China: Past Economic Reforms, Present Growth & Future Challenges

China: the past the present and the future 15 October 2011

C-H-I-N-A? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: UN

The reasons for China’s growth The transformation from shops to hi-tech involves massive infrastructure growth Sweatshop for MNCs Emergence of discretionary spending Demand for durable goods, brands etc. wages Higher productivity Urbanisation higher labour cost Construction site labour concentration Technology competence experience the society is no longer poor easier logistics conditions Equipment demand competitiveness increase in production domestic supplies infrastructure Education Hi-tech production economy domestic supplies knowledge competence Growing exports Demand for raw materials 1970-1999 2000-2015 2015 +

China today – a switch to a strong domestic market China is becoming a strong market for both consumer goods and raw materials Sweatshop for MNCs Emergence of discretionary spending Demand for durable goods, brands etc. wages Higher productivity Urbanisation higher labour cost Construction site labour concentration Technology competence experience the society is no longer poor easier logistics conditions Equipment demand competitiveness increase in production domestic supplies infrastructure Education Hi-tech production economy domestic supplies knowledge competence Growing exports Demand for raw materials

The Past – transition from local to global ,[object Object],[object Object],[object Object],[object Object],[object Object],The dismantling of economic barriers fuelled China’s growth in 1980-1990s ,[object Object],[object Object],[object Object],KEY CONCLUSIONS Led by President Mao who claimed to “put China back on track”, beat and tortured people whose rank or political thinking offended, mostly well-educated Results: ten years of the political movement put China into an even more horrifying social and economical condition Led by Deng Xiaopeng, who introduced aspects of capitalist economy system Government begins to focus on foreign trade. Results: foreign direct investments in small “economic zones” that provided favored tax treatment and other advantages were permitted Further efforts made to expand the “the economic zones”: 14 coastal cities and three coastal regions “open area” Laws on contracts, patents, and other matters of concern to international trade were passed Asian Financial Crisis affected China: sharp drop of foreign direct investments and exports. However, it remained largely insulated from the crisis: large reserves in central bank capital inflows that consisted of long-term investments 1949- 1978 Centralized Economy 1966-1976 “ Cultural Revolution” 1979 The Major Economic Reform 1980s Expansion 1990s Further Expansion

The Past – emerging as a regional player Throughout 1990s China has been switching to Asia for imports and exports ,[object Object],[object Object],[object Object],KEY CONCLUSIONS Source: IMF, Direction of Trade Statistics and CEIC

The Past – exponential growth Between 1970s and 2000s China has seen exponential growth in trade and GDP ,[object Object],[object Object],[object Object],KEY CONCLUSIONS Source: IMF, Direction of Trade Statistics Nominal GDP, bn yuan, 1952-2005 ,[object Object],[object Object],[object Object],[object Object],Growth in trade, 1970-2002, 1970 = 1

China today – growing sophistication of export goods Hi-tech goods stand for 60% of China’s exports, while hi-tech imports go down 2005 2006 2007 2008 2009 China net export by sector, 2005-2009, USD m Source: WTO, IMF, press ,[object Object],[object Object],[object Object],KEY CONCLUSIONS ,[object Object],[object Object],Products as share of China exports, %

China today – a switch to a strong domestic market Source: WTO, World Bank, Political Economy Research Institute University of Massachusetts Amherst, press KEY CONCLUSIONS China is becoming a strong market for both consumer goods and raw materials ,[object Object],[object Object],[object Object],In the 1990s and 2000s the Chinese have been saving most of their disposable income, while a sustainable economy needs a higher level of spending. Currently the domestic expenditures increase by 9,7 percent per year, the government is planning to further stimulate the increase in consumer spending 55% of Chinese exports are by MNCs 41% of products manufactured in China are exported China’s trade balance, 2005-2010, USD bn 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Exports of goods Exports of services Imports of goods Imports of services 58,7% of products manufactured in China are exported

[object Object],[object Object],[object Object],[object Object],[object Object],The Future:

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],The Future:

[object Object],The Future: Source: Article in Foreign Affars, Volume 90, Number 5, September/October 2011. Peter G. Peterson, Institute for International Economics. Massachussetts

The Future – China’s perspectives Source: Institute for International Economics YES NO ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Is China the world’s next superpower?

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],References

China: Past Economic Reforms, Present Growth & Future Challenges

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China: Past Economic Reforms, Present Growth & Future Challenges