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7 China






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7 China Presentation Transcript

  • 1. China
    • Same size as Canada
    • Population 1.3 bn
      • 0.8 bn rural
      • 0.5 bn urban
    • 2007:
    • Arable land:15%
    • Labor force :
      • agriculture 49%
      • industry 22%
      • services 29%
    • Savings rate:
    • 40% of GDP
    1940s: Semi-feudal Largely illiterate Peasants 85% pop. Grows 33mil (pop. of Canada) Every 18 months
  • 2.  
  • 3. History
    • 1911: overthrow Manchu Dynasty, political turmoil
    • 1925-49: Civil war
      • Communists: 100,000 rural guerilla forces
      • Nationalists: 700,000
      • Long march
    • 1945: Nationalists side with Communists to fight Japanese invasion
    • 1949: Mao Zedong (age 54) declares People's Republic of China
    • 1953: first "Five-Year Plan“, heavy industry
    • 1949-53: security "liquidates" 800,000 people
    • 1957: "Let 100 flowers bloom, let 100 schools of thought contend“
      • criticism of decisions encouraged, unity must be restored once criticism taken into account
      • “ It is not enough to attack reactionaries. We must know what reactionaries want and represent”
    Mao Zedong and Deng Xiaoping
  • 4. Mao Zedong Thought, 1950s
    • New Marxist theory: contradictions could arise between the rulers and the ruled in a Communist state
    • Small-scale strikes are "beneficial" danger signals, revealing trouble that needs correction. Persuasion, not coercion, should be used
    • Everything has two sides , a good side and a bad side
      • Japanese attack: bad - it meant war; good - made it possible to mobilize nation around Communist party
      • World War II: bad- destruction; good - crushed old imperialist colonial rule, brought closer to overthrow of capitalism
    • Communist populations must be exposed to a certain amount of negative propaganda if they are to understand the nature of struggle between communism and capitalism
      • Chiang Kai-shek's works and some Voice of America presentations to be published in China
    • Population must be stabilized at present level 600 mil
      • No enough food, funds for education
      • Propaganda to urge young people not to marry until they are 28 or 30, devote their early years to building up the country
      • Abortion and birth- control made available in the cities
        • seldom in rural areas, where 75% of population lives
      • material benefits are withheld from mothers after the third child
  • 5.
    • Create 26,000 rural communes - 500 mil peasants
      • Canteens, nurseries, kindergartens, tailoring teams, one standard of pay in goods - to wipe out the use of money
      • 3 simple meals daily, uniform, shoes, towel, soap
      • 2 hours of military drill a day, firearm training, rifles are stacked near places of work.
      • 5 am march to work, 8am breakfast, 1pm lunch, an 1.5 hours rest, workday ends at 6pm, communal supper. One Sunday off every second week
      • "to make full use of labor power”, “to insure that there is no waste of the labor time of men and women"
      • state directs financial resources into projects of "national character"
    • Consequences
      • agricultural production dropped to subsistence level
        • Free-rider problem: little incentive to work hard, little initiative
      • Industrial output, heavy industry (steel) grew
      • Exports fell
      • Urban areas: Shortages of food, rationing, long lines, widespread hunger
      • Shortage of cotton and raw materials for textiles and other light industries
      • food crisis, black market to carry food parcels from Hong Kong
    • 1962: Mao admits Great Leap Forward was a disaster
      • peasant encouraged to engage in sideline occupations - handicraft work, raising livestock, given a small private plot to grow food
    Great Leap Forward (1958-1960)
  • 6.
    • Late 1950s-60s: Ideological conflict with Soviet Union
      • Yugoslavia and USSR abandoned Marxism-Leninism, revisionists
      • Soviet leaders sold out China’s interests to United States
        • Khrushchev's policy of "peaceful coexistence"
      • Soviet "social-imperialism" expansionism
      • All Soviet personnel expelled from China
      • 1969: Soviet and Chinese border patrols clashed
        • Russia increased army presence along Chinese frontier
    • Cultural Revolution - campaign to revive revolutionary spirit
      • “ younger generation does not know the sweat of the march, the hunger of short rations, the deadly chatter of the machine gun, the blood and the toil”
      • can not be trusted to make correct choice capitalism vs communism
      • Policies: universities closed, purge of professors, lecturers, teachers
        • University students are to be admitted on the basis of class origin (worker or peasant background) and ideological purity, not examinations
        • Conformity, no independent thought
    • 1976: Death of Mao Zedong
    Break up with USSR, 1960s Cultural Revolution (1966-76)
  • 7. Reform 1978-84: Agriculture
    • Liberalization of agriculture
    • Creation of township and
    • village enterprises (TVE)
      • Dismantle collective farms
      • Land distributed to households as 30 year leases
      • Peasants can not sell or use land as collateral for loans
      • Lease holders required to sell some planned amount at planned prices, market any amount beyond that
        • Semi-ownership of land  rise in labor productivity
        • Labor freed-up  formation of small-scale crafts and service TVEs
      • 91% of agricultural output planned in 1978, 5% in 1993
      • Secure rights would encourage farmers to invest more, make land more productive, help food security
    • Time lag between rural and urban reforms (6 years) spared farmers from soaring agricultural input prices
  • 8. Reform 1984-present: Industry
    • SOE: can market above-quota output
    • 1996: plans controlled <10% of industrial outputs
    • &quot;Open-door policy&quot; :
      • Special Economic Zones (SEZ) and Economic, Technological Development Districts (ETDD)
      • exempt from most controls on foreign investment
    • 1989: Stock markets open
    • Since 1992: &quot;socialist market economy“
    • Late 1990s: privatization of housing stock
    • Gradualism with spectacular results
      • No massive urban unemployment or poverty
    • Lessons:
      • start small, focus on reforms with greatest probability of success
      • gradually move on to more difficult problems
      • limit amount of change people have to deal with at any one time  support for further reforms
      • Self-sustaining process
  • 9. How was 10% annual growth achieved?
    • Three economic fundamentals sufficient for growth (Chow, 2003):
    • 1. Abundance of high-quality human capital
    • 2. Market institutions
    • 3. Availability of modern technology to a late comer
      • Examples: Japan, Hong Kong, Singapore, Taiwan and South Korea
    • Plus continued political stability
    • Rate of growth will continue to be >7% in the next 15 years because 3 economic fundamentals remain
    • 2020: will surpass US in total output
    • Min real GDP growth 7% - necessary to produce acceptable employment growth and maintain social stability
  • 10. Success of Reform
    • Initial conditions before reform
      • less was planned in China (1,200 commodities) than in Soviet Union
    • Not much resistance to reforms
      • After previous policies failed
    • Investment from Chinese Diaspora
      • 50 mil abroad, wealth equal to mainland
      • labor intensive industries which were losing comparative advantage in Hong Kong and Taiwan moved to mainland China
    • Reformers pragmatic, not ideological
      • Preserving political monopoly of communist party
    • Competence of government officials
      • leaders (Deng Xiaoping, Zhao Ziyang), and lower level officials selected mainly according to ability
    • Successful policies chosen by experimentation
  • 11. Challenges
    • Wealth differential
      • coastal vs interior provinces
      • urban vs rural population
        • Real rural income growth 2004: 6.8%, 2005: 6.2%
        • Urban incomes growth 2005: 9.6%
      • 150 million surplus rural workers adrift between villages and cities, subsisting through part-time, low-paying jobs
        • Need population policies to prevent migration to cities
      • “ New socialist countryside” campaign, 2005
        • spending on rural infrastructure
          • roads, schools and hospitals
          • abolish all school fees
          • provide peasants with health insurance
      • No provision for ownership of land – fundamental problem  no rural land markets
  • 12. Challenges President Hu Jintao
    • Dual economy
    • 1. private small and medium firms
      • not favored by taxes, other policies
    • 2. large corporatized SOE
      • state is largest shareholder
      • state hires managers
      • banking and “commanding heights”
      • state sector produces 25% GDP
      • hard to sell shares to minority shareholders
      • drain on state budget
        • <1/3 make profit
        • technologically backward
        • account for most of bad loans by state banks
        • could cut down 1/3 of staff with no effect on output
        • provide almost all social services to their workers
        • workers earn most income moonlighting for private firms
        • employ >10% of work force (100 million)
        • good source of corruption
  • 13.
    • Rising demand for energy
    • Largest oil consumer after US
    • World's biggest producer and consumer of coal
      • Coal: 4/5 of China's energy use
    • Massive investment in hydro-power
    • 11th Five-Year Plan: 20% reduction in energy consumption per unit of GDP by 2010
  • 14. Environmental degradation
    • Toxic spills
    • Hydropower dams diminish river flows
    • Number of cars up from 4m in 2000 to projected 130m by 2020
    • Air pollution causes 427,000 extra deaths a year
  • 15.
    • Assembly from imported components = >50% of all exports
      • Toys, telecoms equipment, electronics, computers
    • China’s effect on other countries’ production and trade
      • Japan’s exports: shift from exporting finished goods to Europe and North America towards exporting parts for assembly in China
      • Japan’s imports: office machines and computers used to come from America and Europe, now come from China
    Main imports: oil, copper, gas, timber
  • 16. Economy
    • The Economist:
    • “ … global inflation, interest rates, bond yields, house prices, wages, profits and commodity prices are now being increasingly driven by decisions in China.”
    • Fixed exchange rate
      • since 1994: $1= 8.28 Yuan, 2005: 8.11 Yuan
    • Implicit subsidy to manufacturers
      • Cheap exports- higher world demand
      • 28% undervalued
      • Government buys $$ to keep Yuan from appreciating
      • Foreign-exchange reserves largest in the world
      • $$ spent on US bonds, mortgage-backed securities, physical assets
    • What if China stops buying US debt?
      • Interest rates in US increase to attract investors
      • Recession in US
      • Global recession
  • 17.
    • Wages rise 2-3 times faster than in other low-wage Asian economies
      • Along China's eastern seaboard (manufacturing for export) monthly pay $250-350
      • In Thailand, Philippines, Indonesia average wages in manufacturing $100-200
      • Companies moving further inland - cheaper labor but less skilled workers, higher transport costs
      • Still 200m underemployed workers in rural areas
    • How can other countries compete with China?
      • make their manufacturing more sophisticated
      • specialize in research and development, design, branding, financing, logistics
      • foster competition in domestic service industries
  • 18. Challenges
    • Financial system needs reform
      • near monopoly of state on banking
        • Non-performing loans
        • Lack of transparency
    • Legal system, rule of law, private property rights protection
      • protection from political elite, corrupt bureaucrats
      • limited enforcement of patent and intellectual property rights
      • Japanese high-tech firms are wary of locating in China, fearing that their best design work will get pirated
    • Demographic problem in near future
      • fertility rate fell from 6 children per woman in 1960s to 1.7 currently
      • cultural preference for sons
      • 23 million more young men than women - &quot;marriage squeeze&quot;
      • increased crime, HIV and other STD, war
    • Human rights
      • persecution of monks loyal to Dalai Lama
      • destruction of Tibetan Buddhist culture Beijing
      • Capital punishment - thousands executed each year
        • crimes from murder to tax evasion
    • Threat to invade Taiwan ?