Can China save world economic growth as it did in 2008?

1. CAMBRIDGE UNIVERSITY, 2012
Mo Tanweer; Head of Economics; Oundle School;
Mohammed.Tanweer@cantab.net

2. Content
China‟s position in the world
The state of the Chinese economy
2008 Stimulus and its legacy
2012 – what now?

3. China driving the world
economy…

4. Contribution to 2012 world
growth
Sources: IMF, The Economist

5. China exports to EU/US
Sources: China Equity Strategy, DB

6. Bilateral trade relationship…
U.S merchandise
exports to China
100 have rocketed3rd
China is U.S‟ in
largest X market
recent years
EUR bn
8.9% of EU exports to
50 China
0 „07 „08 „09 „10 „11

7. Chinese steel consumption is greater
than US+EU+Japan+India combined
1980 – 5%; 2008 – 40%
Mln tonnes

8. Already a large commodity
consumer
Consumes half of the world‟s
cement production
World‟s largest consumer of
cotton
World‟s second largest
consumer of sugar
World‟s second largest
consumer of wheat

10. GDP/c Japan vs China
HDI <
Lower GNI/c < Libya/Iran
middle Botswana
income:
WB
GBR: INSERT GRAPH OF
CHINA’S GDP per capita
levels… vs
USA/UK/Japan/Brazil

11. China‟s growth miracle
The World‟s Workshop
Socialism with
Chinese
characteristics
Xiaoping‟s market
oriented economic
reforms WTO
Great Leap Forward

12. Quarterly growth rates…
Average 9.5 % GDP growth rate annually since
1978
600+ million out of poverty…

13. Overtaking them all…
“Since 2001, China‟s GDP has risen fourfold…
Economically speaking, China has created three
new Chinas in the past decade” Jim O’Neill

14. Growth splutters…?
2012 target: 7.5%

15. Consumption has underperformed as a
driver
Export-led growth has been important too
Economy is too reliant on investment as a
driver
“China has made remarkable
Re-balancing required
achievements…. But there is a lack of
adequate balance, coordination or
sustainability in our development” (Premier

16. China‟s 2008 Stimulus
Package (4 trillion yuan) fiscal stimulus
$586 bn
Fixed investment growth accounted
for over 90% of the growth in the
Chinese economy in first 9 months
of 2009

17. Infrastructure boom Easy money
Large pool of domestic savings;

18. 2008-09: A new era and a new pace of
infrastructure development…
35 airports in one year
In 2010, 175 airports

19. Infrastructure boom
$228bn – 2011-2015 in aviation

20. High speed rail links…

21. Sustainability…
2011: 70 new railways
Debts and ticket sales 2012: 9 new ones

22. Build it… but will they come?

23. = Over-investment…?
Chanos – Dubai x 1000
2010: Capital stock per
capita 7% of USA‟s

24. „Go West‟ programmes
West is an important growth
opportunity

25. The cost of 2008 stimulus…
Credit fuelled binge
$8 trillion since 2008
Credit surged to 171% of
GDP by 2010

26. Local
Hidden debts govts Shadow
RMB banking
10.7trn
China‟s Govt Debt Breakdown
Debt Item Amount (RMB) % of GDP
PBC issued govt 3.8 trillion 10
bills
China 5.0 trillion 13
Development
Bank debt
MoR network 1.5 trillion 4
finance
Local Govt Debt 10.7 trillion 27
Bank system debt 3.4 trillion 9
Total 24.4 trillion 63
Source: Dragonomics
NPL‟s: 1.14% LGFV‟

27. Short term fixes…
1998;2004:
$500bn writeoff 2011-12
Distressed
debt
1999: Bad
debt
Free
market vs
China
Financial repression

28. Real estate…
1998 housing
stock
privatised Land sales - $500 bn
in 2010; x2 2009
1998-2011: Investment in
housing grown at Real estate:
26%p.a 13% of GDP

29. 2005-09:
Affordability Average house
14 price tripled
12
Tier 1 cities
10
Tier 2 cities
8
6
Tier 3 cities
4
2
0 „06 „07 „08 „09 „10
Source: UBS, Barclays Capital, FT

30. A market of two halves…
140m urban homes; 85m
short of # of urban
households
Beijing 7.4
17.3
4.6
2001 2006
Social housing vs
2011
Source: Barclays Capital, FT
Luxury apartments –
migrant needs vs
speculators

31. % of cities where housing prices
are down month on month
Average price p.s.m
halved since 2009 peak
Govt policies
Source: SocGen
Chinese vs American housing
market

32. Adverse
feedback
loops

33. Fiscal stimulus 2.0?
Healthcare; public
Leadership goods; pensions;
transition housing; poverty
Budget stimulus; not
banking stimulus
2008 vs 2012 fiscal
Fiscal targets 2012… stimulus

34. Please, sir, I want some
more…

35. Can China Save the World?
2012: A new growth
model
Political Fiscal
stability Growth is stimulus 2.0
only source
Rebalancing of legitimacy Inequality
Pragmatic
Social unrest
Socialism with
capitalist
characteristics?

36. CAMBRIDGE UNIVERSITY, 2012
Mo Tanweer; Head of Economics; Oundle School;
Mohammed.Tanweer@cantab.net