3. • A rising world power, China is experiencing both economic and political growth but it
should also be anticipating and harnessing emerging problems.
• The hukou system shackles the rural dwellers from settling in the city, thus limiting
further urbanization and putting the transformation from an export-led to consumption-
led economy in peril.
• Reforms, such as land certificates and lank tickets, are introduced to benefit the peasants
but these endeavors are only partially covered and are subject to manipulations from the
local governments and developers.
• The aging population is drying up the labor force surplus and is inhibiting the economy
transformation.
• With its investment-led growth and the widening between the rich and poor and, China
faces a grey economic outlook and probable rural turbulence if it maintains the status quo.
• China will embrace its new generation of leaders—most of the them being the sons of past
and present officials—in late 2012, granting much economic freedom but ceding nothing
on the politics like the last generation in spite of a growing and more demanding middle
class.
• The government’s support on SOE’s in developing new technologies and discriminating
against their foreign competitors is questionable and
• Peace and prosperity may depend on the very sort of political reform the Chinese
government has tried so hard to avoid
Summary
4. Table of contents
• Overview
• China & itself
• China vs. the world
• Analysis
• Urbanization
• Demography
• Growth prospects
• China’s new leaders
• Government’s role
• Ideological battles
5. 1997-2010 urbanisation: ↑ 18%
GDP 2010: $5.9 trillion
1992-2010 average annual growth: 10.3%
Modest budget deficit of 2.5% of GDP in 2010
More than $3 trillion foreign-exchange
reserves
China itself
6. China surpassed America and became the
world’s biggest manufacturer in 2010
China is ranked 17th in global league of
“national competitiveness”
- Versus India at 42nd
- ↑ 56 ranks from 73rd in 1990
Some predicts that by the end of this decade,
GDP per person in Shanghai could be almost
the same as the average for America in 2009
China vs. the world
7. “In less than a decade China could be
world’s largest economy. But its
continued economic success is under
threat from a resurgence of the state
and its resistance to further reform.”
-James Miles, China Correspondent for The Economist
10. Thehukousystem
The hukou (户口) system, or household registration system, has
been much eroded since the Mao era because of the need for cheap
labor to fuel China’s manufacturing boom
The hukou system is often seen as a form of discrimination against
people from rural areas by a privileged class or urbanites
Chinese officials define the population as being already nearly 50%
urban but the number of urban hukou is only around 35%
The hukou system plus the still collective ownership of land will
retard China’s urbanization in the years ahead--just when the
country is most in need of its consumption boosting benefits
11. As many as 20m workers returned to the
countryside when the crisis broke in
2008 and China’s exports slumped
Having farmland to go back to kept the
unemployed migrants from taking to the
streets
It is time to start returning land to the
peasants, both to spur consumption and
to help defuse growing rural unrest
12. New land reform:
Land certificates
Certificates that show the exact
boundaries of farmers’ fields and housing
and confirm their rights to use them
A survey in mid2010 showed that only
one in three had no documents at all
The central government
urged the whole country
to finish issuing the
certificates by the end of
2012
13. New land reform:
Dipiao (地票)
Rural land derivatives are introduced
• Farmers who create new land for agricultural use (i.e. by giving up some of
their housing plots) can sell the right to use an equivalent amount of rural
land for urban development
• A developer who wants to build on a green field site that has already been
approved for urban construction bids first for a “land ticket”, or dipiao, which
certifies that such an area of farmland has been created elsewhere
• The regulations say farmers get 85% of the proceeds
14. Never-never land
However, the system is open to abuses as the notion of
collective persists
Higher-level officials worried that dipiao were being traded
without land having first been converted to agricultural use
In the name of building a “new socialist countryside”, local
government have been “arranging” farmers into new
apartment blocks--to free up land which they can use for
profitable purposes
Reform might quickly be exploited by the very forces
it is meant to constrain: local governments and
developer
15. Chengdu and Chongqing have declared that holders of rural
hukou in the countryside surrounding these cities can move into
urban areas and enjoy the same welfare benefits as their urban
counterparts without giving up their land entitlements
But grand plans for hukou reform in other cities, such as
Guangzhou and Zhengzhou, have been halted because of cost
concerns
Local governments don’t have the incentives or resources to
implement such measures to encourage greater integration of
migrants into urban life
And if more taxes is raised, urbanites will only resist
Reform of the hukou
16. Due to distortions in the labor market caused by barriers to migration
between cities (not just between rural and urban areas) big wage
differences are noticed in the same Chinese provinces
Majority of the rural hukou holders prefer to stay in the countryside
Most young people who had moved to urban areas want to go back to the
countryside when they got older
Urbanisation will be slower and harder in the future
To ensure a continuing net inflow of migrants into the cities will mean to
attract migrants in sufficient number and find ways to turn them into
permanent city-dwellers, with the consumer power to match
Lower the bars
18. China’s primary-school enrolment dropped
from 25.3m in 1995 to 16.7m in 2008
In the next decade the number of people aged
20-24 will drop by 50%
Over the next few years, the share of people
over 60 in the total population will increase
from 12.5%in 2010 to 20% in 2020
By 2020, their number will double from
today’s 178m
China’s “demographic dividend”--the
availability of lots of young workers--which
helped fuel its growth will soon begin to
disappear
The overall population will start to grow faster
than that of working age
An ageing population
19. Wage rises are beginning to accelerate
“Lewis turning point”: named after a 20th-century economist Arthur
Lewis, who said that industrial wages start to rise quickly when a
country’s rural labor surplus dries up
Standard Chartered have risen wage rate by 9-15% this year in the
Pearl River Delta around Dongguan, Guangzhou
The new five-year plan also calls for increase in wages averaging 13%
annually (twice as fast as the target for GDP growth)
Meanwhile, pension of the fast-rising population of retired people
will have to be paid for by contributions from a shrinking working
population
The consequences of an
ageing population
20. Young urban couples, many of them without siblings, will find
themselves with four parents to look after and will themselves
have only one child
This is known as the 4-2-1 phenomenon
They will more likely save hard to prepare for such a future
Against the government’s efforts to shift China towards more
consumption-led growth
The 4-2-1 phenomenon
21. Optimists believe China still has several more years before
the economic impact of an ageing population becomes
apparent
In a report last year, Morgan Stanley pointed to 80m-100m
surplus laborers in the countryside who could be employed
in urban areas
The official retirement age of 60 for men and 50 for women
should be increased (it is around 56 in practice)
Many fear that it could make it even harder for university
graduates to find jobs
Last year 6.3m students graduated from Chinese
universities, up from 1m in 1999
Competition is fierce
Are we there yet?
23. Three decades of nearly 10% average annual GDP growth
Growing population and urbanization
Manageable public debt and modest bad debt
Appreciating yuan against the dollar by more than 10% a
year (because of the China’s higher inflation rate)
Too much of a good thing?
Past & present
24. Grey outlook
Exports will be constrained by depressed Western markets
China could be approaching a boom in exports and investment
along with bubbly property markets, followed by many years of
stagnation
Fear of not only stagnation, but also turbulence because China has
not yet got rich
Only a lower-middle-income country with GDP per person at
$4,400 in 2010
China’s roaring growth cannot last indefinitely
A divided nation
The country has become increasingly divided
between rich and poor
Worry about falling into a “middle-income trap”
- Lose competitiveness in labor-intensive industries
- Fail to gain new sources of growth from innovation
25. What’s ahead
China’s economy has become “seriously distorted” by prolonged
dependence on high levels of investment
China is at risk of an economic downturn “unprecedented in the
past 30 years” with possibly damaging consequences for China’s
social and political stability
To the rescue
Economic slowdown will be less pronounced if the government
succeeds in boosting consumption as a new growth engine
At present, strong rising wages should help boost consumption
China will have to persuade rural dwellers to keep coming to the
cities as its population ages ever more rapidly
26. It’s all about money
Investment problem
The new five-year plan emphasizes big investment to boost domestic
demand and household consumption
But some economists believe that
- Investments are becoming inefficient
- Looming problem of government debt
- Asset bubble from using land as collateral for borrowing
China is heading towards a “brick wall” of government debt
The brick wall will most likely be hit between 2013 and 2015
No country could be productive enough to invest nearly 50% of GDP
in new fixed assets without eventually facing “immense overcapacity
and a staggering non-performing loan problem”
28. Biggest shuffle in China’s leadership for a
decade will happen in late 2012
President Hu Jintao and Prime Minister
Wen Jiabao will step down
A new generation of privileged political
heirs—“princelings”—will take over
Leadership shuffle in 2012
that brings a younger
generation to power
29. Party of the Princelings
Princelings are the offspring of
senior officials, including Mao’s
old comrades-in-arms
In the 1990s, the princelings
were viewed with great suspicion
by many in the party
But recently party leaders appear
to have rallied around them
30. Meet the princelings
Bo Xilai (top left)
Current CPC* Chongqing Committee
Secretary
Son of Bo Yibo (bottom left), a
Communist revolutionary elder and a
hero in the Long March in the 1930s
Possible position offer in 2012: internal
security chief
Xi Jingpin
Bo Xilai
Bo Yibo
Xi Jingpin (top right)
Current top-ranking member of
the Secretariat of the CPC, Vice
President
Son of Xi Zhongxun (bottom right),
a Communist veteran and also a
Long Marcher
Possible position offer in 2012:
president, party chief, and military
commander
*CPC – Communist Party of China
Xi Zhongxun
31. Left is right
Diehard
Maoists
Support a strong
role of
government in
the economy
Social
Democrats
Resent the
inequalities that
have risen from
the country’s
embrace of
capitalism
China’s
“Leftists”
Bo Xilai & “The Chongqing Model”
Fostering a mini-cult of Mao
- Singing of “red songs”
- Sending of “red instant messages”
Denounce the “original sin” of private entrepreneurs who got rich by shady
means
Prefer a bigger role for the state rather than a freewheeling “special
economic zone”, such as Shenzhen
33. 39 of the 42 mainland Chinese companies in the 2010 Fortune 500 list of
the world’s biggest firms were owned by the government--that’s nearly
93%
The government-owned enterprises in these 39 state-dominated sectors
control 85% of the total assets of all the 500 companies in China’s won
list of the 500 biggest Chinese companies
According to the researches from the China Enterprise Confederation in
2010, 3 in 4 of the biggest publicly traded Chinese firms were controlled
by the government
Chinese government has been devising market-access
rules that favor state firms
The state advances
and the private retreats
34. The government has been widely accused of twisting rules in
favor of its state-owned or, sometimes, private-sector favorites
Some Chinese economists worry that the government’s
stimulus spending in response to the global financial crisis will
bolster state enterprises and their bad habits when they
urgently need reforming
Local government sometimes play a decisive role in
determining which firm succeed and which fail
the State .
35. Challenges for foreign business
“Steeped in suspicion of outsiders”
Government supports Chinese companies that develop new
technologies and discriminates against their foreign competitors
“A blueprint for technology theft”
Government scheme of “indigenous innovation”: creating new
Chinese technologies on the back of the foreign ones supplied by
companies eager for a share in the government’s massive spending
Foreign business have fought most bitterly over a new procurement
policy that favors products listed in catalogues of “indigenous
innovation” technologies
Because of “indigenous innovation” policies
25% of the members of American Chamber of Commerce in Beijing
said they were already losing business
40% expected business to suffer in the future
37. Accusation of trying to replace
enlightenment values of democracy,
freedom and individual rights with
“Chinese” ones--such as stability and
the interests of the state
The Arab revolutions showed that no
matter how well a country’s economy
performed, “people do not accept
dictatorial, corrupt government”
China: phobia of political reform
New battle lines in China’s politics
38. Universalists vs. exceptionalists
Universalists
- Universalists believe China
must eventually converge on
democratic norm
Exceptionalists
- Exceptionalists believe that China
must preserve and perfect its
authoritarianism
- Having an effect of inward-looking
conservatism on CPC
- For now, exceptionalists have the far
stronger hand
39. As China becomes ever more engaged with the rest of the world,
the message it still convey to its own people is that the West is
implacably hostile to the country’s rise
Some argue that China is still maturing as a power and learning
to cope with the world’s rapidly growing expectations of it
However, China tends to brood animosity towards competitors
that can be self-destructive
It is time to focus on transforming the country’s politics
The growing pain
40. China’s leaders insist that political reforms is on
the agenda—but it is not enough
A trigger of sharp economic slowdown could
make the middle class more demanding
Government will find itself under growing
pressure from the less well off to distribute
wealth more effectively
Here we go again
41. Well-off city dwellers have traded political choice for
fast-growing prosperity
But as the economy slows over the next decade, the
party will face a politically demanding middle class
The new leaders who will begin to take over next
year will most likely to be more of the same: granting
economic concessions but ceding nothing on politics
Peace and prosperity may depend on the very sort of
political reform the party has tried so hard to avoid
Moving on
