The Power-point discusses the macroeconomics of china. It discusses the inflation, unemployment in china, fiscal and monetary policy of china and the foreign exchange rate mechanism of china. It also discusses what can be the endgame for china for changing in its policy.

1. MACROECONOMICS
OF CHINA
Amber Sahu PGP03010
Anirudha Yadav PGP03012
Aditi Priya PGP03005
Atul Raj PGP03020
Masoom Modh PGP03031
Rahul Kumar PGP02032
Sumit Kumar PGP03059

2. Introduction
• People’s Republic of China is 2nd largest economy in the world with GDP $11.2
Trillion US dollar as per world bank.
• In 2017, GDP growth rate is around 6.7% and is expected to growth at the rate
of 6.4% in 2018 due to “controlled moderation” in the economy.
• China was world’s largest exporter from 2013 to 2015. It exported $2 trillion to
its production in 2016.
• China is the world's third largest importer. In 2016, it imported $1.4 trillion.

3. Economic Reforms
• China was initially centrally planned economy with goal to make china self
sufficient. In 1979 reforms such as Foreign Investment, Entrepreneurship
Programs were introduced. However, most industries were still state owned.
• China built its economic on low cost exports of machinery and Equipment.
Massive govt spending went into State-owned companies to fuel exports. These
companies dominated the industries. Ex. PetroChina, Sinopec and China
National Offshore Oil Corporation.
• It developed cities around the these factories to attract workers. As a result,
one fourth of China’s economy is in real estate. It also invested in funded
construction of railways and other infrastructure to support growth.
• It also imported Massive commodities like aluminum and copper.
• For 30 years, China experienced double digit GDP growth which about to
become bubble. As a result, China looked toward economic reform.

4. Economic Reforms
• China’s economic reform is a long term plan to shift from a command economy to a
mixed economy.
• Recent slowdown in economic growth is intentional. Its not a sign of collapse.
• The reform plan moves China's economy away from government spending, state-
run companies and low-cost exports. It moves it toward private investment,
entrepreneurial innovation and domestic consumption. It needs to reduce
overcapacity in factories, sell a stockpile of newly built and vacant homes, and
lower business costs.
• Steps are to make financial system more competitive. Lower taxes, more borrowing.
• The reforms modernized them to attract private investors.
• Loosen Price controls to support other industries and make them more profitable.

5. Inflation
• Inflation in China has mostly been low at about 0-6%
• Govt. of China manipulates rate of inflation by setting monetary policies
• Food prices have driven recent fluctuations
Source: Statista

6. Foreign Exchange Reserves
 Holdings or foreign currency deposits held by nation’s central bank or monetary authorities.
 Managed by State Administration of Foreign Exchange(SAFE) and the people’s bank of
China.
 Highest Foreign Exchange Reserves.
 Second highest country ie, Japan has 1.2 trillion.

7. Foreign Exchange Reserves(Contd..)
 Forex reserve is USD 3119 billion as of November of 2017
 Twin surplus in both its current account and capital account in the first three quarters of this year.
 The value of gold reserves increased to USD 75.83 billion
 High trade surplus and FDI and pegged currency.
 Strict rules for moving capital outwards.
 In order to prevent Yuan from appreciating and to maintain the demand/supply PBOC bought many dollar
denominated assets.
 Because of appreciating Yuan by huge foreign investments causes the reduction in foreign exchanges.
 Adoption of murky counter-cyclical factor for calculations of midpoint.

8. Unemployment and Factors responsible
for Unemployment
• Population – 1.379 Billion (2016)
• Labor Force – 776.03 Million (2016)
• Labor Force Participation Rate – 71% (2016)
• Total Unemployed – 9.78 Million
• Unemployment Rate – 3.95%
“Healthy” unemployment rate for China is 4%

9. Source: IMF
China: Unemployment Rate from 2010 to 2021
• Shrinking number of people entering into work force
• Growing number of the aging in the labor force
• In 2010, there were 110 million people 65 and above in China; by 2030, the number
will be more than 250 million. By 2050, 25% of the population will be over 65
• The one child policy which came about in 1979 is largely responsible for these
problems with the labor force

10. China’s Fiscal Policy
• To fuel its economic growth China has consistently spent huge amount of
money in developing its infrastructure.
• In 1998 to deal with the Asian financial crisis China adopted an expansionary
fiscal policy and issued long term bonds of 910 billion Yuan specially for
construction.
• Then in 2005, to curb fiscal deficit, it adopted a neutral fiscal policy.
• However in 2008 due to the global financial crisis china once again adopted an
expansionary policy as China’s GDP growth rate fell form 14.2% in 2007 to 9% in
2008.
• These measures greatly helped China’s economy to get back on track towards
sustainable growth after the global economic slowdown.

11. The monetary policy in china
The central bank has kept the seven-day rate
within the corridor and nudged it up as the
economy has gathered pace
High volatility in money-market rates, once a
regular occurrence, has all but vanished, hence
the central bank’s conceit that, in a Qin-like
manner, it has shaved off mountain peaks and
filled valleys.

12. Exchange Rate
• State administration of foreign exchange
(S.A.F.E.) rules
• History of Change
• Fixed not floating
• Managed float system
• Controls over exchange: Current account vs
Capital Account
• Trying to deal with Impossible trinity
(Fallows, 2008)

13. Devaluation of Yuan
• In 2015 devaluation
• Devalued by 2%
• Change in policy
• Why was it done? Was it necessary? Was it manipulative?
• Because of its 5 year plan
• To increase its export
• Increase in production
• Change to consumer spending economy (Only 27% from pvt consumption)

14. Spillover Effects of the Global Financial Crisis on
China’s Economy
The Limited Impact of the Financial Crisis on China
and the Decoupling View

15. • How Did China Maintain a High Growth Rate during the Crisis?
• Strong Fiscal Position
• A High Level of Foreign Exchange Reserves
• Limited International Capital Flow
• China’s Major Challenges :
• Rebalancing the Economy
• Inflationary Pressures and Price Bubbles in the Real Estate Sector
• Nonperforming Bank Loans
• Other Problems

16. Conclusion
• End game for china
• A US Style financial crisis
• A Japan Style lost decade
• A soft landing or “Muddle
Through”