China facing 21st century
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- 1. MANAGING ASIAN BUSINESS China: Facing the 21st Century TEAM
5: Bakshi Satpreet Singh Vishnu Priya Srilakshmi Vignesh Sundaram
Meinu S Suriya Maran P Sinduja
- 2. LEADERSHIP OF DENG XIAOPING Primary Goal was Political
Stability and Rapid Economic Growth GDP grown at 9.5% Increase in
Per Capita Income Increase in Trade by 10 % to 45% China became 7th
Largest Exporter Third Largest in terms of PPP
- 3. AFTER DEATH OF DENG XIAOPING US Block China Membership in
WTO Currency Crisis , Regional Recession Reduction in
Competitiveness of chinas Export. Losses Growing in state own
enterprise and banks. Corruption Pollution
- 4. HISTORICAL BACKGROUND Spring and Autumn Period (722 BC-476
BC) was an age of thinkers Confucius and Laozi lived then. Warring
States Period (475 BC-221 BC): Time of continual warfare between
the kingdoms which spawned Sun Tzus Art of War. Qin Dynasty (221
BC-206 BC) is relevant only for Terracotta Warriors. They date from
this dynasty. Han Dynasty (206 BC-220 AD) It was another golden
age. China expanded west as far as India, opening trade along what
would later become the Silk Road.
- 5. THREE BASIC PILLAR This Three basic pillar sustain Chinas
imperial System. Emperor Imperial Bureaucracy Confucianism
- 6. HISTORICAL BACKGROUND Tang Dynasty (618-907): This was a
golden age. Also, Xian was the capital during the Tang Dynasty.
Song Dynasty (970-1279): nice artwork from this era and a few
temples reconstructed in the Song Dynasty style. Yuan Dynasty
(1271-1368) basically means Kublai Khan and the Mongol era. Qing
Dynasty (1644-1912): This period was marked by colonialism,
internal rebellions and the Opium Wars. Dr Sun Yatsen is regarded
by all as the father of modern China. Mao Zedong was the dominant
figure in the Chinese Communist Party from the founding of the PRC
until his death in 1976. After his death China began to open up to
the outside world
- 7. Republican era (1911-1949) WARLORDS: They fought for control
of Beijing, to be recognised as the official government of China .
China joined the allies in the Great War hoping to regain at least
the territories run by the Germans but the treaty of Versailles
awarded them to the Japanese. MAY 4TH INCIDENT : On May 4th 1919
demonstrations broke out in many Chinese cities and people of all
classes protested and joined parties like the Guo Min Dang (GMD)
and (CCP). GMD/CCP cooperation ended in1927 when GMD leader chiang-
kai-shek launched a surprise attack that killed nearly 90% of the
CCPs members.
- 8. CCP- REBUILT : as a rural party during the period of mao
Zedong and developed on four crucial issues : how to develop and
sustain political activity how to govern territory (ccp) how to use
military force effectively land reform Long march ; the communists
were force to move, it was a powerful legitimizing force for
surviving political leaders. The allied forces defeated Japan, the
u.s recognized the GMD as the legitimate govt of china. After
full-scale civil war , by late 1949 the (ccp) had routed the GMD.
On October 1, 1949 proclaimed the formation of the peoples republic
of china
- 9. The Maoist era(1949 1976) Maoist period can be divided into
four eras: political consolidation and economic reconstruction
(19491957) great leap forward (1958-1960) economic
recovery(1961-1965) cultural revolution (1966-1976) deployed the
peoples liberation army throughout the country . Great Leap Forward
(1958-1960) abandon the Soviet model of economic development
-Soviet scientific planning mass mobilization peoples communes
- 10. Growing Division (1962-1965) leadership vs. bureaucracy
breaking communes into smaller units reorganizing economic
reporting, bringing back technical experts, and forcing peasants to
return farming. the economy quickly recovered and by 1965 output
had returned to pre-great leap level Cultural Revolution
(1966-1976) destroy the old and establish the new Red Guards: to
destroy the four olds cultural revolution had spun out of control
moderates and radicals took center stage Mao dies on Sep 9 1976
Deng emerged as the paramount leader in mid-1978 .
- 11. Institution of Social Control CCP control the Chinese
population, through four layers of administration The central
government set broad goals All citizen were required to belong to a
unit The Danwei were multi-purpose bodies Key units importance-
permission to transfer from one unit to another
- 12. The Era of Economic Reform Deng inherited in 1978 was
relatively stable His strategy involved two principles: Reform
measures were legitimate if they promoted rapid economic growth and
if they did not weaken the partys control of the political land
system; everything else was subject to compromise While the economy
has stabilized, Deng still faced a great challenge
- 13. The Era of Economic Reform 82% of rural income has been
stagnant for more than a decade 60% population lived on the
international poverty line Mass starvation had occurred Chinas
workforce was skilled and disciplined Dengs first step- tighten
controls of population Zhou Enlai had initiated two child policy in
1971 and the campaigns slogan was late, sparse, and few
- 14. The Era of Economic Reform Deng launched one-child policy
in 1978. A variety of rewards and punishments were used to enforce
the policy The government relaxed the one- child policy where
resistance was greatest Deng created space for experimentation and
local officials responded enthusiastically The reforms can be
divided into four categories Trade and investment reform, rural
reform, urban reform and institutional reform
- 15. Reform in the Countryside The first wave reforms took place
in the countryside Deng undertook several measures to increase crop
production and raise rural income Created Dual price system He also
increased state investment in agriculture and relaxed restrictions
on interprovincial trade in agricultural products
- 16. Reform in the Countryside A related innovation was the
Household Responsibility System The reforms had an immediate impact
and production of all types jumped sharply Increased production and
procurement led to sharp increase I savings Township and Village
Enterprise output grew- 30% a year throughout the 1980 and By 1995,
23 million TVEs employed 129 million people.
- 17. TRADE AND INVESTMENT REFORMS GDP Ratio was only 10% No
stock of FDI Strong Demand for imports (Primary fertilizers and
capital Equipments). Internationalization was needed .
- 18. 3 DISTINCT PATHS Piecemeal Trade Reform Liberalization of
FDI Foreign Currency
- 19. In Deng's reform The First was piecemeal trade reform
started in 1979 to mid-1990s. Prior 1979, all trade followed 12
Foreign trade corporations(FTC) After that local official started
to license their own FTCs , allowed local firm to bypass central
government FTCs and reached number 5,075 FTCs registration in 1988
and domestic firm reached 10,000 in mid-1990. In 1980 the central
government began slow reduction in import tariff.
- 20. FDI has played major role in Hong Kong and Singapore
compare to Japan and South Korea. FDI troubled political group
since it involved much closer foreign ties than simple trade. So
suggested to foreign control of Chinese asset in liquidity. But
Chinese are more sensitive and restricted in few geographical
places. Other than four coastal cities of SEZ in 1980.
- 21. 3rd set of reform is foreign currency. Until mid-1980
foreign currency transaction was tightly regulated. All Capital
transaction required approval of Central bank. Enterprises with
foreign capital located in SEZ. In 1986 government introduced dual
exchange rate system in domestic firm to buy and sell limited
amount of foreign currency.
- 22. IMPACT OF THIS REFORM Merchandise exports grew from
11billion in 1978 to 24 billion in 1984 14% growth rate In 1996 ,
Exports were $154 billion FDI was 2.7 billion in 1990 but it
exploded after 1993 and reached 42 billion in 1996. Rapid
accumulation of foreign reserve Appreciation of Yuan because of
large trade surplus and Inbound capital inflow.
- 23. State- Owned Enterprise Reform The reform in countryside
and SEZ has increased production and income. Also Increased
pressure in state owned enterprise and protected areas like 78% in
industrial output 19% of total employment in 1978. SOE Key sectors
are heavy industry, minerals extraction, energy production and
banking.
- 24. In 1978 they paid income tax 19% of GDP. Most state owned
enterprises in china were consider overstaffed, inefficient and
poorly managed. The world bank estimated manufacturing productivity
declined 1.2% annual rate in 1978 to 1983. Iron Rice Bowl System
SOEs Share of industrial output continues to fall from 78% to 55%
Management Responsibility System
- 25. INSTITUTIONAL REFORM Implemented between 1978 and 1995.
Increased Provincial Autonomy Fiscal Reform Financial Sector Reform
Currency Reform
- 26. PROVINCIALAUTONOMY Tax Contract System Local Govt. got
freedom to allocate funds to SOEs and TVEs. Sharp Decline in
Central Govt. Revenue Fell from 9.6% to 6% of GDP In 1994 ,
Established National Tax Service Reduction of taxes from 26 to 18 ,
VAT was introduced . Single income Tax applied to Domestic firms.
Revenue rose from 22% to 50 % in 1993
- 27. FISCAL REFORMS Local Govt. Appoints the directors Regional
Branches of Peoples Bank of China. Pressure Local Branch to
overextend Credit. Direct loan to Political Favoured projects.
Excessive Credit Expansion and Bad Loans Central Govt. establish
New Central Bank Law. Competitive Election for Village Level
official.
- 28. ECONOMIC STRATEGY IN MID- 1990s Establish goal of 8%GDP
Planned Economy to a socialist Market Economy From Extensive growth
(based on increased input) to Intensive growth (Driven by
improvement in efficiency.
- 29. 5 INITIATIVE Fight against inflation through fiscal and
monetary restraint SOEs was to refocused and accelerate
Strengthening China Integration with the International economy
Increase Productivity Growth Economic and political Stability
- 30. CHALLENGES ON THE EVE OF NEW MILLENNIUM SOE Reform
Unemployment Financial Sector Provincial Center and Province
Province tension Political Liberalization and Human Rights Economic
Integration Environment
- 31. WHITHER CHINA ? Impact Asian Financial Crisis : Revealed
Weakness Asian development Model China had been Pursuing Threaten
Export Market GDP grew by 8.8% Inflation decline to 3% Foreign
Investment Grown only 3% Retail Sales Low and inventory pile
up
- 32. Could China Continue to muddle through relying on
incremental reform ,Spontaneous Innovation in provinces and annual
US approval of MFN? Or Was it time to Fundamental Rethink of Chinas
strategy , Perhaps leading to faster and more Comprehensive reform
?