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Chinese Economic Slowdown


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Chinese Economic Slowdown

  1. 1. 2010 2011 2012 GNI PER CAPITA, PPP($) 7510 8400 9060 POPULATION (BN) 1.34 1.34 1.35 GDP($TN) 5.95 7.31 8.36 GDP (%) 10.4 9.3 7.8 Population GDP (current US$) Population GDP (current US$) 1.35 5949.79 1.34 1.34 2010 7314.43 8358.36 BILLIONS 2011 2012 2010 2011 2012
  2. 2. EMERGING ECONOMIES China GDP growth (annual %) India 11 10.40 9.30 7.80 6 3 2010 2011 2012
  3. 3. 1. Economic weakness in the U.S. and Europe China has long relied on its cheap export machine to fuel growth, but exports slowed dramatically. The main culprits are a "recession in Europe and a patchy economic recovery" in the U.S. The dip in exports was expected, given that "it's hard for the Chinese to sell stuff to Europeans who don't have money to spend. 1. A falloff in domestic demand China's imports in April 2012 rose an anemic 0.3 percent from the previous month, the lowest figure since the global economy was in the midst of the financial crisis of 2009. The data indicate that Chinese businesses appeared to lose much of their appetite for products as varied as iron ore and computer chips. 2. Inflation worries China could "easily kickstart growth" by enacting a fiscal stimulus plan, but the government is concerned that a flood of money would cause prices to spike. Rampant inflation could "increase social unrest," and "discontent among the poor and middle class is a major source of anxiety for Chinese leaders.
  4. 4. 4. Housing and banking are a mess Following a real estate bubble; China's housing market is cratering. In addition, the country's shady banking sector, which helped inflate the bubble, is likely rife with bad loans, even though the government helps hide them. China's banking system is built on "quicksand and it's only a matter of time before "the jig will be up." 5. A corrupt political system Many of China's economic problems are really political in origin. Economists are encouraging the government to open up the economy with private investment and currency reforms, but such changes "would involve a titanic power struggle" with "army generals, Politburo members, local officials, and the 'princeling' children of Communist party elders," who "have little incentive to refashion a system that fills their coffers.”
  5. 5. 6. In 2011, investment hit an astonishing 50% of GDP — an unprecedented and unsustainable level for any major economy. China was spending more on infrastructure, pouring more concrete — than the US and Europe combined. 7. According to an early 2011 estimate from Capital Economics, there were only about 15 million people still underemployed in rural areas. 8. The fountain of youth runs dry: Only five million Chinese will enter the core working ages of 35-54 this decade, down from 90 million during 2000-10. That’s why some analysts say that China will grow old before it grows rich.
  6. 6. 9. The invisible debt: The debt of households and corporations amounts to 130% of GDP — nearly 200% if the murky shadow banking sector is included. 9. Wage inflation —the same symptom that signaled a slowdown in the other Asian miracle economies — is now running at a 15% annual pace, and labour has the upper hand in negotiations. 11. Chinese consumption has been falling as a share of GDP only because investment has been growing even faster. Over the past decade, investment grew at an annual rate of15%, up from 12% .
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  8. 8. • Average new house prices of China's first-tier cities, Beijing, Shanghai, Shenzhen and Guangzhou rose by more than 50% in 2009. • In 2010, the State Council and most regional governments pronounced a series of policies designed to control house prices. • The impact of such policies, however, has appeared ineffective. • By the end of 2010, the average new house prices in these cities rose from 24% (Guangzhou) to 42% (Beijing).
  9. 9. • China cuts bank reserve need to spur lending after data showed that slowdown in growth is deepening. • Reserve ratios fell 50 basis points on May18, 2012. • The level for the nation's largest lenders will decline to 20 per cent. • A 50 basis-point cut in the reserve requirement in February 2012 probably added 400 billion Yuan ($63.4 billion) to the financial system, according to ANZ estimates. • As the government is adopting a more assertive monetary policy to stimulate the economy but there is every possibility of over-stimulating.
  10. 10. • The growth of China's shadow banking system with estimated outstanding credits equaling roughly 10-15% of the balance sheet of the formal banking sector has long been flagged as a source of risk in China's financial sector. • The non-performing loans (NPL) account for 26.6% of total lending by China’s top four state-owned commercial banks. In September 2012, NPL’s held by these banks totaled 1.8 TN Yuan ($217 BN). • State-owned banks classify a loan as non-performing only if interest payments have not been paid for two years. • By contrast, the international standard classifies bad loans as those that have not been serviced after three months. • According to Ernst & Young, nearly half of the loans made by the Chinese banks may never be repaid.
  11. 11. • According to IMF, China grew at 9.2% in 2011. But in 2012, the growth target was estimated at 7.5% due to fall in domestic demand owing to inflation and increasing wealth gap. • In 2013, disposable income growth for urban households slowed to 6.5%, down from 9.7% growth in the first half of 2012 and below the growth rate of the economy as a whole. That contributed to a slide in the share of consumption in China's growth. • Salaries are increasing at a much lower rate, thus disturbing the consumption pattern throughout the country. • Cautious consumers have thrown China back on its old reliance on investment spending to drive growth. Consumption contributed 45.2% to GDP growth in the first half of 2013, down from 60.4% in the first half of 2012.
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  13. 13. 1. China's slowdown cast a shadow over Europe and Asia. 2. Investors in Germany, Europe's biggest economy, turned gloomy this month on fears over falling exports to China, in a stark illustration of the new globalized power of the Asian nation's industry and consumers. 3. The Asian Development Bank warned that China's slowing growth was weakening momentum and trimmed its outlook for developing Asia to 6.3 per cent in 2013, from 6.6 per cent.
  14. 14. 4. Slower growth will have impact on those countries who have strong trade links with China -- like Australia, Brazil and the South East Asia region -- as demand will fall. 4. Since China is moving away from investment to a more consumer driven economy, the likely loser countries are the ones supplying raw material for Chinese investment. 6. A bursting China bubble would be a massive deflationary shock to the world economy and investors would face very bleak and frightening prospects. 6. The slowdown in China underscores risks to the global recovery as job growth in the U.S. slumps.
  15. 15. • China is a key downside risk to the global economy. If growth continues to decline in the world's second-largest economy, developed economies will be disappointed as it would eventually lead to a global crisis. • China is vital for the smooth functioning of global economies because the Asian powerhouse nation is a major consumer of commodities, like crude oil, steel, and copper, and of manufactured products like cars and airplanes. ITEMS MILLION TONNES GROWTH % $BN GROWTH % SOYBEANS 54.8 28.8 25.1 33.5 IRON ORES 618.6 -1.4 79.4 58.4 COAL 164.8 30.9 16.9 60.1 OIL 239.3 17.5 135.2 51.4 OIL PRODUCTS 36.9 -0.1 22.3 31.3 PLASTICS 23.9 0.4 43.6 25.2 STEEL PRODUCTS 16.4 -6.8 20.1 3.3 COPPER 4.3 0.0 32.7 44.4
  16. 16. • Poor Governance: China maintains a weak and relatively decentralized government structure to regulate economic activity in China. • State-owned Enterprises: China’s huge apparatus of state-owned enterprises (SOEs) is a popular punching bag: economists decry its inefficiencies; foreign politicians complain about unfair competition. • Low Human Capital Formation: Due to low human capital, China is going to have huge shortage of skilled and educated labour. The employment/population ratio declines by about 1/2 percentage points between 2011 and 2030, from 78% to 69% percent.
  17. 17. • Aging Population: The Chinese population is expected to peak in 2030s and 2040s and begin to slowly drop. The population growth is expected to slow to near zero over the next 40 years. • Growing Pollution: The U.S. Energy Information Administration (EIA) projects that by 2035, China’s carbon dioxide emissions (CO2) could be nearly double its current levels. A study by ExxonMobil projects that, by 2030, China’s CO2 emissions could equal the level in the United States and EU combined.
  18. 18. Projections of U.S. and Chinese Annual Real GDP Growth Rates: 2013-2030 (percent) Source: Economist Intelligence Unit.
  19. 19. • Institutional reforms to be undertaken: 1. Increasing openness to private enterprises: The private sector, having made progress during the economic system reform, had relaxed the economic structure as a first step and viewed that the new ownership structure in which the previously-dominant public ownership coexisted within various economic sectors was a substitute for pure public ownership, therefore promoting market oriented reform. 2. Reforming the State-owned Enterprises: reform is needed if the economy is to further evolve, and this is widely accepted by the Chinese leadership. The market would be given greater room to operate, including allowing private businesses to compete on an equal footing with state-owned enterprises.
  20. 20. 3. Improving education: The World Bankfunded Guangdong Technical and Vocational Education and Training Project is helping three technical schools in Guangdong Province to overcome these challenges so that vocational education can improve its quality and become more relevant to students’ needs. This will help produce more skilled workforce which China badly needs going forward. 3. Improving Infrastructure: The Integrated Economic Development of Small Towns Project aims to assist the governments to adopt and demonstrate comprehensive economic development approach to promote effective integration of urban and rural development, and boost socially, economically and environmentally sustainable development in small towns. This will help generate employment and incomes and improve quality of life in small towns.
  21. 21. 5. Reforms in the role of the Govt.: China needs an intergovernmental system which: • is consistent with maintaining an appropriate income elasticity of revenues. • provides incentives for public infrastructure development; • supports central government macroeconomic management; • will influence resource allocation in line with national goals and priorities; • will promote income and, most importantly, • supports and is consistent with system reforms such as price and enterprise reforms distribution goals;
  22. 22. 013/10/04/reuters-tv-the-threatsto-chinasfuture?videoId=274032634&vide oChannel=117851