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NS4053 Greg Knott People’s Republic of China (PRC) Country Brief

NS4053 Greg Knott People’s Republic of China (PRC) Country Brief. Agenda. PRC Economic History Modern Situation Course Material on China Pieter Bottelier : Handbook of Emerging Economies Robyn Meredith: Legatum Study Implications & Discussion. PRC Economic History.

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NS4053 Greg Knott People’s Republic of China (PRC) Country Brief

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  1. NS4053Greg KnottPeople’s Republic of China (PRC) Country Brief

  2. Agenda • PRC Economic History • Modern Situation • Course Material on China • Pieter Bottelier: Handbook of Emerging Economies • Robyn Meredith: Legatum Study • Implications & Discussion

  3. PRC Economic History • Imperialism, dynastic decline, warlords, and the “Century of Humiliation,” Japan invasion WW2 • 1 Oct 1949 – Chinese Communist Party (CCP) forms PRC • Mao Zedong’s revolutionary vanguard • Great Leap Forward (1958-61) • “Third Front” and “People’s War” • Cultural Revolution (1966-76) • Emphasis on capital formation • Deng Xiaoping’s pragmatism • 3rd Plenum of 11th Central Committee (1978) – Economic reform and opening • Agriculture reforms, Special Economic Zones (14 by 1984), incremental moves to pro-business, market reforms (tax, land, pollution, labor regulations) • Internal CCP debate • Tiananmen (1989)

  4. PRC Modern Situation • GDP #2, GDP per capita #77 ($7,599 in 2010, ppp) • Long-term growth ~ 10%, recently 7.3% • Share of world GDP • PRC: 11.4% (2008)  14.3% (2011) • USA: 20.7% (2008)  19.1% (2011) • Largest: • Exporter of merchandise, manufacturing • Emitter of greenhouse gases • Trade partner for 70 countries (USA is largest for 127 countries) • “Workshop for the world” • Largely foreign-owned, mostly foreign technology, innovation • Rising labor costs – employment and demographics • Low value added – 2% of iPad value occurs in China • “Going Out” strategy

  5. PRC Modern Situation • Economic Growth vs Political Repression bargain ~ CCP’s 7% GDP growth target • 2007 – inflation, housing bubble, “hot money” speculation • Beijing aggressively tightened monetary policy • 2008 – international financial crisis • Exports contract • Up to 40M unemployed, mostly migrant workers • Beijing: $586B stimulus program, heavy investment and infrastructure development • Since 2009, stimulus “hangover” prompts questions about rebalancing away from investment/export-driven growth, towards consumption and reforms • Household consumption/GDP ratio = lowest of major economies

  6. Course Material: Bottelier • Will China rebalance its economy away from investment and exports, and towards consumption and innovation? • Optimists - YES • Demographics forcing higher wages • Service sector expanding (less investment, higher skills & wages) • CCP 5-year plan targets - deliberate government programs for poor, authoritarian policy execution = options • Primacy of investment decreasing (environment, reform, corruption, fiscal constraints) • Pessimists - NO • Poor efficiency of investment, non-performing loans/credit; gradual transition unlikely • Declining returns threaten CCP’s 7% growth target • Skewed incentive structure facing regime – short-term stability, corruption, hold on power, growth lever without liberalization • East/west, urban/rural inequality  massive investment still needed

  7. Course Material: Meredith • Challenges to growth targets? • Developmental • Middle-income trap, declining productivity gains • Non-performing credit – huge loans to local/provincial gov’t schemes, repayment unlikely • Institutional deficits – failure to develop mature banking, social institutions because of political repression • Demographics • Working-age population will peak in mid-2010s • Ballooning retirement, social welfare costs • Rising quality-of-life expectations – will gov’t deliver? • Growth-at-all-cost model invalid? • Environment and health • Corruption • Inequality

  8. China GDP vs US/JPN/Germany/UK

  9. China GDP vs US/JPN/Germany/UK

  10. China Private Debt & Declining Growth • Debt-fueled bubbles, amidst slowing GDP growth… • Still, growth is above 7%, and the CCP will employ extraordinary measures to keep it

  11. Is China’s Economic Model Valid? • Photos: Harbin, Heilongjiang Province (2103) • Air pollution forces cities to “shut down” • Extensive health costs projected • 9 of 10 most polluted cities in the world are in PRC

  12. Is China’s Economic Model Valid?

  13. Class Discussion, Comrades

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