1. The Chinese Financial system and its responsiveness to the Asian Crisis
2. China Economic Background
3. Introduction With the most populated country of the world, and largest territory, China has benefited since the implement of Deng Xianping initial reforms from an overwhelming high growth.
Market socialist economy.
4. Overview of China In the late 1970’s the Chinese leadership has been trying to move the economy from the sluggish Soviet-style centrally planned economy to a more productive and flexible economy more “market driven”
The economy took off in the 1980s, growing at 8% per year or more, and improving greatly live standards. Agricultural production was the first sector to show improvement, closely backed-up by the manufacturing of consumer goods. Private savings rates rose importantly as incomes rose leading to substantial increase of exports.
Industry also has posted major gains, especially in coastal areas near Hong Kong and opposite Taiwan, where FDI (e.i:Transfer of Technology) and modern production methods have helped spur production of both domestic and export goods. Aggregate output for instance has more than doubled since 1978.
5. China Today
8. The economic growth of China Chinese government stepped back from reform
The initial reforms focused on creating a stable and uniform international trading system with the clarification of a convincing framework to get access to the world market.
Acceleration of growth. China had become the world's 10th largest trading nation.
10. Key Figures for China
12. Private Firms in China
13. Globalisation and the WTO entry Globalisation: China on the Threshold
Important benefits of integrating the global economy outweighing existing costs. Yet, China is continuing to prepare its domestic policy and financial system for international competitiveness. Establishment a governmental social security system, strengthening the banking system, and further liberalizing interest rates. Effects of increased competition will lead to focusing on efficiency and productivity gains .
This year, China finally came to agreement with the United States to join the World Trade Organization. China made major concessions to allow U.S. firms access to the Chinese market. China's economy would face to privatisation to become more competitive.
14. Asia Economic Environment East Asia has remarkable record of high and sustained economic growth. (e.g: from 1965 to 1996 the miraculous growth in 8 countries: Japan; « the four Tigers »: Hong Kong, the republic of Korea, Singapore, Taiwan and China and the three newly industrializing economies (NIES) of South-east Asia: Indonesia, Malaysia, and Thailand).
It is almost important to notice that this part of the world has inspired also the other developing countries.
Most of these countries in this respect got rapidly access to the international market.
15. The reasons for such a miracle More rapid output and productivity growth in agriculture
Higher rate of growth of manufactured exports
Creation of a Business-friendly environment : legal and regulatory structure that was generally hospitable to private investment
The Building and the growing human Capital: the government has been focusing on Education spending
Increasing of Savings and Investment
Higher growth rate in physical capital, supported by higher rates of domestic savings
Generally higher rates of productivity growth
Program of reduction of poverty and Declining Income Inequality
The openness to Foreign Technology
Promoting Specific Industries
17. Causes of Crisis
The macroeconomic imbalances
Overvalued exchange rates.
Widening current account deficits and a build up of short term external debt.
Long-term links between the corporations and the main banks led to poor investment decisions.
The financial markets did not have sufficient information about the true financial position of the corporations and banks.
The close relationship between government and business in the formulation and implementation of industrial strategy.
25. Asian Crisis effected to China Reasons
China had intra-regional trade and investment linkages with the rest of Asia
The Chinese economy suffered from debilitating structural problems.
A fragile bank-dominated financial systems.
Poor prudential surveillance.
Weak central bank regulation and supervision of commercial banks.
A large buildup of non-performing loans.
Over-leveraged state enterprises.
A largely state-owned financial sector that may be almost insolvent.
26. China: The Problems BANKS: The government channeled 75% of bank credit into state enterprises.
EXPORT SLOWDOWN: Accounts for half of exports has collapsed, and foreign investment has slowed.
SPECULATION: Billions have poured into office buildings and shopping malls. Overcapacity and new debt problems for the banks are the result.
JOBS: As state-owned enterprises pile up losses, more are shutting factories, producing new jobless masses.
27. Banking System Structure
28. In halfway between socialist planning and liberalized market
29. China and the Asian Crisis China as a stabilizer
China and the debt crisis
Opportunities and Threats
China as a stabilizer
30. China as a stabilizer in the Financial crisis Growth 7.4%
Maintained stability of RMB
Inflation around 1% according to EIU report
Only 30% state sector of China’s economy
Foreign debt is not foreign currency denominated
Development of home market to re-build assets
FDI accounted for 70% of capital flow to China
90% of external debt was long-term
Healthy current account
31. China and the Asian crisis Initial situation Economic slowdown= decrease of FDI +shift to cheaper factories and equipment plants (e.g: Thailand)
Accumulation of so-called bad loans in state-owned banks
Unemployment rise (Still high today)
Spill-over effect risks due to intra-regional trade and investment linkages with rest of Asia
Consumer Demand dropping
32. China and Debt crisis Response Role of PBOC in BOP
Trade Surplus differs from neighbouring countries
Capital controls=No short-term capital outflows
Whereas other Asian countries: Free capital flows, fixed exchange rate, target monetary policy
33. Opportunities and Threats Other countries devaluating increasing competitiveness
Favoritism/Cronyism (financial crime)
Enormous Market (Increase Demand+ Labour supply)
Towards a more market driven economy
Chinese current account not affected thanks to quota and entry barriers
Chinese foreign debt is strictly managed by the state
34. Opportunities and Threats Reform financial system/ Transparency (e.g: Non performing loans) Harvard Business Review.
SOE ’s reform from 80% to 30% of industrial output (more flexibility)
SOEs have accumulated unmanageable debt to equity ratios of between 400 to 700 % (Justifying reforms), leading to liquidity problems (highly leverage nature of SOEs) MAIN THREAT: A domestic banking crisis would force China to devaluate their currency generating drastic costs.
Expansion of both fiscal and monetary policies
35. China Today source: Economist Intelligence Unit Report November 2001 Current account surplus USD 9.2bn
Fiscal policy=acc pub debt 13% of GDP/lower taxes
Monetary policy=lowinterestrates but may rise
GDP expected to reach 7.8% in 2003
Exchange rates= RMb 8.28: USD 1 in 2002-03