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Lecture 3: Country in Focus: China and East Asian Crisis. Topics today Why China, India and Russia have had different experience? Brief history of China’s reforms and capital market Is China going to follow the “Tigers” experience next? What caused the East Asian Financial Crisis?. - PowerPoint PPT Presentation
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1
Yale School of Management
Lecture 3: Country in Focus:
China and East Asian Crisis
Topics today
Why China, India and Russia have had different
experience?
Brief history of China’s reforms and capital market
Is China going to follow the “Tigers” experience next?
What caused the East Asian Financial Crisis?
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Yale School of Management
From a historical perspective
Source : A. Maddison "the World Economy -- A Millennial Perspective"
3.49.49.68.67.65.4Former USSR
3.13.33.62.73.64.5Africa
5.03.14.27.612.216.0India
11.54.64.58.917.232.9China
7.77.73.02.62.33.0Japan
29.516.415.521.936.056.2Total Asia (excl. Japan)
1.91.71.31.00.60.7Mexico
21.922.027.319.18.91.8US
8.78.77.94.52.52.0Total Latin America
2.03.43.54.54.13.3Eastern Europe
3.34.26.58.39.15.2United Kingdom
3.03.63.13.53.83.2Italy
4.35.95.08.86.53.8Germany
3.44.34.15.36.55.5France
20.625.726.333.533.623.6Total Western Europe
199819731950191318701820
% of World Total GDP
Share of World GDP 1820-1998
Source : A. Maddison "the World Economy -- A Millennial Perspective"
3.49.49.68.67.65.4Former USSR
3.13.33.62.73.64.5Africa
5.03.14.27.612.216.0India
11.54.64.58.917.232.9China
7.77.73.02.62.33.0Japan
29.516.415.521.936.056.2Total Asia (excl. Japan)
1.91.71.31.00.60.7Mexico
21.922.027.319.18.91.8US
8.78.77.94.52.52.0Total Latin America
2.03.43.54.54.13.3Eastern Europe
3.34.26.58.39.15.2United Kingdom
3.03.63.13.53.83.2Italy
4.35.95.08.86.53.8Germany
3.44.34.15.36.55.5France
20.625.726.333.533.623.6Total Western Europe
199819731950191318701820
% of World Total GDP
Share of World GDP 1820-1998
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China, India and Russia(PPP-adjusted per-capita GDP)
0100020003000400050006000700080009000
1000011000 China
India
Russia
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China, India and Russia: (growth in PPP-adjusted GDP)
-15
-10
-5
0
5
10
15
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
China
India
Russia
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China vs India: Why?
In “China is outperforming India” (IHT, Jan. 7), Ramesh Thakur states:
A decade ago, China's per capita GDP was about the same as India's. Today it is double.
China is outperforming India in almost every facet of national competitiveness, attracting more than 10 times as much foreign capital, increasing its share of world markets and being courted as a responsible manager of global order.
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Ramesh Thakur continues:
While keeping costs as low as India's and offering the allure of an even bigger domestic market, China has built much better highways, telecommunications, power supply, seaports, airfields and other infrastructure than India.
Meanwhile, some of India's long-standing advantages over China are eroding or becoming less relevant, including English language competency, democracy and the rule of law.
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Yale School of Management EDITORIAL DESK | August 29, 2003, Friday, New York Times
Freedom's In 2nd Place?
By NICHOLAS D. KRISTOF (NYT)
ABSTRACT - Nicholas D Kristof Op-Ed column contrasts economic conditions in Ukraine and China, which took diametrically opposite political paths in late 1980's and early 1990's; says Ukraine held presidential election and pronounced itself a democracy, while China massacred protesters demanding more freedom and democracy; says that since then, China's economy has tripled in size and Ukraine's has shrunk by half; says authoritarian orderliness is sometimes more conducive to economic growth than democratic chaos; says perhaps best explanation for different paths of Ukraine and China is not policy but culture (M)
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A Gradual Privatization Process: Trial-and-Error
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The Private Sector’s Share Today
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How has China grown so much?
Besides a focus on manufacturing and other “hard” industries,
capitalization and financialization has played a crucial role in energizing the economy for growth
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Government debt issuance has generated supply of “capital”
(1000)0
1000200030004000500060007000 New government debt issues
Fiscal deficit
RMB 100 millions
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China’s Fiscal Deficit as Percentage of GDP:issuing debt against future government income
-2%
0%
2%
4%
6%
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
Data source: China Data Center at University of Michigan
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Yale School of Management
Government Expenditure as Percentage of GDP
0%
10%
20%
30%
40%
50%
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
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China’s main highway network: Every year constructing around 4,000 km of expressways, towards its target of connecting every city to an 85,000 km network.
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Capitalization of corporate assets & future cashflows has generated much capital supply
Sources: Federal Reserve Flow-of-Funds
Total bond mkt value = RMB 6 trillion
0
2
4
6
8
10
12
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
A-Share mkt capitalization in RMB trillions
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Figure 1: The Shanghai Stock Exchange Composite Index
0
1000
2000
3000
4000
5000
6000
Dec-90
Oct-91
Aug-92
Jun-93
Apr-94
Feb-95
Dec-95
Oct-96
Aug-97
Jun-98
Apr-99
Feb-00
Dec-00
Oct-01
Aug-02
Jun-03
Apr-04
Feb-05
Dec-05
Oct-06
Aug-07
Data source: The CCER Database provided by SinoFin Financial Information Service, www.ccerdatabase.com.
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Typical Ownership Pie for Listed Companies
State37%
RIS28%
A-shares30%
B-shares5%
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China’s Stock Market Today
1,400+ publicly traded stocks
Total market cap: RMB 20 trillion
120+ securities firms, with 100,000+
professionals
110+ million investor accounts
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Chinese companies listed overseas
First overseas listing in 1993
Now, overseas listed companies have a market cap of RMB ~15 trillion
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China’s Capitalization of Land & future labor income
Sources: State Statistical Bureau
0
500
1,000
1,500
2,000
2,500
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Total home mortgage loans in RMB billions
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Consumer credit started in 1995: auto loans
Credit cards emerged in 1999. Now, 30 million card holders
Student loans, other loans
Emerging consumer credit market in China
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China today vs the U.S. of 1945
As % of GDP
Stk Mkt Cap
MortgagesConsumer
Credit
China today 48% 11% 1.10%
U.S. in 1945 53% 9% 3%
U.S. in 2006 156% 77% 18%
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What is going to happen next in China?
Political risk & corruption
Institutional reform (e.g., legal reform, free press)
Non-performing loans (NPL) and assets: too much growth is financed by government borrowing & spending
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Too much wealth invested in real estate
Real Estate as % of Household Net Worth
22.30%
35%
46.8% 48%
68.50%
0%
10%
20%
30%
40%
50%
60%
70%
80%
USA Britain Germany China Italy
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Some of the problems caused by financial under-development
% of Household Net Worth in Financial Assets
13%
35%38%
43% 45%
61%
0%
10%
20%
30%
40%
50%
60%
70%
Italy China Japan Germany Britain USA
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Too much money in bank savings: is there any problem?
% of Cash & Savings in Banks
21.5% 23.6%
35.7% 37.0%
52.1%
84.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Britain USA Italy Germany Japan China
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Financial Market Development and Income Inequality: any effect?
% in Cash & Bank Savings % in Stocks % in Bonds
China 84.5% 7.7% 5.8%
Italy 35.7% 11.3% 37.8%
Japan 52.1% 15.5% 5.2%
Germany 37.0% 16.9% 17.0%
Britain 21.5% 19.9% 9.2%
USA 23.6% 34.6% 5.2%
All as % of Financial Assets: household portfolios
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Risk Factor:
Income Inequality
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In comparison with other countries