China’s Economic Development and it’s International Economy

China’s Economic Development and it’s International Economy

Hao kai [email protected]

www.ncut.edu.cn

Contents

1. China’s rising economy

2. China’s economic reform

3. China’s international economy

www.ncut.edu.cn

China’s role in Globalization

“Let China sleep, for when she wakes, she will shake the world.”

——Napoleon Bonaparte

www.ncut.edu.cn


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

7XChina’s 20 year reform over 20 years

6XJapan post

WWII recovery

over 25 years

3.5X2nd

Industrial Revolution

over 60 years

2.5X1st

Industrial Revolution

over 100 years

Fastest economic expansion everFastest economic expansion ever

Income per Capita GrowthIncome per

Capita Growth Time PeriodTime Period

www.ncut.edu.cn


Source: Angus Maddison

ASIA'S SHARE IN WORLD GDP(at PPP)

33

179

5 512

0

10

20

30

40

50

60

70

1820 1870 1913 1950 1973 2001

China India Japan Other AsiaSource: Maddison

World economic history is a tale of divergence

Source: Angus Maddison, The world economy: historical statistics, 2003

See Mark Thirlwell, http://www.lowyinstitute.org

0

4,000

8,000

12,000

16,000

20,000

1600 1700 1820 1870 1913 1950 1970 1980

China India US

GDP per capita

1990 dollars, PPP basis

Now, the start of the Great Convergence?

Source: Angus Maddison, The world economy: historical statistics, 2003 and IMF World Economic Outlook database

0

5

10

15

20

1950 1960 1970 1980 1990 2000

China

India

GDP per capita

% of US level, PPP basis

Between 1980 and 2012, China is

expected to close GDP per capita gap with US from 6% to 19% of US levels

GDP vs GDP per capita in 2050GDP vs GDP per capita in 2050GDP vs GDP per capita in 2002GDP vs GDP per capita in 2002

GDP (US$ Bn)

GDP per capita (US$)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0 10,000 20,000 30,000 40,000 50,000

GDP (US$ Bn)

GDP per capita (US$)

0

10,000

20,000

30,000

40,000

50,000

60,000

0 20,000 40,000 60,000 80,000 100,000

US

Japan

ChinaIndia

UK

Germany

ItalyFrance

BrazilRussia

China

US

Brazil

Italy

Germany

France

Russia

UK

Japan

Note: Bubble size corresponds to GDP size

Source: Goldman Sachs Economic Paper # 99

India

By 2050, China may overtake US as the largest economy in the worldBy 2050, China may overtake US as the largest economy in the world

www.ncut.edu.cn

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

www.ncut.edu.cn

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.”

www.ncut.edu.cn

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)

www.ncut.edu.cn

Outcomes of China’s Reforms

People’s income improved very quickly.

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

GDP (billion dollars)

0

500

1,000

1,500

2,000

2,500

1980 1990 2000 2005

Year

GD

P (

bill

ion

do

llars

)

• Growth has lifted incomes– Percentage of population living on

$1/day has fallen from 80 percent in 1980 to 20% today

(Source: World Bank)

www.ncut.edu.cn


The old structure of the country’s economic ownership has been altered.

www.ncut.edu.cn

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 1992 private enterprises’ GDP grows at 60% a year and tax grows at 80% a year

The number of state firms has fallen rapidly

Share of Industrial sector Firms

Direct state

Indirect state

Indirect state

Collective

Collective

Private

Private

Direct state0

10

20

30

40

50

60

70

80

90

100

1998 2003

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1998 1999 2000 2001 2002 2003

state

private

foreign

The private sector output skyrockets .

Constant prices gross output, industrial sector

Urban Employment 1978 - 2003

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1978 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

10,0

00 e

mp

loye

es

household

foreign

HK, Macau, TW

private

joint-stock

limited liability company

joint ventures

limited partnership

collective

state-owned

www.ncut.edu.cn


Operational mechanisms of state-owned enterprises has been transformed.

www.ncut.edu.cn


Prices of commodities are now determined largely by the market, rather than by the state.

Share of deregulated prices

0

20

40

60

80

100

120

1978 1985 1991 1995 1999 2003

Market prices State guided State fixed

www.ncut.edu.cn


Direct interference in the nation’s economy by the government is now being replaced by indirect control by economic and legal means.

www.ncut.edu.cn


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)

www.ncut.edu.cn


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 trend dramatically

0

100

200

300

400

500

600

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Mainland China's Exports & Imports 1978-2004 (billion US$)

Exports Imports

• Trade’s role in China’s economy has increased

Table 1.7 China's Exports and Imports, 1980 - 2005

Measure 1980 1990 2000 2005

Average annual export growth rate (percent) 13.2 14.8 25.1

Average annual import growth rate (percent) 10.4 15.4 24.1

Trade dependence ratio 0.13 0.30 0.40 0.64

www.ncut.edu.cn

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

Average Income Per Head (Yuan)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

per captical annual disposable income (yuan)--urban household

per cpatical anuual net income of rural households

• 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

Regional Disparity in China: Per Capita GDP( in Current Price)

0

5000

10000

15000

20000

1997 1998 1999 2000 2001 2002 2003

0.39

0.4

0.41

0.42

0.43

0.44

0.45

Coastal provinces Interior provinces Interior-coastal Ratio

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

Unemployment by Region

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

unemployment rate 2003 unemployment rate 1990 unemployment 10 000 persons

Labor Disputes, 1996-2003

0

50000

100000

150000

200000

250000

1996 1997 1998 1999 2000 2001 2002 2003

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

Cases accepted

Number of labors involved

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.

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

Insufficient Domestic Demand Is the Major Problem in China’s Economy

ReasonReason

The economy structure is not rational.

The gap of income between the resident in urban & rural areas is getting larger.

The unemployment rate remained increasing

ResultResult


1

2

3

Economy Restructuring Need to Be Push Forward

Heavy VS. LightHeavy VS. LightSecondary VS. ServiceSecondary VS. ServiceDemand VS. SupplyDemand VS. Supply

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.

Reform of banking system is lag behind economy development

conflictBan

ks

Sm

all t

o m

ediu

m s

ized

en

terp

rise

sThe 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.

The small-medium sized enterprises can’t get effective, full loan in time.

www.ncut.edu.cn

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


Reform of banking system is lag behind

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”

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

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

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

www.ncut.edu.cn

3. China’s international economy

Achievements

0

100

200

300

400

500

600

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Mainland China's Exports & Imports 1978-2004 (billion US$)

Exports Imports

www.ncut.edu.cn

Achievements

www.ncut.edu.cn

Achievements

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

Import & Export Export

sum % rank sum % rank

2001 5097 4.0 6 2660 4.3 6

2002 6208 4.7 5 3256 5.0 5

2003 8510 5.5 4 4382 5.8 4

2004 11546 6.2 3 5933 6.4 3

2007 21738 7.7 3 12179 8.8 2

2008 25616 8.1 2 14286 8.9 2

2009 22073 8.9 2 12017 9.7 1

2010 29728 9.7 2 15778 10.4 1

Foreign Direct Investment in Mainland China 1984 - 2004 (in billion US$)

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

www.ncut.edu.cn

Achievements

China's export commodity structure 2001-2010

Primary products

Manufactures High-tech products

Textile products

sum % sum % sum % sum %

2001 263 9.9 2398 90.1 465 17.5 534 20.1

2002 285 8.8 2971 91.2 679 20.8 618 19.0

2003 348 7.9 4036 92.1 1103 25.2 789 18.0

2004 406 6.8 5528 93.2 1655 27.9 951 16.0

2005 493 6.4 7130 93.6 2183 28.6 1150 15.1

2006 529 5.5 9161 94.5 2815 29.1 1440 14.9

2007 615 6.0 11565 94.1 3478 28.5 1712 14.0

2008 778 5.5 13507 94.6 4156 29.1 1852 12.9

2009 631 5.3 11386 94.8 3769 31.4 1670 10.6

2010 817 5.2 14962 94.8 4924 31.2 2065 13.1

www.ncut.edu.cn

Achievements

China's international competitiveness in different industries 2009

IndustriesMarket share (%)

RCA index

TC index

Competitiveness index

Agriculture, forestry, animal husbandry and fishery 3.95 0.37 -0.53 99.26

Mining industry 1.21 0.11 -0.91 99.09

manufacturing 12.42 1.15 0.20 101.56

Textile industry 31.55 2.92 0.64 102.83

Leather, fur, feathers and products industry 32.73 3.03 0.79 103.26

Furniture manufacturing 27.09 2.51 0.92 103.80

Fabricated Metal Products 16.62 1.54 0.66 102.11

Electrical machinery and equipment manufacturing 18.49 1.71 0.39 102.07

Communications equipment, computers and other Electronic equipment manufacturing 24.31 2.25 0.20 102.43

www.ncut.edu.cn

Achievements

state43%

foreign50%

private7%

different exporters’ share in 2001

state21%

foreign54%

private25%

different exporters’ share in 2010

www.ncut.edu.cn

Achievements

Trade balance 1990-2010

www.ncut.edu.cn

Achievements

Trade balance 2001-2010

www.ncut.edu.cn

Challenges

In 2009, to generate each US$1 worth of GDP, China consumed 2.9 times energy as much as United States, 4.3 times as mush as EU, and 4.9 times as much as Japan.

Now, China has become the world's second largest energy consumer.

More than 50% of the petroleum, iron ore, bauxite, copper used was imported.

www.ncut.edu.cn

Challenges

China is aging rapidly. Wages rosed faster.

Export products are still in the low end of the global value chain.

Processing trade represents a significant share; value added in China is less than implied.

For example:

The report published by three researchers in UC showed

Apple Company sold iPod at $299 each one. Its cost and profit were as following:

Sell price: $299 Cost: purchased main parts $73 (from Japan ) purchased other parts $60 (from other

country) assemble $3 (in China !)

Profit: $163 (in US) Apple Company gained $80 Other $83

www.ncut.edu.cn

Challenges

Risk-resisting ability of foreign trade enterprises are very low.

www.ncut.edu.cn

Challenges

central5%

east91%

west4%

exports share in different area 2000 exports share in different area 2011

central6%

east88%

west6%

www.ncut.edu.cn

Documents

China’s Economic Development and it’s International Economy