China export

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China export

  1. 1. China: the past the present and the future 15 October 2011
  2. 2. C-H-I-N-A? <ul><li>Full Name: People’s Republic of CHINA </li></ul><ul><li>Dates back in the valley of the Yellow River around 2500BC </li></ul><ul><li>Located in East Asia and covers 9,600,000 square kilometers </li></ul><ul><li>Capital: Beijing (Peking) </li></ul><ul><li>The most populated country in the world, </li></ul><ul><li>over 1,300,000,000 people </li></ul><ul><li>Language: Mandarin </li></ul><ul><li>Consists of 56 ethnic groups and 91.5% is Han. </li></ul>Source: UN
  3. 3. 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 +
  4. 4. 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
  5. 5. The Past – transition from local to global <ul><li>Tight government control over a large part of the economy, reduced consumption </li></ul><ul><li>and increased industrialization </li></ul><ul><li>Control of budget & money supply </li></ul><ul><li>Suppressed private sector of small and big businesses / Anti Capitalism </li></ul><ul><li>Results: extremely limited food and resources </li></ul>The dismantling of economic barriers fuelled China’s growth in 1980-1990s <ul><li>In the middle of the 20 th century China was a poor and isolated economy </li></ul><ul><li>Trade reforms had a positive impact: China’s share in global trade has increased steadily since 1979. This process began relatively slowly in the 1980s and accelerated in the 1990s with broader trade reforms </li></ul><ul><li>In 2001, China became a member of WTO which further facilitated trade </li></ul>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
  6. 6. The Past – emerging as a regional player Throughout 1990s China has been switching to Asia for imports and exports <ul><li>China has been increasing trade within Asia-Pacific region while trade with Western countries sloped </li></ul><ul><li>The beginning of high-tech manufacturing drove imports of components from ASEAN </li></ul><ul><li>The increase in regional trade is closely connected with China’s role as a local major economy </li></ul>KEY CONCLUSIONS Source: IMF, Direction of Trade Statistics and CEIC
  7. 7. The Past – exponential growth Between 1970s and 2000s China has seen exponential growth in trade and GDP <ul><li>China has made good use of globalisation opportunities </li></ul><ul><li>A tenfold growth in GDP between 1990 and 2000 is due to merchandise-driven exports </li></ul><ul><li>Cheap exports have allowed the economy to grow during the crises (hi-end substitution vs. low-end expansion) </li></ul>KEY CONCLUSIONS Source: IMF, Direction of Trade Statistics Nominal GDP, bn yuan, 1952-2005 <ul><li>China’s exports have been growing at the same pace as world exports meaning that China has made the deal of globalisation </li></ul><ul><li>In the meanwhile, China’s imports have been growing less fast due to weak domestic demand </li></ul><ul><li>China’s GDP has increased tenfold between 1990 and 2000 and nearly 270 times between 1952 and 2004 (inflation not adjusted) </li></ul><ul><li>The economy continued growing even during the financial crises of 1988 and 1998 </li></ul>Growth in trade, 1970-2002, 1970 = 1
  8. 8. 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
  9. 9. 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 <ul><li>The share of low-tech goods is declining while electronics and machinery export is gaining weight </li></ul><ul><li>The Chinese manufacturers no longer stick to producing for Western brands but launch own brand products </li></ul><ul><li>An increasing share of machinery and hi-tech exports as well as local construction spurs demand for mining resources and energy </li></ul>KEY CONCLUSIONS <ul><li>Manufacturing generates the need for both industrial construction and housing, creating the demand for construction materials: the construction market totalled USD 860 bn in 2010. China consumes around 54.7% of world concrete and 36.1% of steel production </li></ul><ul><li>Chinese electronics exports reached 60% in 2010, surpassing USD 1 trln. China is starting to manufacture electroincs for domestic market </li></ul>Products as share of China exports, %
  10. 10. 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 <ul><li>Currently the Chinese economy is driven mostly by exports </li></ul><ul><li>The saving habits of population impede consumer demand, though some increase in consumer spending already takes place </li></ul><ul><li>The policies are targeted towards increasing consumer spending thereby facilitating the transition to a domestic market </li></ul>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
  11. 11. 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
  12. 12. <ul><li>International Monetary Fund on China: No. 1 in 2016 </li></ul><ul><li>China’s future lies in: </li></ul><ul><ul><li>Increased export of highly manufactured commodities </li></ul></ul><ul><ul><li>Changing it’s economic model </li></ul></ul><ul><ul><li>Overcoming obstacles </li></ul></ul>The Future:
  13. 13. <ul><li>Obstacles: </li></ul><ul><ul><li>Inflation </li></ul></ul><ul><ul><li>Elderly </li></ul></ul><ul><ul><li>Pollution </li></ul></ul><ul><ul><li>Sustaining the middle-class </li></ul></ul><ul><ul><li>State ownership </li></ul></ul><ul><ul><li>Domestic issues </li></ul></ul><ul><ul><ul><li>Health-care </li></ul></ul></ul><ul><ul><ul><li>Pension and social security systems </li></ul></ul></ul>The Future:
  14. 14. <ul><li>Predictions for the year 2030 </li></ul>The Future: Source: Article in Foreign Affars, Volume 90, Number 5, September/October 2011. Peter G. Peterson, Institute for International Economics. Massachussetts
  15. 15. The Future – China’s perspectives Source: Institute for International Economics YES NO <ul><li>Aging society </li></ul><ul><li>Excessive investment </li></ul><ul><li>Spending money on domestic issues not projecting power </li></ul><ul><li>Difficulties in taxing the society </li></ul><ul><li>Political and ideological issues </li></ul><ul><li>Huge market potential </li></ul><ul><li>Rich labour force </li></ul><ul><li>Comparative advantage in labour cost </li></ul><ul><li>Sound corporate governance </li></ul><ul><li>Stable government </li></ul>Is China the world’s next superpower?
  16. 16. <ul><li>UN </li></ul><ul><li>WTO </li></ul><ul><li>World Bank </li></ul><ul><li>IMF </li></ul><ul><li>Political Economy Research Institute University of Massachusetts Amherst </li></ul><ul><li>Peterson Peter G. ( 2011 ). Article in Foreign Affars, Volume 90, Number 5 Institute for International Economics. Massachussetts </li></ul><ul><li>Finance and Development (IMF journal) </li></ul><ul><li>Financial Times </li></ul>References

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