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CHINESE ECONOMY

RIDDHI DESAI (3)NADEEM SHAIKH(10)RUQAIYA VASI(17)IAN FERNANDIS(20)

LAND : 9.6 million square kms, China is the world's second-largest country by land area having communist economy .CAPITAL: Beijing

POPULATION: 1,353,821,000{1ST AS 2012 ESTIMATES}CURRENCY: Renminbi

WHERE IS CHINA RANKED IN WORLDS ECONOMY???

China's 2012 nominal GDP per capita of US$6,075 puts it behind around ninety countries (out of 183 countries on the IMF list) in global GDP per capita rankings.

As of 2013, it is the world's second-largest economy by both nominal total GDP and purchasing power parity (PPP).

It is also the world's largest exporter and importer of goods.

The nominal GDP, totaling approximately US$8.227 trillion according to the International Monetary Fund(IMF).

HISTORY OF CHINESE ECONOMY

• China’s Economy Prior to Reforms.• The Introduction Of Economic Reforms.• China’s Economic Growth and Reforms 1979-2012.• Causes of China’s Economic Growth.

China’s Economy Prior to Reforms.

•Prior to 1979, China, maintained a centrally planned, or command, economy.

•A large share of the country’s economic output was directed and controlled by the state.

•Private enterprises and foreign-invested firms were generally barred.

•Government policies kept the Chinese economy relatively stagnant and inefficient•The Chinese government in 1978 decided to break with its economic policies by gradually reforming the economy according to free market principles.

The Introduction Of Economic Reforms

Beginning in 1979, China launched several economic reforms.

The central government initiated price and ownership incentives for farmers, which enabled them to sell a portion of their crops on the free market.

Citizens were encouraged to start their own businesses.State price controls on a wide range of products were gradually eliminated.

Trade liberalization was also a major key to China’s economic success.

China’s Economic Growth and Reforms 1979-2012.

•Since the introduction of economic reforms, China’s economy has grown substantially faster than during the pre-reform period.

•According to the Chinese government, from 1953 to 1978, real annual GDP growth was estimated at 6.7%.

•During the reform period (1979-2011), China’s average annual real GDP grew by 9.9%.

•China’s real GDP growth fell from 14.2% in 2007 to 9.6% in 2008 to 9.2% in 2009.

• In 2010, China’s real GDP grew by 10.4%, and in 2011 it rose by 9.2%.

• In 2012, China’s real GDP growth slowed to 7.8%.• The International Monetary Fund (IMF) in April 2013

projected that China’s real GDP would grow 8.0% in 2013 and 8.2% in 2014.

Causes of China’s Economic Growth.

• Introduction of market system, first in the rural areas & then in urban areas. • Other 3 important reasons:• 1st Openness: China welcomed international trade.• 2nd Pragmatism: Willing to try almost everything.• 3rd Pareto improving: Almost everyone is made better off.

Introduction of market system, first in the rural areas & then in urban areas. Other 3 important reasons:1st Openness: China welcomed international trade.2nd Pragmatism: Willing to try almost everything.3rd Pareto improving: Almost everyone is made better off.

China as the World’s Largest Manufacturer

•China has emerged as the world’s largest manufacturer according to the United Nations.•China overtook Japan as the world’s second-largest manufacturer on a gross value added basis in 2006 and the United States in 2010.•In its 2013 Global Manufacturing Competitiveness Index, ranked China first in manufacturing in 2013 and projected it would remain so in five years.•The United States ranked third in 2013 and was projected to rank fifth in 2018.

Top 15 Largest Countries in the World for Manufacturing Value-Added.

Changes in China’s Wage Advantage

China’s huge population and relatively low wage rates gave it a significant competitive advantage when economic reforms and trade liberalization were first begun by the government in the late 1970s.From 2000 to 2012, Chinese average real wages grew at an average annual rate of 11.8%.China’s average monthly wages in 2000 were 30.2% the size of Mexican wages. However in 2012, China’s average monthly wages were 32.6% higher than those in Mexico.China’s average wages were 92% higher than those than Vietnam, but by 2012, they were 434% higher.

Exchange rates

• 1 United States Dollar = 6.12036 Chinese Yuan

• 1 Chinese Yuan= 16.22 Japanese Yen•1 Chinese Yuan=10.33 Indian Rupee

1 United States Dollar = 6.12036 Chinese Yuan

FDI in China, also known as RFDI (renminbi foreign direct investment), has increased considerably in the last decade.

It has reached $59.1 billion in the first six months of 2012, making China the largest recipient of foreign direct investment and topping the United States which had $57.4 billion of FDI.

Foreign direct investment (FDI) of China

Foreign direct investment (FDI) used in China from year 1986 - 2011:

• Foreign Direct Investment in China increased to 713.92 USD Hundred Million in July of 2013 from 619.84 USD Hundred Million in June of 2013

China’s FDI outflows and inflows • China has become a significant source of global FDI

outflows, which rose from $2.7 billion in 2002 to $84.2 billion in 2012

• In 2012, 44% of global FDI inflows were hosted by only five countries. China attracted the lion’s share by USD 253 billion (or 18% of total) followed by the United States (USD 175 billion), Brazil (USD 65 billion), the United Kingdom (USD 63 billion) and France (USD 62 billion).

Major Trading Partners

Major Trading Partners China has passed the US as the world’s biggest

trading nation as measured by the sum of exports and imports in 2012.

China’s top 5 trading partners are :-1. China’s top trading partner is the European Union

constituting to 14.1% share of China total imports and exports in 2012, this amounted to 546 USD billion in value

2. USA 3. ASEAN4. Hong Kong5. Japan

Top trading partners

Import and Export

• China has increased its imports and exports over the years due to several factors, i.e competitiveness that led to an expansion of their shares in the international market to liberalize trade in China.

• The Chinese government reduced administrative obstacles to improve its attractiveness to the foreign investors.

• Increased import and export of goods over the years. Its total value of import and export in 2012 reached USD 3.867 trillion and this raised China to become the world's largest nation and surpassed U.S. in 2012 which was $3.82 trillion.

Import

To liberalize trade in China, the government continued to reduce administrative obstacles to trade by adjusting the tariffs and exchange rates. In 2012, the categories of import commodities subject to licensing controls were reduced by 1, down from 49 in 2011 and 48 in 2012.

• To liberalize trade in China, the government continued to reduce administrative obstacles to trade by adjusting the tariffs and exchange rates.

• The import of goods and services in % of GDP

was last reported at 26.05% in 2011

Import commodities

Machinery and transport equipment

Textile

Non edible raw materials

Mineral and raw materials

Chemical substances

Import Commodities chart

Exports

•Exports consists of 30% GDP

•China exports averaged 439.60 USD hundred million from 1983 until 2013 reaching an all time hugh of 1992.30 hundred million in december 2012

Export commodities

Machinery and transport equipment

Rubber

Textile

Metallurgical products & chemical products

Food and machinery

Fuel materials

Export Commodities chart

AGRICULTURE

PRESENT SCENERIO

15% of its total land area-cultivated.

Supports 20% of world

population.

• China – one of the largest producers and consumers of agricultural products.

• Today agriculture contributes 10.1 % of CHINA’S GDP.

• China’s development of farming over the course of its history has played a key role in supporting the growth of what is now the largest population in the world.

• Although china’s agricultural output is the largest in the world,

.

MAJOR AGRICULTURAL PRODUCTS

RICEOIL SEE

D

COTTON MILLET

POTATO

TEA BARLEY

GROWTH

Increase in the agricultural output over a period of time:

Crop[22] 1949 Output (tons) 1978 Output (tons) 1999 Output (tons)

1. Grain 113,180,000 304,770,000 508,390,000

2. Cotton 444,000 2,167,000 3,831,000

3. Oil-bearing crops 2,564,000 5,218,000 26,012,000

4. Sugarcane 2,642,000 21,116,000 74,700,000

5. Sugarbeet 191,000 2,702,000 8,640,000

6. Flue-cured tobacco 43,000 1,052,000 2,185,000

7. Tea 41,000 268,000 676,000

8. Fruit 1,200,000 6,570,000 62,376,000

9. Meat 2,200,000 8,563,000 59,609,000

10. Aquatic products 450,000 4,660,000 41,220,000

SR NO Crop[22] 1949 Output (tons)

1978 Output (tons)

1999 Output (tons)

1. Grain 113,180,000 304,770,000 508,390,000

2. Cotton 444,000 2,167,000 3,831,000

3. Oil-bearing crops 2,564,000 5,218,000 26,012,000

4. Sugarcane 2,642,000 21,116,000 74,700,000

5. Sugarbeet 191,000 2,702,000 8,640,000

6. Flue-cured tobacco 43,000 1,052,000 2,185,000

7. Tea 41,000 268,000 676,000

8. Fruit 1,200,000 6,570,000 62,376,000

9. Meat 2,200,000 8,563,000 59,609,000

10. Aquatic products 450,000 4,660,000 41,220,000

GROWTHIncrease in the agricultural output over a period of time:

Major agriculture products

• Rice

• wheat

• potatoes

• sorghum

• peanuts

• tea

• millet

•  barley

•  cotton

•  oilseed 

• pork

•  fish

In its first fifty years, the People's Republic of China greatly increased agricultural production through organizational and technological improvements.

Ricewheatpotatoessorghumpeanutsteamillet barley cotton oilseed pork fish

INEFFICIENCES IN THE AGRICULTURAL MARKET

LACK OF INFORMATION TO FARMERS.FLUCTUATIONS IN THE SUPPLY OF FRESH PRODUCTSPROBLEMS IN TRANSPORTATION OF AGRICULTURAL PRODUCTS FROM FARMS TO MARKET.

Industry and construction account for 48% in china’s gdp.

Around 8% of total manufacturing output in the world comes from china itself.

Among the various branches of industry, the machine building and mettalurgical industries have received the highest priority.

These two areas alone account for 20-30% of total gross value of industrial output.

INDUSTRY

China is world’s leading manufacturer of chemical fertilizers ,cement and steel.China’s cotton textile industry is the largest in the world,producing yarn,cloth,wollen piece goods,silk,jute bag and synthetic fibres.

INDUSTRY

China is world’s leading manufacturer of chemical fertilizers ,cement and steel.China’s cotton textile industry is the largest in the world,producing yarn,cloth,wollen piece goods,silk,jute bag and synthetic fibres.

BANKING SECTOR

The Banking Sector

History of banking sector in china can be subdivided into 2 main periods:1.)MAO ERA[1949-1978]2)POST MAO ERA[1978 ONWARDS]

• History of banking sector in china can be subdivided into 2 main periods:

• 1.)MAO ERA[1949-1978]• 2)POST MAO ERA[1978 ONWARDS]

The Mao Era

functions of central bank (regulation and monetary policy)

functions of commercial bank (control on all banking business)

The Post-Mao EraIn 1983 the control on banking business has been took over

by the “Big Four” namely

Bank of China (BOC)

Industrial & Commercial

Bank of China (ICBC)

China Construction Bank

(CCB)

Agricultural Bank of China (ABC)

ALL TIME HIGH

FUNNY ON GOINGS IN BANKING SECTOR.

NPL RATIO

TOURISM IN CHINA

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CHINESE ECONOMIC CRISIS

The Impact of Global Financial Crisis on the Chinese Economy.

IntroductionThe United States subprime crisis and the consequent dramatic global slowdown hit after Lehman Brother Fiasco hit the Chinese Economy very badly.

This lead to growth of chinese economy fell to 6.8% in fourth quater of 2008 from 13 % in 2007

There are four major channel via which the global financial crisis impacted on Chinese economy : Direct Loses in American Capital market

Change in Cross-Border Capital Flow

Reduction in Growth of Export

Safety of Foreign Exchange Reserve

@@

The total direct loss suffered by China’s four most important banks due to moderate amount of Mortgage-backed securities (MBS) and Collateralized debt obligation (CDO) amounted to $ 20 billion.

In August 2008 , China was on edge when Fannnie Mae and Freddie Mae were on brink of collapse . If these two US mortgage company could have collapsed the China would have suffered $400 billion in official foreign exchange reserve but was saved by USA .

Direct Loses in American Capital market

Change in Cross-Border Capital Flow

Soon after the outbreak of US subprime crisis , Chinese economist began to debate that international capital would flow in or out of China .

As it turned out , since early 2008 , capital seem to have been flowing out of China.

For example , China FDI inflow decline to some $ 20 billion in 2008 from $50 billion in 2007

Reduction in Growth of Export

China fast growth came to sudden halt in third quater of 2008 . In the third quater China annual GDP growth dropped to 9% from 13% in 2007 ; the growth rate of industrial production 8,2% about half of the previous year .

Major effect was seen in Steel output , which fell from 20% previous year to 2.2% in 2008 .

Beside this Government also consider possible tax reduction , VAT , Purchasing Tax cut and raising the threshold of individual income taxes.

Plans anncounced by Chinese Government to Reform and Restructure the EconomyExpansing Fiscal Policy

In November 2008 , government introduced a 4 Trillion yuan ($580 billion)stimulus package for 2009 and 2010

In 2008 China GDP was 29 Trillion Yaun .The package thus amounted 14% of total GDP

Stimulus Package

Cut in Tax.

Structure of China Stimulus Package

Central Government 5 Year Plans

20%

40%

80%

100%

120%

140%

160%

2011 2012 2013 2014 2015 2016

How to How to increase increase

export and export and trade ? trade ?

How to How to increase increase

falling GDP ?falling GDP ?

6.6% GDP fall

25% increase in Trade

GDP

Trade

How 5 Year Plan made in China ?

Flow Chart showing formulation of Plan

Flow Chart of Plan Formulation in China

Major Objective of FYP’s

Research and Development section at Coastal region.Research and Development section at Coastal region.

Lengthening high speed railway and highway.Lengthening high speed railway and highway.

Increase in expenditure in RND to raise GDP by 2.2%.Increase in expenditure in RND to raise GDP by 2.2%.

Acheiving average GDP rate 7% and ensuring income raise fast as GDP.Acheiving average GDP rate 7% and ensuring income raise fast as GDP.

Welcoming foreign investment in agriculture , high technology and environment protectionWelcoming foreign investment in agriculture , high technology and environment protection

Promoting Energy Saving and new Energy industry.Promoting Energy Saving and new Energy industry.

Consolidating inefficient sectors and promoting the services industry.Consolidating inefficient sectors and promoting the services industry.

Expanding non-fossil fuel account for 11.4% energy consumption.Expanding non-fossil fuel account for 11.4% energy consumption.

China rapid growth and emergence as a major economic power has given China a leadership , increased confidence in its economic model .

Many economist belive that the key challenge for USconvince China that

Many economist belive that the key challenge for USconvince China that

China should take leadership in trade to improve world economy.

Lowering of trade barrier to boost the economy .This would make China at number

Current account balance as per GDPfor China and US :2000-2012

ConculsionChina is becoming a dominant force in the world economy. China 's purchasing power is on the rise, compared to that of the United States and other countries. China is not only exporting more goods and services; increasingly, it is exporting high-tech goods like computer chips. 

Also, China is becoming a more consumer-oriented society. Chinese incomes are on the rise. The Chinese people are purchasing more cars, and there now are several Wal-Mart stores in China. China's growth is unprecedented in the history of economics. With children in China learning English, and China competing with the United States for production resources, China is no longer a poor communist country trying to survive. China is emerging as an economic superpower, ready to compete in the world economy.

Thank You !