Presentation the Chinese Economy- its history, its current status, the recent events and the reasons that led to the situation

1. China
Submitted by:
RAHUL CHANDA
160103106

2. Topics Covered
1. Economic Overview
2. Politico-Economic timeline
3. Comparative study of GDP growth with the United States
4. Contribution of each sectors in GDP
5. Shift to Services sector
6. Internationalisation of RMB
7. Chinese Equity Market Crash
8. Shadow Banking
9. Real Estate Sector
10. Unemployment Statistics
11. Road Ahead:13th Five Year Plan

3. Chinese Economic Overview
China is the second largest economy of the world by nominal GDP, second only to US
China is also world’s largest economy by PPP, surpassing US in 2014
Largest manufacturing nation and also world’s fastest growing consumer market
Largest trading nation in the world and an influencer of the world economy
Initiated economic reforms in December 1978
GDP growth has averaged nearly 10 percent a year—the fastest sustained expansion by a major
economy in history
Lifted more than 800 million people out of poverty
Catapulted from 9th positon in terms of nominal GDP with US$ 214b to 2nd position in 2013
with US$ 9214b

4. Chinese Politico-economic Timeline
1976
•Death of Mao
Zedong, end of
communist era
•Deng Xiaoping
elected as the
leader
1978
•December 1978
China opens up
the market
•Four
modernizations:
agriculture,
defence, industry
and science and
technology
•Shifted from a
centrally-
planned to a
market-based
economy
1980
•China started to
participate in the
global economy
and also became
a part of the
International
Monetary Fund
(IMF) and the
World Bank
1990
•Jiang Zemin
became the new
leader
•Most state-
owned
companies
converted to
private entities
•Millions
rendered jobless
2001
•Joins the World
Trade
Organization in
December
2002-2007
•Economy
experienced an
unprecedented
economic
growth mainly
due to booming
exports, resilient
private
consumption,
soaring
manufacturing
and massive
investment
2008
•Due to global
crisis, China
adopted a loose
monetary policy
2012
•Adopted
sustainable
growth model
•Coined “Chinese
dream"
emphasizing
people’s
happiness and
the idea of a
strong China
2015
•China is in the
midst of a
fundamental
transition,
moving from an
investment-
intensive,
export-led model
of growth, to a
consumption-
and innovation-
driven one

5. Some Current Statistics
Economic Indicators 2016 Data Unit
GDP 10866.44 USD (billion)
GDP Annual growth 6.7 %
GDP per capita 6416.18 USD
GDP per capita PPP 13400.27 USD
Unemployment Rate 4.05 %
Inflation rate 1.3 %
Interest Rate 4.35 %

6. Comparative growth of China w.r.t. US
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Chart Title
China United States

7. GDP annual growth
rate comparison
with US
Left side axis has values related to
China whereas right side has
values related to the US
While US growth rate plummeted
from 16% to 1.4%, Chinese
economy was maintained at
sustainable growth rate of 6.7%

8. Contribution of each sectors in GDP
China’s GDP is broadly contributed by three broader sectors
o Primary industry (agriculture)
o Secondary industry (construction and manufacturing)
o Tertiary industry (the service sector)
Agricultural,
12.12
Industry,
47.37
Services,
40.51
SHARE OF GDP (%) IN 2005
Agricultural 9
Industry, 40.5
Services, 50.5
SHARE OF GDP(%) IN 2015

9. Shift to Service Sector
Service sector include following industries
o Transport, storage and post (5% of GDP)
o Wholesale and retail trades (10%)
o Hotel and catering services (2%)
o Financial services (6%)
o Real estate (6%)
o Mishmash of services categorized as 'other' (18%)
Service sector now employs more than 300 million people, the largest share of the country’s 775 million workers
Services generate more jobs per yuan of output and thus boost the current slow growth rate
The industry expands in tandem with higher household incomes
Hence, families will spend more on education, insurance, restaurants, travel, and the other expense points of middle-
class life
And along with encouraged investment in tourism, health care, sports, and education in part through tax breaks, will
boost the overall growth

10. Internationalisation of RMB
Renminbi is the legal tender of China, often mistaken with Yuan, which is a unit measuring RMB
Accepted as a Reserve currency by IMF in November 2015
Circumstances leading to this are:
China joining WTO
RMB Financial Channels
RMB Commodity Trading
Trillion Dollar Reserve Currency Decision
 RQFII Quotas

11. Impact of Internationalisation of RMB
Trade Settlement
Financing and Borrowing
Capital Management
RMB Bilateral Swap Agreements and RQFII Quota Extension

12. Chinese Equity Market Crash
In June 2015, the Chinese stock market crashed with A listed shares losing 33.33%
After relaxation of restrictions of equity trading, Chinese population started investing in
equities heavily using borrowed money (90 million stock traders in 2015)
Less than half of them were qualified to analyse the stock market
Banks started promising unrealistic levels of returns to investors
Companies had highly inflated values as a result
Most importantly, Chinese government misled the population by using the state owned media,
sold junk assets at overvalued prices
Formation of a bubble, which crashed on 15th June 2015

13. Reactions and Measures Undertaken
Kneejerk reactions – Banning company executives and investors holding more than 5% from
trading
Companies totalling 40% of market cap were banned from trading completely
Government is now investing billions of dollars to keep the growth rate above 7%

14. Shadow
Banking
China’s debt has been growing in a
pattern similar to that of U.S. before
2008, whose lending soared
Shadow credit doubled to 36 trillion
yuan ($6 trillion), or about 69% of
China’s gross domestic product in
2012
About two-thirds of all lending in the
country by shadow banks are in fact
“bank loans in disguise”
Shadow banking is done since in China
banks are discouraged from lending to
certain industries and are mandated
to offer frustratingly low interest rates
on deposits

15. Continued…
“Money shortage” in local governments
and new housing projects also
contributed to increasing borrowing from
shadow banks.
Few economists predict a sharp
downturn for China, at least in the short
run – China may repeat Japan’s story of
1990
For several years, the central bank and
banking regulators looked benignly at
the growth of shadow banking
If China were to ignore the systematic
risk, then the similarity will not only exist
in over lending, but a recession as
devastating as 2008 as well

16. Real Estate
China’s main economic goal in 2016 is to manage a soft landing. This will enable it to achieve a smooth transition to a “new normal”
that will allow for slower but more sustainable development
Slower economic growth, in combination with abundant new supply, is set to push up vacancy rates for both office and retail assets across
most markets in the mainland
Rental growth, meanwhile, is forecasted to decelerate
Driven by resilient demand, logistics rents in most markets are expected to continue to rise in 2016
Domestic institutional investors are expected to become increasingly active in the market in 2016
Office: Rents in tier I cities are expected to remain steady, while those in a number of tier II cities are likely to come under increasing
pressure.
Retail: The retail sector may face headwinds in the near term; rental growth is likely to be sluggish in 2016
Industrial: Huge room for growth in the logistics sector; logistics rents are expected to rise further in 2016
Investment: Offices remain the preferred asset class in the investment market; Chinese capital continues to seek diversification in
overseas markets
Hong Kong market: The office sector is expected to continue to experience rental growth, as well as remain a key focus of investors; the
retail and logistics sectors are likely to endure a market slowdown

17. Continued…

18. 0
1
2
3
4
5
6
1980 1982 1986 1990 1994 2002 2007 2009 2012 2014
Unemployment Rate (in %)
• Before economic reforms in 1978, direct
allocation of jobs done
• Post reforms, responsibility system in rural
areas and autonomy to job seekers in urban
areas was introduced
• During mid 1990s migration control became a
problem
• After 1996 economic growth slowed down
• During 2008 crisis, again unemployment rates
rose slightly
• During recent years, unemployment has risen
steadily due to economic restructuring
Unemployment Statistics

19. Highlights of 13th Five Year Plan
Double the 2010 GDP and per capita personal income by 2020
Keep annual GDP growth more than 6.5%
Increase R&D spending to 2.5% of GDP
Rapid urbanization (60% of total population)
High speed railways in service
More than 50 million new urban jobs
20 million houses to be built in rundown urban areas
Increase average life expectancy by 1 year
Lift 70 million people out of poverty