The Second Global Shift The Second Global Shift and China’s Rise in the and China’s Rise in the 2121stst

CenturyCentury

Victor F.S. SitVictor F.S. Sit

Advanced Institute for Contemporary China Advanced Institute for Contemporary China StudiesStudies

Hong Kong Baptist UniversityHong Kong Baptist University

March, 2009March, 2009

Outline

I. China’s Economy and the First Global Shift

II. The Second Shift in 21st Century Globalization

III. Financial Tsunami and the New Global Economic Environment

IV. China’s Global Strategic Options

A. Historic growth in the past 3 decades

B. Major economic power house in 21st century

C. Lessons from the First Global Shift

I.I. China’s Economy and the First Global China’s Economy and the First Global ShiftShift

China’s Share in International Sourcing

11

78

13

9

12 1213

1514

0

2

4

6

8

10

12

14

16

18

20

Automobile Retailing ConsumptiveProducts

ElectronicProducts

Average

Global Share (%)2006 2009

Major Economic Achievements (targets) of the three Recent 5-year Plan

1995-2000 2001-2005 2006-2010 (target)

GDP

Average annual growth rate 8.3% 7.5% 7.5%

2000/2005 total (billion ￥ ) 8,940 18,200 26,100

per capita (yuan) 7,099 13,985 19,270

(US $) 880 1,685 2,569

Budgetary Revenue

Average annual growth rate 16.5% 17.6%

2000/2005 total (billion ￥ ) 1,338 3,163

FDI

Total (billion US$) 289 562

Increase over the previous 5-year 79% 94%

Foreign Trade

2000/2005 total (billion US$) 474 1,422

Increase over the previous 5-year 69% 200%

2000/2005 total export (billion US$) 249 762

Increase over the previous 5-year 67% 206%

Foreign Exchange Reserve

2000/2005 total (billion US$) 165 819

Increase over the previous 5-year 92% 396%

C.C. China Benefitted from the First China Benefitted from the First Global ShiftGlobal Shift

Achievements in rapid growth

Global forces: FDI & export-push

Labor-intensive, low scale

Global size and potentials

Spatial concentration

China’s Contribution to Global Economic Growth in 2005

World GDP Distribution, 2006(value at purchasing power parity)

II. The Second Global ShiftA. Meaning and content of the Second Global

ShiftB. Reasons

A. The Second Global Shift

Main Shifts

DevelopedCountries

China

Less DevelopedCountries

(1) Financial Sector

(2) Consumer Durables; Capital Goods

B. Reasons: High savings and real economy VS

overspending “derivatives” will overtake US as the largest economy advantages of large pool of labor – cost

and range organizational strength – ‘socialist-

market system’ potential of the largest home market

Finance for Chinese Enterprises, 2006

Source %

Retained Profits 60

Bank Loans 25

Shares and Stocks 15

III. Financial Tsunami and the New Economic Environment

A. ‘Demise’ of the Western Capitalism systemB. New financial and economic landscapeC. Post-Tsunami scenario for ‘developed’

countriesD. China’s Response

The Financial Tsunami:Selected key events

A. ‘Demise’ of Western Capitalism?1. Basic of Western Economy under Question

confidence in the market system of regulation international institutions infallibility of the ‘greenback’

2. Key policies (bailouts and others) nationalism subsidy protectionism

B. New financial and Economic landscapeWorld GDP growth forecast for 2009

Of the top 10 banks (by market cap)4 are ChineseTop 3, all Chinese

Region Growth rate (%)

World 0.2

E.U. -0.6

U.S. -0.5

China 7.5

C. Post-Tsunami Scenario for ‘developed’ Countries

Slow down in overall economic growth, a 2-3 year recession – the worst record since the Second World War.

Major contraction of the financial sector with increased tightness and conservatism both in its operation and regulation, leading to increase costs and a clamp on credit even after the initial shock due to de-leverage induced by the Tsunami.

Devaluation in both financial and real assets will tighten credit further and impact negatively on production and consumption. The result is an overall shrinkage of market demand.

To protect local jobs, countries may tilt towards trade protectionism.

High-tech, high value added and knowledge intensive industries will be the likely bright spot in developed economies. Hence, global competition in such products will be very keen.

D. China’s response to the “Financial Tsunami”

step up pace of development of the financial sector, especially in internationalization of the Renminbi, such that China’s lagging financial sector may catch up with its real economy. Yet, overall progress will contingent on the lapse of the Financial Tsunami and cycles of the global economy.

stimulate and develop local demand guided by the quest for environmental and economically sustainable growth.

revamp past convention of export-led growth by “walking on two legs”, i.e. future growth will be propelled by the twin engines of exports and domestic market demand.

deepen technology and increase value-added of conventional industries sectors.

aim for a balanced economy in line with the low skill and large size of China’s working population.

IV. China’s Global Strategic OptionsA. Key issues for China in the 21st CenturyB. The New China Economy and Business

opportunitiesC. Potential new regional Patten

A. Key Issues for China

Major concerns Energy source Security

China’s global political role Peace and harmony Fair trade and development

B. The New China Economy and Business Opportunities

Possible new development trends: RMB will be Asia’s major hard currency

SOE and large private enterprises will globalize

Shares and stocks will be major means for fund raising of Chinese enterprises

China investment corporations will lead the way and be major players in global investment and M&A

Major banks in China will globalize through M&A

More free flow of private funds from China to the rest of the world participate deeper in the global economy

Coastal region concentration will remain

Hong Kong will serve as China’s new global financial centre and rivaling New York

Port city regions will be converted to high-tech, high-value added global production platforms

Western margin will assume faster growth

C. Potential new regional pattern