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China’s Economic Development and it’s International Economy

China’s Economic Development and it’s International Economy. Hao kai haokai2001v@sohu.com. Contents. 1. China’s rising economy. 2. China’s economic reform. 3. China’s international economy. China’s role in Globalization. “ Let China sleep, for when she wakes, she will shake the world.”

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China’s Economic Development and it’s International Economy

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  1. China’s Economic Development and it’s International Economy Hao kaihaokai2001v@sohu.com

  2. Contents 1. China’s rising economy 2. China’s economic reform 3. China’s international economy

  3. China’s role in Globalization “Let China sleep, for when she wakes, she will shake the world.” ——Napoleon Bonaparte

  4. 1. China’s rising economy • Asia’s rise is the fourth big transformation in relative economic power since the industrial revolution • Early 19th century: rise of the UK • Late 19th and early 20th centuries: rise of US and Germany • Post-second world war: Japanese miracle • 1970 onwards: rise of the rest of Asia, including China and India

  5. Fastest economic expansion ever Income per Capita Growth Time Period China’s 20 year reform 7X over 20 years Japan post WWII recovery 6X over 25 years 2nd Industrial Revolution 3.5X over 60 years 1st Industrial Revolution 2.5X over 100 years

  6. 1. China’s rising economy Source: Angus Maddison

  7. World economic history is a tale of divergence Source: Angus Maddison, The world economy: historical statistics, 2003 See Mark Thirlwell, http://www.lowyinstitute.org

  8. Now, the start of the Great Convergence? Between 1980 and 2012, China is expected to close GDP per capita gap with US from 6% to 19% of US levels Source: Angus Maddison, The world economy: historical statistics, 2003 and IMF World Economic Outlook database

  9. By 2050, China may overtake US as the largest economy in the world GDP vs GDP per capita in 2002 GDP vs GDP per capita in 2050 GDP (US$ Bn) GDP (US$ Bn) China US US India France Japan Germany Germany India Russia China Japan UK Brazil Italy Brazil France Russia Italy UK GDP per capita (US$) GDP per capita (US$) Note: Bubble size corresponds to GDP size Source: Goldman Sachs Economic Paper # 99

  10. Why Did China Grow So Fast? • Growth, growth, and growth, as the national focus • Pragmatic leadership: “Who cares whether a cat is black or white as long as it catches mice.” • Sound policies • Industrious and relatively well-educated labor force • Relatively efficient bureaucracy • High savings rate (over 35%) • Integration with the world economy

  11. 2. China’s economic reform • Market-oriented reform • From central planning to market allocation of goods and services • Instead of applying “shock therapy”, China has adopted a step-by-step strategy. • “Walking across the river by feeling the pebbles in the water.”

  12. Sequence of China’s Reform • agricultural production (late 1970s - ) • international trade and investment (1979 - ) • state-owned enterprises (early 1980s - ) • “socialist market economy” (1993 - ) • fiscal reforms (1994 - ) • privatization and private sector (1997 - ) • accession into the WTO (2001)

  13. Outcomes of China’s Reforms • People’s income improved very quickly.

  14. Over the past 30 years, annual GDP growth has averaged over 9%

  15. Growth has lifted incomes • Percentage of population living on $1/day has fallen from 80 percent in 1980 to 20% today (Source: World Bank)

  16. Outcomes of China’s Reforms • The old structure of the country’s economic ownership has been altered.

  17. From 1999 to now • Private enterprises • increased from 1.5 million to 3 million • investors increased from 3.2 million to 7.7 million • employees increased from 20 million to 43 million • Since 1992private enterprises’ GDP grows at 60% a year and tax grows at 80% a year

  18. The number of state firms has fallen rapidly Share of Industrial sector Firms

  19. The private sector output skyrockets . Constant prices gross output, industrial sector

  20. Outcomes of China’s Reforms • Operational mechanisms of state-owned enterprises has been transformed.

  21. Outcomes of China’s Reforms • Prices of commodities are now determined largely by the market, rather than by the state.

  22. Share of deregulated prices

  23. Outcomes of China’s Reforms • Direct interference in the nation’s economy by the government is now being replaced by indirect control by economic and legal means.

  24. Outcomes of China’s Reforms • Opening to the outside world has greatly accelerated China’s reform and development. • Encourage investment, export, and import • preferential treatment for overseas capital • Gradual opening of the domestic market • Accession to the WTO (December 2001)

  25. Outcomes of China’s Reforms

  26. 3. Challenges in trade policy • China has liberalised trade policies dramatically: • average tariffs on manufactures are down from 46.5 per cent in 1992 to 6.9 per cent after accession; • average tariffs on primary commodities are down from 22.3 per cent to 3.6 per cent • Non-tariff barrier coverage is down from 32.5 per cent to 21.6 per cent • Extensive liberalisation commitments in telecommunications, banking and insurance • China has moved extensively towards a market economy • The WTO accession will accelerate this trenddramatically

  27. Trade’s role in China’s economy has increased

  28. Challenges Ahead • widening gap between rich and poor • Regional inequality and fragmentation • Unemployment Problem is deteriorating • “GDP first” policy has made China’s development increasingly unsustainable • energy crisis, environmental problems, etc • China is aging rapidly • The legacy of “one-child” policy • Insufficient Domestic Demand • Reform of banking system is lag behind

  29. Urban/rural disparities remain pronounced • 2005 Rural average net income: $397 • 2005 Urban average net income: $1281 • Sustained growth will require generating higher-productivity and higher-income employment opportunities for the 45% of the population still engaged in low-productivity agriculture

  30. Income Disparity • Currently, China’s Gini Coefficient is 0.45 • The bottom 20% of income earners earn a mere 7.4% of the total income; while the top 20% take home 50% of the total income • As of July 2005, Chinese rural areas still had over 26 million people living in absolute poverty • China is still home to 18% of the world poor • Widening income disparities undermined social justice

  31. Unemployment Problem was deteriorating • Although the number of employed person was rising stably, the unemployment rate also was going up • The laid-off people from state-owned enterprises (43%) and job-off after graduation (20.4%) accounted for the increase of unemployment rate. • More migrants (current 120 million+ coming 150 million ) from countryside coming to city to look for job, though it will enhance China’s advantage of low labor costs world widely.

  32. Old Growth Mode Under Attack • In 2009, to generate each US$1 worth of GDP, China consumed 4.3 times as much coal and electricity as the United States, 7.7 times as mush as Germany and France, and 11.5 times as much as Japan • More than 50% of the petroleum used was imported. • Between 2002 and 2030, around 21% of the world’s new demand for energy resources will come from China. The old mode is deemed instable and unsustainable

  33. Reason Result The economy structure is not rational. 1 Insufficient Domestic Demand 2 The gap of income between the resident in urban & rural areas is getting larger. 3 The unemployment rate remained increasing Insufficient Domestic Demand Is the Major Problem in China’s Economy

  34. Economy Restructuring Need to Be Push Forward Demand VS. Supply Secondary VS. Service Heavy VS. Light • The structural conflict in demand and supply is very heavy. • Supply: low technological content products • Demand: hi-tech, deep-processed products • The structure of secondary industry and service industry need to be re-organized. • The growth rate of service industry is lower than the rate of secondary industry. • In the secondary industry, the heavy industry has a higher growth rate than the light industry, which is closely related to people’s life.

  35. Reform of banking system is lag behind economy development The small-medium sized enterprises can’t get effective, full loan in time. The four state-owned banks have strict rules for loan granted by their branches, which ask for small to medium size companies to provide guarantors or mortgages. For farmers and the small to median sized companies in countryside or small county, it’s very difficult to find qualified guarantor or valid mortgages. conflict Banks Small to medium sized enterprises

  36. Challenges Ahead • widening gap between rich and poor • Regional inequality and fragmentation • Unemployment Problem is deteriorating • “GDP first” policy has made China’s development increasingly unsustainable • energy crisis, environmental problems, etc • China is aging rapidly • The legacy of “one-child” policy • Insufficient Domestic Demand • Reform of banking system is lag behind

  37. Hu Jintao’s Vision: hexie shehui (Harmonious Society) • High growth with social justice • Key measures: • Transforming the old growth mode with its emphasis solely on GDP to a new one with more emphasis on balanced development • Reduce income disparities • “building a socialist new rural China” • “Scientific development”

  38. Plan One:Rethinking Social Policy • Shifting back to Deng’s second half of the slogan: “common prosperity” • Regional policies: the strategy of western development; the revival of northeast China, and the promotion of the rise of central China • Income tax law was revised: to increase income tax threshold from 800 yuan to 3500 yuan • Policies and programs to cope with urban unemployment, a new source of urban instability

  39. Plan Two:Building a “New Rural Society” • The so-called “san nong” (agriculture, rural areas, and farmer) has been on the top agenda for the Wen Jiabao government

  40. Plan Three: Sustainable Development Via a New Mode • “scientific development” (kexue fazhan guan) • Searching for new sources of growth such as innovation and technological upgrading • Raising energy efficiency and cutting per unit GDP energy consumption by about 20 percent • More coordinated and balanced development • Knowledge economy with emphasis on intellectual property rights and famous brands

  41. 3. China’s international economy • Achievements

  42. Achievements

  43. Achievements China’s trade size and the market share 2001-2010

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