Team members:  Meas Pilipin Delattre Francis Wu Yizhi Mendy Emmanuel Krabuanrat Netita

Team members: Meas Pilipin Delattre Francis Wu Yizhi Mendy Emmanuel Krabuanrat Netita PowerPoint PPT Presentation

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Team members: Meas Pilipin Delattre Francis Wu Yizhi Mendy Emmanuel Krabuanrat Netita

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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. Outcomes: 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 . WTO expectations 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 Implications 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 Structural problems Favoritism/Cronyism (financial crime) Corruption 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 Inflation 1%

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