China irg

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China irg

  1. 1. CHINAMACRO ECONOMICS GROUP 1 I MBA A MBA A G1 1
  2. 2. Prepared By:•Aarathy Jayakrishnan•Agil V Joseph•Amrita Banerjee•Anantha Kumar G M R•Anuroop•Arun S•Ashis Kumar Nayak•Avinnash B Premanand•Babish Kumar P M•Venkatraman S•Pooja Chhotray 2
  3. 3. ABOUT CHINA 3
  4. 4. Peoples Republic of China.Worlds most Populous countrySingle-party state governed by the Communist Party of China 4
  5. 5. Introduction of economic reforms in 1978Worlds fastest-growing major economyIt is the worlds second-largest economyUnited Nations member since 1971 5
  6. 6. CHINAGROSS DOMESTIC PRODUCT 6
  7. 7. 7298.10 billion US dollars in 2011 Equivalent to 11.77 % of the world economySource: http://www.tradingeconomics.com/china/gdp 7
  8. 8. 8
  9. 9. CHINAGDP GROWTH RATE 9
  10. 10. Chinese GDP grew by 7.4% in quarter 3 down from 7.6% inquarter 2It represents A sharp slowdown for china, where GDP grew9.2 % in 2011 and has averaged an annual rate of around 10 %for three decades.Growth is lower than the 9%-10% range from 2008 to 2011 10
  11. 11. CHINA GDP GROWTH RATE 11
  12. 12. CHINAREASONS FOR LOW GROWTH RATE 12
  13. 13. 13
  14. 14. Fall in Exports and Imports Exports grew 2.7 % year-on-year, less than the 3 % forecast reflecting global financial crisis Threats from India, Vietnam and Pakistan offering similar goods at lower prices Imports fell 2.6 % against expectations of 3.5 increase due to weaker domestic demand Fall in Purchasing Managers Index The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment PMI fell to 47.8 the lowest since March 2009 caused by inventories climbing up and export orders falling National Bureau of StatisticsSource:http://www.ibtimes.co.uk/articles/382407/20120910/china-economy-exports-imports.htm 14
  15. 15. 15
  16. 16. Fall in Industrial outputIndustrial output growth slowed to 8.9% below marketforecasts of a 9.1 % due to slowing new ordersSurveys suggest that manufacturers will run inventoriesdown further before they can begin to turn production upagainThe growth rate in industrial electricity production, afterspiking early this year, has fallen back sharply to near zerogrowth due to decelerating industrial activity 16
  17. 17. 17
  18. 18. Real estate investmentcollapseReal estate investment, which is a large part offixed asset investment, is not picking up due tochanging Government policies Low average household consumption Rise in household savings Young families aspiring for home ownership Poor access to insurance claims and loans 18
  19. 19. GDP PER CAPITAGDP per capita rose from $1135 in2002 to $5432 in 2011 with anaverage annual growth of 16.7%The GDP per Capita in China isequivalent to 21 % of the worldsaverage 20
  20. 20. CHINAConsumption And ConsumerMarket 23
  21. 21. China’s consumers spending more than previously believed-according to the latest revisions to the country’s economic data.Household spending increased byabout $126 billion spread over eightyears. NBS found that householdexpenditure was revised up to 11.06trillion Yuan, an increase of 220.23billion Yuan. China will be the world’s secondlargest consumer market by 2015(currently number three behind theU.S. and Japan) 24
  22. 22. CHINAOTHER ASPECTS OF CHINESE CONSUMPTION 25
  23. 23. China is trying to diversify its reserve holdingsBuying more Japanese yen and Korean won.Diversify PBC holdings has had no disruptive affect on the USTreasury market.There is more income inequality. 26
  24. 24. CHINAINVESTMENT 27
  25. 25.  According to the statistics of news release of foreign investment, fromJanuary to August 2012, the actual use of foreign investment reachedUS$ 74.994 billion, down by 3.4% year on year.According to statistics by MOFCOM, in January – August 2012, Chineseinvestors made direct investment overseas in 2708 enterprises in 119countries and regions, with total non-financial direct investmentoverseas amounted to US$ 47.68 billion, up by 39.4% year-on-year. 28
  26. 26. China’s investments are growing in frequency and in diversity acrosssectors.2012 has brought a variety of transactions, from Shandong HeavyIndustry’s buyout of Italian yacht maker Ferretti, to Shanghai BrightFood Group’s investment in England’s Weetabix breakfastbrand, and most notably, here in the U.S., where Dalian Wandapurchased the AMC movie theater chain. 29
  27. 27. According to the Rhodium Group, a policy thinktank, Chinese investment in the European Unionreached $10 billion in 2011.Chinese investment increase dramatically from a total of $3 billion in all of 2011 to $8 billion later part of 2012 30
  28. 28. CHINA GOVERNMENT SPENDING 31Source: The National Bureau of Statistics, China
  29. 29. CHINAGOVERNMENT REVENUE 32
  30. 30. GOVERNMENT REVENUE 33
  31. 31. GDP is worth $7298 US billion dollars.GDP Annual Growth is around 7.4% as on Oct 2012.Sources of China’s Revenue comes from taxes throughconsumption, corporate income, personal income andimports. 34
  32. 32. CHINACHINA’S EXPENDITURE 35
  33. 33. CHINA’S EXPENDITURE Society,Culture and 20% Education 27% Economy Development National Defence19% Administrative Expenses 27% 7% Others 36
  34. 34. China’s Government Spending is around 23% of its GDP.Main Expenditure spent onsociety, culture, education, National defense and otheradministrative expenses.national defense is comparably decreased slightly from 10%in 2000 to 7% in 2011.The reason behind is, it started spending more in buildinginfrastructure and in Education. 37
  35. 35. CHINAEXPORTS VS IMPORTS 38
  36. 36. China has Net Exports constitutes 5.4 % of its GDPThe balance trade (Net Exports – Net Imports) has worthabout $325 Billion US dollars.China exports to countries like U.S., Japan, U.K and SouthKorea and imports from U.S., EU, Hong Kong, Japan, ASEAN.The reason is china wants to grow its economy faster andwants to appreciate its Currency Yuan in the Global Economy. 39
  37. 37. CHINA% CURRENT ACCOUNT 40
  38. 38. % Of Current Account Surplus to GDP12.00% 10.60% 9.30% 9.60%10.00% 8.00% 7.10% 6% 6.00% 5.20% 3.60% 4% 4.00% 2.40% 2.80% 2.00% 0.00% Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 41
  39. 39. Current Account is the sum of balance trade, factor incomeand cash transfers.China has Current Account as 4% of its GDP.China has Current Account Surplus of 59.70 Billion USdollars.The Current Account represents the level of China’sInternational competitiveness. 42
  40. 40. CHINAINFLATION 43
  41. 41. The inflation rate in China was recorded at 1.7 % in 2012. 44
  42. 42. Inflation Rates 2012The prices grew by 1.8 % in cities and 1.5 % in rural areas.The food prices went up by 1.8 %, while the non-food pricesincreased by 1.7 %.The prices of consumer goods went up by 1.5 % and theprices of services grew by 2.3 %.The overall consumer prices were up by 2.7 % over the sameperiod of the previous year. 45
  43. 43. Reasons For Lower RatesChinas economy has been hurt by falling demand for itsexports and a slowdown in investment in the country.Demand for its exports has been hit by continuing economicproblems in key markets such as the US and Europe.China has been keen to boost its domestic consumption in abid to rebalance its economy and sustain growth. 46
  44. 44. CHINAUNEMPLOYMENT 47
  45. 45. Unemployment rate is 4.1% in 2012 4.3 4.3 4.34.25 4.2 4.2 4.24.15 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.14.05 4 48
  46. 46. Why lower unemployment rate??China has created 6.94million new job in first six month of20122.94million laid off workers are reemployed in first six monthof 2012Expansion of labor intensive industries towards central &western regionLower tax rate for small industriesGovernment has taken supportive measure for small & midsize enterprises 49
  47. 47. CHINAFOREIGN EXCHANGE RESERVES 50
  48. 48. Current Reserves – 3.24 trillion USDAverage Foreign Exchange Reserves – 525258.41 Million USDHighest Value – 3.3 trillion USD ( Feb 2012)Lowest Value - 2262.0 million USD (Dec 1980)Status – Continuously Growing since 1980 51
  49. 49. Reasons for Continuous Growth of ForexIncrease in capital itemsFDI -185.1 Billion USD (2010) - 3.1% of GDP (2010)Foreign Debt - 25% of US Foreign DebtsExports - 31.4 % of GDP in 2010 ( 1.86 Trillion USD) 52
  50. 50. Current TrendChina is cutting back its purchases of US securities as it seeks to diversifyaway from the dollar ( 54 % )China’s FDI inflow declined by 3.45 % - ReutersExports declined from to 8.8% in 2011 ( 644 million USD )China faces crisis without economic reforms - World Bank 53
  51. 51. CHINAFISCAL POLICY 2012 56
  52. 52. • National revenue is 11.36($1.82) trillion Yuan, up by 9.5%. • Total available national revenue is projected to be 11.63 trillion Yuan. • Total expenditure exceeds total revenue by 800($128.45) billion Yuan (including the 550($88.31) billion Yuan central government deficit), 50($8.02) billion Yuan less than last year and bringing the deficit down to approximately 1.5% of GDP.Source :China NPC & CPPCC Sessions 2012 57
  53. 53. CHINAFOCUS AREAS OF FISCAL POLICY 58
  54. 54. Improve structural tax cut policies toreduce the burden on businesses andconsumers. By reducing tax and implementing new VAT policies to help out small and low profit businesses. 59
  55. 55. Increase peoples incomes to boosttheir purchasing power. By put into effect a more proactive employment policy, and implement the minimum wage system and by increasing government subsidies to raise the incomes of urban and rural residents. 60
  56. 56. Optimize the structure of government spending to maintain and improve living standards. Direct more funds toward the primary level, rural and remote areas, and groups with financial difficulties; and more quickly develop education, medical and health care, social security, employment, low-income housing, public culture, and other social programs.Source: National Bureau of Statistics of China 61
  57. 57. CHINAPOLICIES IN ACTION 62
  58. 58. Investors who hold publicly listed shares for more than oneyear will only be liable to pay a 5 % tax on any dividendsearned, down by 5 % from the current rate of 10 %.To discourage speculative trading, individuals who holdsecurities for less than one month will face an increased taxon dividend of 20 %. 63
  59. 59. The Chinese government is shifting from creating preferentialpolicies for foreign investors towards instead favouring itslocal labor pool due to the country’s widening income gap.Wage hikes will boost domestic consumption to keep thecountry’s economy expanding while overseas markets remainweak. 64
  60. 60. China’s Ministry of Human Resources and Social Securityrevealed the latest minimum wage levels across China .Minimum wage levels of more than 1,000 Yuan($160.56). 65
  61. 61. CHINAFINANCIAL SYSTEM 66
  62. 62. STRUCTURE OF BANKING SECTOR 67
  63. 63. 68
  64. 64. MARKET SHARE IN BANKING SECTOR 69
  65. 65. REASONS FOR HEALTHY FINANCIAL SYSTEMThe assets of the banking sector account for around 95 % ofthe total assets of all financial institutions in China.62 % of the fixed-asset investment in China are funded bybanking Sector.The big four SOE banks are the major players in the Chinesefinancial market, with their assets accounting for 52.7 % ofthe total bank assets in China. 70
  66. 66. REASONS FOR HEALTHY FINANCIAL SYSTEM The entire financial system has a high proportion of savings and investments of the population. The total value of deposits at the end of 2011, it has approached to 160% of GDP while the share of these deposits used by banks to extend credit in the economy of the country was greater than 100% of GDP. 71
  67. 67. CHINACOMPARISON WITH INDIA 72
  68. 68. India has a “mixed economy” with large private sector .“capitalist market economy” with the associated tendency toinvoluntary unemployment.China was mostly a command economy, which until recentlyhad a very small private sector, there is still substantial statecontrol over macroeconomic processes in forms that havediffered from more conventional capitalist macroeconomicpolicy. 73
  69. 69. TREND OF DEVELOPMENTThe trend of transformation from divided operation tointegrated operation has emerged. Eg: CITIC Group, BOCGroup, Ping An Insurance Group 74
  70. 70. Support Stable And Fairly Rapid GrowthCHINAMONETARY POLICY 75
  71. 71. ChallengesInflationary pressure Due to local governments’ crave for growth and strong demand for the expansion of investment as well as the supply of money and credit.Agricultural SectorDevelopment of Rural AreasStabilize Employment SituationInternal Drivers Are Yet To Be StrengthenedSlowing Real Estate Sector 76
  72. 72. Flexible Open Market Operations This Enabled the PBC to moderate the fluctuations in liquidity supply and demand caused by seasonal factors and market developments, ensuring that liquidity in the banking system remained stable. Reserve Requirement Ratio Raised reserve requirement ratio 6 times by a total of 3 % points in 2011 77Source: China Financial Stability Report 2012
  73. 73. Dynamic Adjustment Of Differentiated Reserve Requirement Ratios Counter-cyclical tool enhance coordination between credit policy and industrial policy. Encourage financial institutions to optimize the credit structure, and to boost credit support to SME. The Agricultural sector, farmers, rural areas, and on- going and follow-up key national projects. Promoted innovation in rural financial products. 78Source: China Financial Stability Report 2012
  74. 74. Leveraging Role Of Interest Rate Raised deposit and lending rates of financial institutions 3 consecutive times. 79Source: China Financial Stability Report 2012
  75. 75. Exchange Rate Regime Enhanced exchange rate flexibility, Equilibrium level based on market supply and demand in reference to a basket of currencies Increased the floating band from .5% to 1% both direction Total Financing Introduced to the real economy was as an intermediate variable for monitoring. 80Source: China Financial Stability Report 2012
  76. 76. CHINAKEY IMPLICATIONS 82
  77. 77. The declining growth of the labour force yearafter yearStronger resource and environmentalConstraints 83
  78. 78. 84

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