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China and the Global Economy

China and the Global Economy



Lecture at Koç University, December 6, 2011.

Lecture at Koç University, December 6, 2011.



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    China and the Global Economy China and the Global Economy Presentation Transcript

    • Altay Atlı Boğaziçi University Dept. of Political Science and Int’l Relations Asian Studies Center Lecture at Koç University, December 6, 2011.
    • Chinese economy GDP (nominal - 2010): $ 5.9 trillion ( world rank : 2 nd ) GDP (nom./per capita – 2010): $ 4,400 ( 91 st ) GDP growth (real – 2010): 10.3% ( 6 th ) Exports (fob – 2010): $ 1.58 trillion ( 1 st ) Imports (cif – 2010): $ 1.39 trillion ( 2 nd ) FDI flow (inward – 2010): $ 106.7 billion ( 2 nd ) FDI flow (outward – 2010): $ 68.0 billion ( 5 th ) FDI stock (inward – 2010): $ 578.8 billion ( 9 th ) FDI stock (outward – 2010): $ 297.6 billion ( 18 th ) Forex reserves (July 2011): $ 3.2 trillion ( 1 st ) Labor force (2010 - est): 780 million ( 1 st ) Sources: International Monetary Fund (IMF), Asian Development Bank (ADB), The World Factbook.
    • Chinese economy Human development index : 0.687 out of 1.000 ( world rank : 101 st ) Economic freedom index: 52 out of 100 ( 135 th ) Democracy index : 3.14 out of 10 ( 136 th ) Ease of doing business index: 91 st among 183 countries. * * * Oil consumption (share in world total): 10.6% ( 2 nd ) Gas consumption (share in world total): 3.4% ( 4 th ) Coal consumption (share in world total): 48.2% ( 1 st ) Sources: United Nations Development Programme (UNDP), The Heritage Foundation, Economist Intelligence Unit, World Bank, BP Statistical Review of World Energy.
    • Regional disparities
    • Top three countries by economic performance % share of global economic power (as measured by share of world GDP, trade and net capital exports) 1870 BRITAIN 16.4% GERMANY 9.3% FRANCE 8.3% 1973 USA 18.6% JAPAN 8.0% GERMANY 8.0% 2010 USA 13.3% CHINA 12.3% JAPAN 6.9% 2030 CHINA 18.0% USA 10.1% INDIA 6.3% forecast Source: Subramanian, Arvind (2011). “Eclipse: Living in the Shadow of China’s Economic Dominance”, Peterson Institute for International Economics, Washington D.C.
    • Three generations of leaders in post-Mao China Deng Xiaoping Starting economic reforms. Embracing market principles. Opening up to the world: Emphasis on foreign trade and investment. Four modernizations. “ To get rich is glorious.” Jiang Zemin Further reforms . I mproved relations with the outside world , particularly Russia and US. “ Three Represents ” : -Economic production. -Cultural development. -Political consensus. Hu Jintao Reintroducing state controls in some sectors of the economy. “ Peaceful development”: soft power and business-minded approach. “ Scientific development concept”: Harmonious society.
    • The Chinese model of development
      • Market socialism?
      • Socialist market economy?
      • Socialism with Chinese characteristics?
      • Capitalism with Chinese characteristics?
      • Capitalism with socialist characteristics?
      • Socialist capitalism???
    • The Chinese model of development “ The complete formulation of our economic policy is to give full play to the basic role of market forces in allocating resources under the macroeconomic guidance and regulation of the government. We have one important piece of experience of the past thirty years, that is to ensure that both the visible hand and invisible hand are given pull play in regulating the market forces. If you are familiar with the classical works of Adam Smith, you know that there are two famous works of his. One is The Wealth of Nations . The other is the book on the morality and ethics. And The Wealth of Nations deals more with the invisible hand, that is, there are the market forces. And the other book deals with social equity and justice. And in the other book he wrote, he stressed the importance of playing the regulatory role of the government to fairly distribute the wealth among the people.” Chinese Premier Wen Jiabao in an interview with Fareed Zakaria from CNN, September 2008.
    • The Chinese model of development
      • Three pillars of the Chinese growth model:
      • Exports (starting with low-cost manufacturing, moving towards higher-value added products).
      • Investment (particularly in heavy industry and infrastructure).
      • High saving rates (not only in households, but also public and corporate sectors).
    • State capitalism
      • The state engineers economic development by dominating the markets, mainly for political gain.
      • Markets are seen as a tool to foster the national interest, not as a mechanism to empower the individuals.
      • The state undertakes economic activities itself by managing the productive forces in a capitalist manner.
      • The private sector is subject to the state’s control over the allocation of credits and investment.
      • Instruments:
        • State owned enterprizes.
        • National oil and gas companies.
        • Supported private corporations (national champions)
        • Sovereign wealth funds.
    • State capitalism
      • State capitalism is not conducive to democracy.
      • It provides a fertile ground for corruption.
      • If the state’s role in the economy is too big it can lead to serious distortions in the economy.
      • It undermines social-welfare and poverty-eradication programs.
    • State capitalism State capitalism Free-market capitalism Command economies Free-market economies Utopian communism Utopian libertarianism Market spectrum Source: Bremmer, Ian (2011). “The End of the Free Market: Who Wins the War Between States and Corporations?”, Portfolio / Penguin, New York.
    • Questions about Chinese economic growth 1: China’s economic growth is based on high export performance derived from the almost infinite availability of cheap labor. Is it? 2: China’s controlled exchange rate is a central concern for the well-being of the global economy. Is it? 3: China is becoming/has become an economic superpower, therefore its clash with the United States is inevitable. Is it?
    • Chinese exports ($ billion)
    • Chinese exports
      • Exports remain as one of the main engines of Chinese growth.
      • But there are two problems:
      • Exports have for a long time benefited from a weak currency, however this advantage is gradually fading as the renminbi continues to appreciate.
      • Chinese labor is not ‘ cheap ’ anymore, and this means a loss of competitive advantage for exports.
    • Average hourly wage in selected Asian countries ($ per hour) China Vietnam Indonesia India
    • Chinese exports
      • Chinese response:
      • Move up the value chain from basic products of the low-end to more sophisticated products with higher value-added.
      • 2000: 1$ of textile products exported.
      • 1$ of hi-tech products exported.
      • 2007: 1$ of textile products exported.
      • 3.8$ of hi-tech products exported.
      • Increase the diversity of export markets.
      • Advanced economies  Developing markets.
    • Chinese exports
      • Exports are important, but it is investments which are the main driver of Chinese growth!
      • Share of investments in the GDP of selected economies (%)
      Problem: Massive investment in industrial sectors is creating excess capacity, which leads to overheating of the economy and jeopardizes the sustainability of Chinese growth. China needs to move from its investment/export-led model to a consumption/domestic market-led model.
    • Chinese currency Argument: China keeps the value of the renminbi artificially low in order to have an (unfair) advantage in exports at the expense of its trading partners. US pressure on China to increase the value of its currency. Is China to be blamed?
    • Chinese currency
      • Undervalued currency is good for exports, but it brings other problems for China:
        • Major cause of inflation.
        • Makes imports costlier, reducing the domestic consumers’ purchasing power.
        • An obstacle against deeper structural reforms.
    • Chinese currency China is gradually increasing the value of its currency. Renminbi as an international reserve currency?
    • China versus the US? “ Discover how to protect yourself (or your business) from the defective and sometimes lethal products pouring out of China’s factories...how China’s enormous trade surplus threatens to ‘nuke’ the U.S. economy...how China’s accelerating military buildup and secret Star Wars program is sharply tipping the global strategic balance...how China’s ‘blood for oil’ imperialism is devastating Africa and throwing kerosene on the Middle East powder keg...how China’s prodigious pollution kills close to a million Chinese a year while riding the jet stream to darken U.S. skies...and, perhaps most terrifying of all, how this nuclear superpower may be spiraling toward internal chaos.” Navarro, Peter (2006), “The Coming China War”, New Jersey: FT Press.
    • China versus the US? “ We are truly going to rise or fall together.” US Secretary of State Hillary Clinton during her visit to China, February 2009.
      • Chinese and American economies are mutually dependent on each other.
        • Market access.
        • Debt financing.
      An economic clash (trade wars?) between China and the US would harm both countries and it would be disastrous for the global economy. The future of the global economy depends on the cooperation between China and the US. G2? Chimerica?  Economic rationality vs. political ideological considerations.
    • [email_address] http://www.asia.boun.edu.tr http://www.sarkekspresi.com