China is geographically divided into two parts - an inner agricultural region where 95% of people live, and an outer sparsely populated region of mountains, plateaus, deserts and steppes. The population of over 1 billion people makes China the most populous country in the world, though only 4% of its land can be cultivated. Under Communist rule in the 20th century, collective farms were established to increase agricultural production. Since economic reforms in the late 1970s, China has experienced rapid economic growth and development, becoming the world's second largest economy through industrialization, international trade, urbanization and investment.

1. North, South , East, West
Natural barriers isolated China from all other civilizations.
Mongolian Plateau
Taklimakan Desert
Gobi Desert
Plateau of Tibet
Himalaya Mountains
Pacific Ocean

2. China: Cultivating the Outer China is a sparsely
China is geographically divided into two parts.
Land
settled region of high mountains, plateaus, steppes, and deserts. Agricultural
China is where 95% of the Chinese people live.
Under Communist rule, China’s agricultural
land and farmers were organized in to
collective farms in an attempt to increase
agricultural production.

3. China: Size and Population
United States
China
9,596,960 Square area 9,629,091 Square area
1,284,303,705 Population 280,562,489 Population
The population of China is more that one billion people, the largest national
group in the world. Two-thirds of the Chinese people are farmers, but only
4% of China’s land can be cultivated.
In an effort to balance the relationship between land and people,
China adopted a “one-couple, one-child” policy in the 1980’s.

4. China: Ruling the People
Dynasties: Ancient China was governed by a ruling class of warrior nobles headed
by a king. Ruling families are referred to as dynasties. The Shang Dynasty (1766 BC)
was the first verifiable dynasty and ruled China for 600 years. The Shang dynasty
was overthrown by Zhou who established a dynasty and introduced the idea of the
Mandate of Heaven.
The Han dynasty centralized the Chinese government and established a bureaucracy
which included eighteen different ranks of civil service jobs that civilians obtained
by taking competitive examinations.
1911-1949 The Republic of China was established under the leadership of Sun Yat-
sen
1949- The Republic of China moved to the island of Taiwan
1949 –The People’s Republic of China came to power under the Communist leader
Mao Zedong.

5. China: Philosophy and Religion
Confucius was addressed as The Master
all over China. His teachings were based
on virtue and goodness. Confucius
believed that the past tells us how to live in
the present. His sayings were recorded in
a book called The Analects.
Other Chinese philosophies
include Taoism ( Daoism)
and Legalism
Buddhism spread
to China from India.

6. China: Development of Writing
The Chinese writing system is not alphabetic like English. It
used symbols for words called characters. Each character
stands for an idea, not a sound. The characters are read
vertically in columns (down and up). The written language is not
linked to the spoken language, so people all over China could
learn the same system of writing, even if they spoke different
languages.

7. China: Technology
Bronze
During the Shang dynasty,
Chinese artisans learned
to make beautiful objects
from bronze to be used in
religious ceremonies.
Iron
Ancient Chinese learned
how to build blast
furnaces that allowed
them to produce cast iron
used for weapons and
agricultural tools such as
the mold board plow.

8. China: Economic Development
After the death of Mao Zedong in 1976, China adopted a plan of
modernization, The Four Modernizations. Under the new
leadership of Deng Xiaoping, China wanted to improve
agricultural production, expand industry and improve the army.
At the 16th National Congress of the Communist Party, the Deng Xiaoping 1904-1997
National People's Congress of China elected President
Hu Jintao.
President Hu Jintao moves
Zhongnanhai, Beijing Headquarters of Communist Party China toward capitalism

9. The Chinese development
Since 20 years the Chinese economy has a very important
role in the world, and also continues to be subject of
contrasting reviews.
The surface of China is 9,671,018 km2, making it the
largest state in East Asia and the population is approximately
20% of the world: China is the most populous country in
the world.
The importance of China in the XXI century is reflected in its
role as second largest economy to GDP after United
States.

10. • China is also member of the many important instututions:
• United Nations, who has as one of his goals the achievement of international
cooperation in economic development.
• APEC (Asia-Pacific Economic Cooperation): which aims to foster cooperation,
economic growth, free trade and investment in the Asia-Pacific.
• G20:that enclosing the most industrialized countries to encourage international
economic development by promoting new strategies and sustainable
development.

11. THE ECONOMIC REFORM
• With the introduction of economic reform based on
capitalism, in 1978 China became the country with
the fastest economic development in the world: is
the second largest exporter and third largest
importer of goods.
• There were reforms in industry and agriculture

12. • Also there were important and decisive initiatives to
encourage foreign investment: opening up to
foreign countries and the introduction of the free
market is so central to the reform.
• The reforms implemented have led to a "socialist
market economy", a new economic structure which
combined socialism, which held the administrative
and institutional structure, an economic system
which provided for the free market and free trade.

13. An incredible growth
• Over the last 20 years China has got an extremely high savings rate,
averaging around 40 %, Chinese economy has enjoyed one of the highest
growth rates in the world.
• At the beginning of the nineties there was an incredible increase in GDP,
from 4% in 1990 to 12.7% in 1994.
• In the ranking of GDP, in 2007 China surpassed Germany and in 2010
Japan.
• Of course the gap whit the United State is still very large..

16. CHANGES IN ECONOMY

17. AGRICULTURE
• China is one of the world's largest producers and consumers of
agricultural products.
• Today Agriculture contributes for around 10% of China's GDP.
• In the nineties we assist to a crises in the rural world.

18. Industry
• Industry and construction account for 46.8]% of China's GDP.
Around 8% of the total manufacturing output in the world comes
from China itself. China ranks third worldwide in industrial output.
• China is the largest producer of steel in the world.

19. An important event in the Chinese industry is the development of the
privatization.
• In the nineties we assist to a decrease of the productivity of the public industry.
• In the 1993 the government decide the China must became a “modern country”,
so the public companies must become private company.
• Companies whit foreign capital are an important part of the private sector: they

20. Import-export
• The vast majority of China's imports (machinery and high-
technology equipment) comes from the developed countries
(Japan and the United States)
• About 80 percent of China's exports consist of manufactured
goods, most of which are textiles and electronic equipment, with
agricultural products.

21. Exports of goods and services
•
(% of GDP)
26,17813% in 2009
• Exports of goods and services represent the value of all
goods and other market services provided to the rest of
the world. They include the value of merchandise,
freight, insurance, transport, travel, royalties, license
fees, and other services, such as communication,
construction, financial, information, business, personal,
and government services. They exclude compensation of
employees and investment income (formerly called
factor services) and transfer payments.

22. Imports of goods and services
• 20,92528% in 2009
(% of GDP)
• Imports of goods and services represent the value of all
goods and other market services received from the rest
of the world. They include the value of merchandise,
freight, insurance, transport, travel, royalties, license
fees, and other services, such as communication,
construction, financial, information, business, personal,
and government services. They exclude compensation of
employees and investment income (formerly called
factor services) and transfer payments.

23. 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 2005, 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.
• This indicates the dominant role of banks in the Chinese financial
system.
China's economy is mainly financed by bank loans: loans granted by
banks in the first quarter 2006 were 87% of the total funds raised by
domestic non-financial sector.
Moreover, the presence of not yet very developed bond market does not
allow companies to diversify their sources of research funding.

24. • Indeed the financial development of China remains in the early stages.
• The country’s legal system is weak so that financial contract are difficult
to enforce, while accounting standards are lax, so that high-quality
information about creditors is hard to find.
• Regulation of the banking system is still in its formative stages, and the
banking sectors is dominated by large-state owned banks.
• Even though available savings have not been allocated to their most
productive uses, the huge increase in capital combined whit the gains in
productivity from moving labor out from low-productivity, subsistence
agriculture have been enough to produce high growth.

25. • As China gets richer, however this strategy is unlikely to continue to
work.
• To move into next stage of development, China will need to allocate its
capital more efficiently, which requires that it must improve its financial
system.
• The Chinese leadership is well aware of this challenge.
• The governed has announced that state-owned banks are being put on the
path to privatization.
• In addition, the government is engaged in legal reform to make financial
contracts more enforceable.
• New bankruptcy law is being developed so that lenders have the ability to
take over the assets of firms that default on their loan contracts.

26. The Banking Sector
The history of the banking system in China can be
subdivided into two main periods
 The Mao Era (1949-1978)
 The Post-Mao Era or Deng Era (1978 onwards)

27. The Mao Era
In 1949 the People's Bank Of China took over
 functions of central bank (regulation and
monetary policy)
 functions of commercial bank (control on all
banking business)

28. The Mao Era
PBOC
CBRC
As central bank the PBOC as the The China Banking Regulatory
objective of promoting Commition (CBRC) manages
economic growth and price the functions of supervision. It
stability. focus on the strenght of the
It focus on monetary policy issues financial
and financial system institutions and the restructuring
liquidity. of the banking sector.
PBOC remains still very influential, it has considerable regulatory
power.Common overlapping of functions.

29. In 1983 the control on banking The Post-Mao Era
business has been took over by
the “Big Four” namely
 Bank of China (BOC)
 Industrial & Commercial
Bank of China (ICBC)
 China Construction Bank
(CCB)
 Agricultural Bank of China
(ABC)

30. The Structure of the Banking Sector

31. The Big Four

32. Reforming the Banking Sector
The chinese banking sector used to be debt-laden because of its status
of ‘fakely independent’ from the government. NPL ratio of the
Big Four was above 20% in 2003.
Stages of the restructuring:
 Recapitalize and restructure the Big Four into joint-
stock banks (strenghtening the balance sheets)
 Invite strategic investors
 Become publicly listed (greater transparency and
efficiency)

33. Foreign Banks
2006 – removing of all geographic
and (most) business restrictions
for foreign banks. Nevertheless
rather small role.
Often geographically focused (I.E.
Shangai) as they cannot
compete with Chinese banks in
term of the number of branches

34. The Financial Markets
Major function of the financial
markets
How Financial Markets have
improved Chinese economy

35. The Stock Market
 How chinese stock market was in the past
 Analytical comparison of China stock and
US stock (at present).
 Press coverage and speculation.
 HK Stock Exchange
 Growth potential of the stock market
 The chinese stock market crash

36. The Stock Market
 Taiwan stock market
 Political direction pursued by the
taiwanian leader
 Enactment of new laws
 New policies adopted
 Taiwan Stock Exchange

37. Investment Risk in the Chinese
Stock Market
 Volatility
 Precautions

38. The Bond Market
 The developing stage
 The reformation of the bond markets
 Rules and regulations in the bond
market

39. Why Financial Markets are among the most
heavily regulated sector in the economy?
 Asymmetric information
 Adverse selection and moral hazard
 Mitigating the problem

40. Why investors should consider
investing in China?
 Capital reserves
 Exit strategy
 Ready to serve (service sector)
 More to China than exports

41. Recommendation and Conclusion
 Increase information to investors
 Monitoring and control of credit rating
institutions
 Diversification of loan portfolio
 Encourage small banks to raise capital
 Minimization of the financial panic
How sound and safe is the China's financial
system?

42. Undervaluation of China's Currency
 The currency of China is
Renminbi and its unit is Yuan
 Issued in 1948
 Fixed to the rate of 2.56
RMB per USD
 RMB gradually depreciated
to enhance the  1994 – lowest value 8.62 RMB per
competitivity of Chinese USD
exports

43. Fluctuation of the exchange rate of RMB

44. PPP (Purchasing Power Parity)
 Method based on the “law of one price”. I.E. Big Mac Index
 Limitations: it doesn't consider purchasing patterns; difference
in quality of goods in different countries; inflation
 Accoriding to the International Monetary Fund in
2006 1 USD = 2.062 Yuan

45. FEER (Fundamental equilibrium
exchange rate)
 Determines the internal balance GDP;
 Determines a target current account that conforms to the
sustainable capital account flows;
 Calculates the equilibrium of the REER.
 Limitations: uncertainty of estimating internal and external
balance.

46. BEER ( Behavioral equilibrium
echange rate)
Overcomes the FEER model'shortcoming by only modeling the
economic fundamentals
Explains the historic performance of the REER
Limitations: assumes the economy was in equilibrium during
the historical period

47. RMB undervalued by
According to the different model the RMB is
undervalued by different %

48. American Trade Deficit
 China contributes with 25% of US trade deficit;
 Appreciation of RMB will affect the deficit;
 The impact is proportional to the overall trade;
 China contributes with 11% of US trade.
 Ex: 20% appreciation would result in a 2% decrease in the
American trade deficit.

49. Advantages and Disadvantages of
undervaluation exports, while
An undervalued RMB artificially benefits Chinese
limiting the exports of other countries to China.
All of this would result in a strong limitation on the labour market
in most developed countries for the benefit of the Chinese
occupation.
However, this situation favours the interests of different
enterprises of developed countries that have moved production to
China. An undervalued exchange rate makes it much more
attractive, in western markets, the goods produced in China.

50. Advantages and Disadvantages of
undervaluation of fixed
The Chinese authorities claim that the abandonment
exchange rate would expose the country to activity of financial
speculation, would destabilize the economy and hurt growth.
Nevertheless, in June 2010, the Chinese government has declared
as its currency will gradually appreciated and will be subjected to
an oscillation of 0.5%

51. Strengths and weaknesses of the
Chinese economy in the globalization
Proactive policies,
Period of rapid growth, sustainable
and balanced.
Which makes it the third global economy and
the largest exporter since 2008.

52. Questions :
The experience of catching now known China is
sustainable?
What are the main strengths and weaknesses of
the Chinese economy?
China will, as the major economic power in the
twenty-first century, or is it a giant with feet of
clay ?

53. The advantages of Chinese
economic power
The ingredients of the strong growth in China since the end of the
Maoist period (1978) are no longer present.
China progressively liberalized its domestic market :
Extensive strucural reforms
Opened its economy to the world
Facilitating the transition from a planned economy and rural underdeveloped
economic power to a modern, integrated at the heart oh the globalization.
Profound transformations conditions living  * 15 between 19978 and 2007
 more than 500 M Chinese out of
poverty
 800 M in a semi or total misery…

54. The first point
Proportion of people
working
80
Growth in the years 70
1978-2007 (more than 60
9% per year) was 50
40
based primarily on
30
Growth factors of 20
production. 10
0
1964 2007

55. About reforms…
A political reforms :
The Chinese authorities continue to perform high structural reforms magnitude to maintain
growth potential of the country to the level of 1990-2000.
Economic reforms :
•The recovery plan implemented after the crisis appears, from this point of view, having
spent a turning development strategy in China, a model turned outwards, towards a model
more self-reliant.
•The Chinese authorities encourage strengthening transport infrastructure and
communication to open up peripheral regions and make China a true internal market
.

56. Social reforms :
The gradual establishment of a real social system (pension law
1997, extension of social security to all the people, announced
in 2007) should help stimulate consumer spending.
Others :
Finally, the strengthening of property rights and strong support
for research and development aimed at accelerating the rise in
the range of Chinese industrial production

57. The growing attractiveness of this
"workshop"
Increasingly open to foreign capital since the
creation of "special economic zones" in 1979.
2002 = first recipient of foreign direct
investment (FDI).
Main reason: The foreign-funded enterprises are
attracted by the low cost of labor, and are now
responsible for half of China's foreign trade.

58. Heavy industry
Ever since the Maoist period and stimulated by overinvestment in
the 1980s and 1990s.
China is now the world's largest producer of:
-steel
-cement
-and aluminum.
The expansion of light industry (textiles and clothing) due to the
increasing integration of the world market since China's accession
to the WTO and is the low cost of labor.
2007  1st world exporter.

59. China wants to dominate!
If the automotive industry remains dominated by low
productivity and foreign manufacturers, appliances and
electronics are fast-growing Chinese Lenovo (formerly
Legend) became in 2007 the first world producer of PC by
buying a part of IBM .
Telecommunications and electronic products accounted for
15% of China's industrial production in 2007. The steady
growth in value added has characterized the whole process
of the country's industrial take-off: the VA industry has
increased by 23 between 1978 and 2007.

60. A balanced growth path.
Despite the still rudimentary macroeconomic policy
instruments available to the government and the Central
Bank, the Chinese economy has so far followed a path of
balanced growth. China could not avoid three episodes of
falling prices, in 1999-2002, 2005-2006 and 2008-
2009, feeding fears and speculations on overinvestment.
Asset as well but managed to avoid hyperinflation in
periods of "overheating" (7.8% / year between 1978 and
1995) and has maintained an overall trade balance in
equilibrium, until fiscal surplus recorded disproportionately
recent years (10% of GDP in 2009).

61. Prudent management ...
• The prudent macroeconomic management
authorities, including the maintenance of
exchange controls have allowed China to
better withstand the recent crisis than other
countries in the region (Asian crisis of 1997)
and the countries of the Triad (crisis 2008).

62. The weaknesses of the Chinese
economy
"New Giant" or "paper tiger"?

63. China, is it really a model?
• These weaknesses are present from the regime of Deng
Xiaoping. It has an inability to control the side effects of
its rapid development, such
as:
- Increase inequality
- environmental degradation insufficient energy
supply.
All this shows that China is also becoming a cause for
concern.

64. The country of seniors!
Aging and the demographic challenge.
The first concerns the fragility Chinese production factor that has
contributed to its development over the last thirty years: work
.
The one-child policy has resulted in an abrupt transition and negative
for its long-term development.
Over 65 years  25% to 35% of the Chinese population in 2030
And the "reservoir" of migrant workers available to the industry
should stop growing soon

65. Who said China didn’t knew
unemployment ?
Urban unemployment was around 10% in
2010, and China has created efficient "only" 9
million jobs per year between 2003 and 2010.

66. China does catch its technological
backwardness?
• The main problem with China is its inability to quickly
specialize in technology-intensive industries.
Public spending on education are below average in
developing countries (2.8% of GDP in 2007, against 4% on
average for developing countries)
China is ranked as 104th in terms of enrollment in
secondary education (71.8%).

67. Absence of a culture of scientific
criticism.
• The importance of corruption, piracy and
counterfeiting to explain slow "upmarket" Technology
of the Chinese economy.
• The legal framework protecting intellectual property is
misapplied by the authorities and the local police.
• also to Chinese entrepreneurs themselves discouraged
from investing in research and development.
China Daily, March 2008)

68. Degradation of the environment
• Growth of the Chinese economy continues to continue at a pace
compatible with the population density and the relative scarcity of
natural resources that characterize the country.
• Environmental problems
-the erosion of soils,
-deforestation and
-desertification affecting 30% of its area.
• Pollution: China is now responsible for 22% of global greenhouse
gas greenhouse with 16 of the 20 most polluted cities in the world.
• Sanctions ^__^

69. The energy issue
• Energy consumption has increased by 13% per
year restart is the industries most intensive fossil
fuels, such as steel,cement and glass.
• If China has significant energy reserves (15% of
production World fifth largest oil producer), it
must import substantial quantities fossil fuels to
compensate for the low efficiency of the industry.

70. Rising inequality
China is a predominantly rural (55%).
In agriculture overstaffing and
underemployment affect 150-200 million
people.
(poor living conditions).

71. Exploit the opportunities offered by
the Chinese market
• Income growth
• Third largest economy in the world.
• Market Chinese can offer new opportunities
for European firms, provided that the opening
will continue in all sectors
(industry, services, finance).