China is not likely to be immune from that."

Another perspective is that China has already had its post-Olympic slump before the Olympics.

"Adjustments in the stock market, the housing market and energy prices have all already happened," Fan Gong of the People's Bank of China said last week, as reported by Reuters. He was referring to recent drops in the Shanghai stock market and in certain property markets.

"We needn't worry about the post-Olympic economy at all. How could (stock) prices drop any further?"

China's growth has been diminishing from its recent double-digit rates. Beijing, however, is trying to balance the difficult goals of maintaining strong growth, controlling inflation and keeping the yuan from appreciating too rapidly. It is not an impossible feat, but it is a challenge, Davis said.

"There will definitely be challenges along the way, especially given the fact that they are moving away from more of a controlled economy to more of a market-driven economy and that implies a loosening of controls, it will be a lot harder for them to achieve their growth objectives while at the same time trying to keep pricing pressures contained," Davis said.

China is basking in the spotlight now, but when the games are over, a new kind scrutiny will begin.