The document discusses China's economic growth and business cycles since 1980. It shows that China's economy has experienced periods of rapid growth as well as slowdowns, indicating it does experience business cycles like other economies. In recent years, China has faced challenges with rising debt levels, declining productivity growth, and the need to transition to a more sustainable model of consumption-led growth.
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Chinese Economy Business Cycles
1.
2. The Chinese Economy Does Have Business Cycles!
0.00
2.00
4.00
6.00
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14.00
16.00
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Growth of the Chinese Economy since 1980, source: IMF, April 2016
Annual % change in Real GDP (LHS) Linear (Annual % change in Real GDP (LHS))
3. Real GDP and Real GDP Growth for China since 1980
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
70,000.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Growth of the Chinese Economy since 1980, source: IMF, April 2016
Annual % change in Real GDP (LHS) Level of Real GDP (RHS) Yuan billion
4. China’s Share of World GDP (Measured at PPP) %
0
2
4
6
8
10
12
14
16
18
20
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
China - Gross domestic product based on purchasing-power-parity
(PPP) share of world total
5. Progress in Improving Relative Living Standards
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
GDP per head relative to the United States (% of US GDP per head)
(at purchasing power parity) (Source: IMF, forecasts for 2016-19)
Brazil China India Indonesia Mexico Russia Turkey
China achieved upper-middle-income
status as a developing country in 2010
6. Shares of World Economic Output in 2015
16.86%
16.1%
7.11%
4.3%
3.39% 3.07% 2.9%
2.35% 2.34%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
China USA India Japan Germany Russia Brazil United
Kingdom
France
ShareinglobalGDP(percent)
Percentage share of the main industrialized and emerging countries in global gross
domestic product (adjusted for purchasing power) in 2015
Note:
Adjusted for purchasing power means that the $
value of each country’s GDP has been adjusted to
take account of differences in the cost of living in
different nations.
Using this measure, China in 2015 is now the biggest
economy in the world although China’s per capita
national income remains a small fraction of
advanced high-income countries such as the USA.
8. China’s Revised Growth Target (2016)
• China’s stated
economic goal is to
double the 2010
GDP and GDP per
capita by 2020,
which requires an
average annual real
GDP growth rate of
6.5% between the
years 2016–20
7.4% 7.5%
7.3% 7.3%
7% 7% 6.9% 6.8% 6.7%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
GDPgrowthrate
Compared to the same quarter of the previous year
Compared to the previous quarter (seasonally adjusted)
9. Growth and Development Challenges
• 2007
– “The biggest problem in China’s economy is that the
growth is unstable, imbalanced, uncoordinated and
unsustainable.”—Premier Wen Jiabao, March 2007
• 2015
– At the Fifth Plenum of the Communist Party of China
meeting in October 2015, President Xi Jinping set a goal
of 6.5% growth for China’s 13th Five-Year Plan for 2016–
2020
– He confirmed that China needs to “solve the problem of
unbalanced, uncoordinated and unsustainable
development.”
10. Share of GDP by Sector (Value Added) in 2014
20.6%
42.7%
26.8%
30.4%
19.4% 19.9%
23.4%
35.8%
30%
77.8% 48.1% 72% 68.9% 78.9% 79.5% 71% 60% 53%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
United
States
China Japan Germany France United
Kingdom
Brazil Russia India
ShareofGDP
Agriculture Industry Services
11. Structural of Output & Employment in China since 2002
Distribution of GDP 2002 2014
Primary sector % of GDP 13.4 9.2
Secondary sector % of GDP 44.3 42.7
Tertiary sector % of GDP 42.3 48.1
Distribution of Labour
Primary sector % of employment 50.0 29.5
Secondary sector % of employment 21.4 29.9
Tertiary sector % of employment 28.6 40.6
State sector % of employment 9.8 8.2
Source: China Statistical Yearbook 2015
12. Key Factors Affecting Long Run Economic Growth
Investment Productivity Labour supply
Research Innovation Enterprise
13. Where next for China?
• “China is not in
crisis. However,
its ability to
evolve
smoothly from
a command to
a market
economy is in
question as
never before.”
(Source: Economist,
August 2015)
14. Key Growth Challenges for the Chinese Economy
Slow growth of population of working age, rising median age, population set to fall
Environmental challenges from China’s size and rapid growth
Low rankings for government, rule of law, perceptions of corruption
Lewis Turning Point - rapid growth of real wages in the last fifteen years -
changing the balance of FDI flows
Unbalanced economy - excessively high national savings & investment, unbalanced
growth across regions, industries and between urban and rural areas
Conditional convergence growth theory:
As countries become richer, their per capita income growth rates slow
15. Key Causes of the Middle Income Trap
• The middle income trap is when countries that have achieved middle-income
status often experience a growth slowdown and a stagnation in the growth of
real per capita incomes: Some of the causes include:
• Rising wages / unit labour costs
– The surplus supply of labour dwindles
– Labour migration can run dry including rural-urban movement
– Demographic transition model - falling natural population growth
• Productivity growth slows down
– Possible failure to invest in human capital especially in tertiary education
– Slowdown in the pace of product and process innovation by businesses
• Institutions may not support an adaptive and creative economy and society
– Financial systems may not be able to cope with rapid expansion of credit
• Maintaining macro-economic stability
– Many fast growing countries suffer from high inflation
– Credit bubbles can develop as speculative investments take hold
17. Demographics are not favourable for China
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Shareofthepopulation
0-14 years 15-64 years 65 years +
Age Distribution of the Population for China
17.6%
66.3%
16.1%
10.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
0-15 years 16-59 years 60 years and
older
# 65 years
and older
Age Distribution of Chinese Population (2015)
18. Median Age of Population in Selected Countries (2014)
The median age divides a population into two numerically equal
groups; half the people are younger than this age and half are older
46.5 46.5
41.1 40.4
39.1
37.8 36.8
31.1
27.3
0
5
10
15
20
25
30
35
40
45
50
Japan Germany France United
Kingdom
Russia United
States
China Brazil India
Medianageinyears
Source: CIA Factbook
19. Forecast Dependency Ratios for China
The dependency ratio denotes the relationship between economic dependent age groups
(people who are either too old or too young to work) to those of a working age
Source: China Statistical Yearbook
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Dependencyratio
Child dependency ratio Old-age dependency ratio
20. China’s National Savings and Investment (% of GDP)
30
35
40
45
50
55
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total investment and gross national savings for China, source: IMF
Total investment Gross national savings
“As the Chinese economy slows to growth
below 7 per cent a year, investment rates of
close to 45 per cent of gross domestic product
no longer make economic sense.”
(Martin Wolf, Financial Times)
21. Gross Capital Investment Spending (% of GDP)
Source: HDI report 2015, UNDP
Capital investment spending as a
% of GDP, average for 2005-2013
Gross
Investment
Spending
Gross
Investment
Spending
(% of GDP) (% of GDP)
China 47.3 Ghana 22.7
Mongolia 44.2 Norway 22.6
Ethiopia 35.8 Japan 21.7
Indonesia 31.7 Russian Federation 21.5
South Korea 29.7 Mexico 21.0
Bangladesh 28.4 Germany 19.8
Australia 28.3 Malawi 19.7
India 28.3 United States 19.3
Malaysia 26.9 South Africa 19.3
Singapore 25.9 Spain 18.5
Zambia 25.9 Brazil 18.2
Hong Kong, China (SAR) 23.9 Côte d'Ivoire 17.0
Uganda 23.8 United Kingdom 16.4
Vietnam 23.8 Ireland 15.2
Canada 23.7 Cuba 12.2
Chile 23.6 Greece 11.2
23. Evidence of Diminishing Returns to Capital for China?
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
13.0
15.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Sources of Long Run Aggregate Supply Growth for China
(Per cent of GDP) (Source: US Conference Board)
Labour quality and quantity Capital TFP Growth
TFP: Growth of Total Factor Productivity
24. 23%
42% 51%
83%
72%
132%7%
24%
68%
8%
20%
39%
0%
50%
100%
150%
200%
250%
300%
2000 2007 2015 Q2
Level of Debt as a % of Chinese GDP
(Source: McKinsey)
Government Non-financial corporate Financial Households
China has a HUGE level of debt – a big threat to growth
“Deleveraging and a further slowdown in the economy could
reveal more problems with credit quality, especially in the
state-owned enterprise sector.” (IMF, September 2015)
25. China has a HUGE level of debt – a big threat to growth
26. China is now the World’s Biggest Polluter
0
2000
4000
6000
8000
10000
12000
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
Emissions of CO2 (annual emissions, millions of tonnes of CO2)
China US
27. The Scale of China’s Environmental Challenges
• According to Berkeley Earth, breathing Beijing’s air is
the equivalent of smoking almost 40 cigarettes a day;
they estimate that air pollution causes 1.6 million
deaths a year.
• Nearly 30% of China’s major river systems and 40% of
its lakes are also polluted
• 16% of China’s soil is polluted beyond acceptable
standards and 19.4% of China’s total arable land is
badly contaminated by heavy metals
• World Bank estimates that the annual cost of
pollution is 9.7% of Chinese GDP, stemming from
destroyed human capital and natural resources and
damaged structures
28.
29. Five Key Elements of the 13th Five Year Plan for China
• The Five Year plan agreed in October 2015 has the ultimate
objective of achieving a “moderately well-off society” by 2020
1. Innovation - which will be necessary for China to transition into
a high value-added economy and, consequently, achieve a
higher quality of growth
2. Regional development - which aims to address China’s
development disparity among regions and between urban and
rural areas through extra infrastructure investment and the
stimulation of regional markets / special economic zones
3. Green development - which places importance on developing
China’s green economy by tackling pollution and energy
efficiency issues through market initiatives
4. Opening up - which looks to increase the efficiency of China’s
market by further integrating it with the global market
5. Inclusive development - which aims to ensure that China’s
development process benefits all individuals at all levels of
society – especially the poorest 40% of households
30. China – Recent Structural Reforms
• The end of the one-child policy in October 2015, allowing all
couples to have two children
• Reforms of the hukou system to extend urban welfare services
to migrant workers and raise the minimum wage
• “Made in China 2025” scheme to upgrade China’s
manufacturing capacity. Aims to shift China away from reliance
on exporting low cost goods into a competitive manufacturing
sector for innovative and high-quality products
• Targeted sectors for developing new comparative advantage
– Information technology (IT)
– Power generation, agricultural equipment
– Medical products and bio-pharma, robotics
– Advanced aerospace, Rail and other transportation equipment
31. Emerging Industries – Growth Drivers for China
The fastest-growing industries in China focus on consumers and services and are
utilizing technology and innovation more effectively than traditional heavy industry
– these include e-commerce, medical devices, services and high-end manufacturing.
Alibaba Tencent Baidu Xiaomi
Huawei China Mobile
Baidu, Alibaba and Tencent are all publicly listed — abroad!
32. Emerging Chinese Businesses
334.6
278.3
271.5
212.9
201.7
199.1
189.9
181.1
160.5
121
0 50 100 150 200 250 300 350 400
PetroChina
Industrial and Commercial Bank of China
China Mobile
China Construction Bank
Alibaba
Bank of China
Agricultural Bank of China
Tencent Holdings
China Life Insurance
Sinopec China Petroleum
Stock market value in billion U.S. dollars
33. Chinese Trade and Investment in the Future
“China’s annual gross savings are now about $5tn. Finding ways to
use this vast flow productively, at home and abroad, will be a
challenge.” (Martin Wolf, FT, March 2016)
34. Trade and Investment: One Belt One Road (OBOR)
• China has launched a new One Belt One Road strategy
(known as OBOR)
• The stated goal of this strategy is to “promote economic
prosperity of the countries along the Belt and Road and
regional economic cooperation
• Two key components of OBROR:
1. The “Silk Road Economic Belt” - a land route designed to
connect China with Central Asia, Eastern and Western Europe
2. The “21st Century Maritime Silk Road” - a sea route that runs
west from China’s east coast to Europe via the South China Sea
and Indian Ocean, and east into the South Pacific
• OBOR passes through over 60 countries across Asia, Europe,
the Middle East and Africa, which account for 70% of the
world’s population and 55% of global GNP
35. Chinese Trade and Investment in the Future
Source: http://www.merics.org/en/merics-analysis/infographicchina-mapping/china-mapping.html
36. China’s Share of World Trade
• China’s export market
share rose from 2
percent in 1990 to 7
percent in 2001 (when it
joined the World Trade
Organisation) and 13
percent in 2013.
• China exports
– 56 percent of global
computer equipment
– 65 percent of global
plastic toys
China’s share of world exports of
apparel is declining – her exit from
labour-intensive & low-wage
industries such as textiles has created
opportunities for countries such as
Bangladesh, Cambodia, Indonesia,
and Vietnam who have developed
comparative advantage
39. Distribution of Chinese exports in 2015, by trade partner
18%
15.64%
14.58%
12.19%
5.96%
4.45%
2.56%
1.53%
1.97%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
United States
European Union
Hong Kong
ASEAN*
Japan
South Korea
India
Russia
Taiwan
Share of total Chinese exports
* ASEAN stands for Association of
Southeast Asian Nations - Brunei
Darussalam, Cambodia, Indonesia,
Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand, and Vietnam
40. China – Free Trade Agreements
• In recent years China has concluded numerous bilateral free
trade agreements. Examples include the following:
– Australia (2015)
– South Korea (2015)
– Switzerland (2014)
– Iceland (2014)
– Costa Rica (2011)
– Peru (2010)
– Singapore (2009)
– New Zealand (2008)
– Pakistan (2007)
– Chile (2006)
– ASEAN (2005)
– Macau SAR (2004) and Hong Kong SAR (2004)
41. China’s External Surplus (Current Account)
0
2
4
6
8
10
12
0
50
100
150
200
250
300
350
400
450
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China – Current Account Balance, annual data, source IMF
Current account balance ($bn) LHS Current account balance (% of GDP) RHS
China’s current account surplus
has dropped from 10% of GDP in
2007 to just over 2% of GDP in
2015. However her trade surplus
has grown in absolute terms as
the size of the economy has
increased.
42. China’s Foreign Currency Reserves ($s)
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
CHINA'S FOREIGN CURRENCY RESERVES ($bn)
China’s foreign currency reserves peaked at over $4
trillion in 2014 but have been falling recently partly
because of private sector capital flight from China
(although capital flows are heavily controlled).
43. The Rise and Rise of China’s Outward Investment (FDI)
• China has become a major capital exporter – Examples include:
– (2015) ChemChina spent $43bn to acquire the Swiss agrochemical and
seeds company Syngenta
– (2014) ChemChina spent $9bn to buy Pirelli Tyres
– (2015) Dalian Wanda acquired US film studio Legendary
Entertainment for $3.5bn and Carmike Cinemas for $1bn
– (2015) Chinese aviation and logistics conglomerate HNA Group spent
$3bn on airport operator Swiss Port
– (2016) China General Nuclear Power Corporation (CGN) acquired a
33.5% interest in EDF’s nuclear power project that is planned to be
built at Hinkley Point in the UK for $9bn
– (2015) Huawei Technologies opened a new ICT training and innovation
centre in Sydney
– (2015) Alibaba opened three new cloud data centres in Hong Kong,
Singapore and Silicon Valley (USA)
• China is using FDI to buy experience, technology, brands and
human capital to become more competitive in higher value-
added growth industries – part of their new growth strategy.
44. China’s Exchange Rate Policy
• China currently operates a semi-fixed exchange rate – the
value of the Yuan is pegged to a basket of currencies and
can only move by a limited amount each day
• Currently, Chinese currency flexibility is limited by a daily 2
percent trading band around a central parity
• The People’s Bank of China (the central bank) intervenes in
the market - for example it will draw down on foreign-
exchange reserves to support the renminbi exchange rate by
selling $s and other currencies to buy the Chinese Yuan.
• According to the IMF (2015), a more flexible, market-
determined exchange rate is needed for allowing the
market to play a more decisive role rebalancing toward
consumption, and maintaining an independent monetary
policy as the capital account opens
45. China’s Exchange Rate Policy
Period of fixed
exchange rate against
the US dollar
Since 2005 – China
has operated a semi-
fixed exchange rate –
gradual appreciation
until 2014
46. China’s Exchange Rate Policy
Devaluation of
the Yuan here
Over the last year, the
Chinese monetary
authorities have been
attempting a managed
depreciation / devaluation
of the Yuan to maintain
competitiveness
47. Chinese Trade and Investment in the Future
“China’s annual gross savings are now about $5tn. Finding ways to
use this vast flow productively, at home and abroad, will be a
challenge.” (Martin Wolf, FT, March 2016)
48. Trade and Investment: One Belt One Road (OBOR)
• China has launched a new One Belt One Road strategy
(known as OBOR)
• The stated goal of this strategy is to “promote economic
prosperity of the countries along the Belt and Road and
regional economic cooperation
• Two key components of OBROR:
1. The “Silk Road Economic Belt” - a land route designed to
connect China with Central Asia, Eastern and Western Europe
2. The “21st Century Maritime Silk Road” - a sea route that runs
west from China’s east coast to Europe via the South China Sea
and Indian Ocean, and east into the South Pacific
• OBOR passes through over 60 countries across Asia, Europe,
the Middle East and Africa, which account for 70% of the
world’s population and 55% of global GNP
49. Chinese Trade and Investment in the Future
Source: http://www.merics.org/en/merics-analysis/infographicchina-mapping/china-mapping.html
50. A Selection of Key Macro Data for China in 2015
Core inflation is 1.5% but
producer prices are falling
– sign of excess supply
China is transitioning to a
“new normal” i.e. real
GDP growth of 6-7%
Urban unemployment rate
has been 4.1% for 5 years
Living standards remain
low by advanced economy
standards - <30% of US
China’s current account
surplus is now 2-3% of
GDP, $300bn trade surplus
China’s Gini coefficient is
high but now falling – big
rural/urban divide
51.
52. Evaluating the impact of a shock
Chinese real economic growth slowed down from 7.3% in 2014 to 6.9% in 2015
Direct effects on UK economy
• Trade flows to and from China
• Investment flows to and from China (FDI, Portfolio I)
• Impact on jobs in the UK in industries directly affected
• Impact on Sterling-Yuan exchange rate
Indirect effects on UK economy
• World commodity prices and global inflation
• Impact on nations with whom the UK trades
• Threats to globalisation / protectionism
• Risk of increased currency volatility
53. Evaluating the impact of a shock
Chinese real economic growth slowed down from 7.3% in 2014 to 6.9% in 2015
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
The annual value of UK trade with China, £million
Trade Balance with China Exports to China Imports from China
54. Chinese slowdown and the UK
Macro Objective Comment on the Effect
Inflation
Lower – weaker global commodity prices – a deflationary force in the
world economy. But depreciating sterling will keep deflation away.
Economic growth
Weaker – fall in UK exports to China. UK Interest rates already close to
zero, limited scope for monetary policy to respond.
Unemployment Higher – e.g. steel dumping controversy, fewer exports to China
Balance of trade
• Uncertain – Yuan devaluation may increase volume of Chinese
exports to European Union countries
• Lower commodity prices helps the UK as we are a net importer of
energy, raw materials etc. UK has large trade deficit with China.
Business investment
Uncertain – opportunities from faster economic growth in other
countries / regions including India. Fewer Chinese tourists & students.
Wider external effects
Chinese debt crisis might trigger another international finance crisis –
falling stock markets. Less than 1% of UK pensions assets are invested
in Chinese shares and bonds
China’s slowdown is a deflationary shock for the world economy. China is the second
largest economy and the second largest importer of both goods and commercial services
55. Growth and Development in China – Key Indicators
Key Macro Data
Latest annual GDP
Growth (%)
6.7
GDP or GNI per capita
(US $, PPP)
$12,547
Inflation (%) 1.7
Unemployment rate (%
of labour force)
4.1%
Fiscal balance
(% of GDP)
-2.6%
Government debt
(% of GDP)
57%
Yield on 10-Yr Govt
Bonds (Per Cent)
2.43%
Investment (% of GDP) 45%
Gross national savings
(% of GDP)
50%
Background Information
Currency unit Yuan
Exchange rate system
Semi-
Fixed
Policy interest rate 3.5%
Member of a Regional
Trade Agreement
WTO in
2001
Current account balance
(% of GDP)
+2.6%
Main corporate tax rate
(Per Cent)
Not
known
Competitiveness ranking 28th/144
Corruption Perception
Ranking (2015)
83rd/168
Ease of Doing Business
Ranking (2015)
84th/189
External Debt
(% of GDP)
9%
Aspects of Economic Development
Latest HDI ranking 90th/189
Mean Years of
Schooling
7.5 years
% of population living in
extreme poverty
6.2%
Life Expectancy at birth
(years)
75.8
Gini coefficient (Latest
published estimate)
0.37
Palma Ratio (= the ratio
of the income of top 10%
/poorest 40%)
2.7
Inward FDI (% of GDP) 3.5%
Remittances (% of GDP) 0.4%
Aid (% of GDP) 0%
56. Contextual Background on Chinese Economy
Economic Structure of the Chinese Economy
Share of GDP by value added (% of GDP)
Primary: 9
Industrial: 43
Services: 48
Main export industries (+ major firms)
1/ ICT equipment, industrial machinery
2/ Office and electrical machinery
3/ Clothing and other textiles
Key risks to sustainable growth
1/ Rising inequality places strains on social stability
2/ Excess capacity in many industries risks deflation
3/ Declining working age population from 2016
4/ Threats from rising pollution / water scarcity
Development and Growth Issues / Policies for China
3 factors limiting development progress
1/ Hukou resident permit registration system limits
labour mobility
2/ Low per capita incomes especially in rural areas
3/ Under-funded health care & pension systems
3 policies used to improve the supply-side
1/ More free trade zones similar to Shanghai Free
Trade Zone (SFTZ)
2/ Crack down on corruption, end of 1 child policy
3/ Basic medical insurance for 90% of the population
Long term challenges facing China
Challenge 1: Growing rich before China grows old
Challenge 2: Improving quality of economic growth
Challenge 3: Re-balancing China towards higher value
manufacturing and service industries
57. Overview: Main Strengths and Weaknesses for China
Economic / Competitive Strengths
1/ Huge FX reserves ($3.3T) + a sovereign wealth fund
2/ Large and growing domestic consumer market
3/ Country leads the way in renewable energy investment
4/ Rising number of globally scaled Chinese businesses
5/ Open economy (X>25% of GDP) rising world influence
Other Notes
• China’s is at a critical stage of her growth and
development - China is transitioning to a new normal,
with slower, more sustainable growth
• China will have move up the ‘value chain’ as it loses its
competitive edge in labour-intensive sectors. China is
still a relatively poor country with an estimated GDP
per capita on a PPP basis of US$12,879 in 2014, lower
than Thailand.
• Policies to increase the real incomes of China’s middle
class will encourage more consumption as a share of
GDP and make the economy less reliant on exports
and investment as key sources of economic growth.
Main Weaknesses in their Economy
1/ High rate of corruption, poor human rights record
2/ Excessive investment and low rate of consumption
3/ Very high rates of debt (municipal & household)
4/ Rapid wage growth is shifting FDI out of China
5/ Rising inequality between urban & rural areas
Other Useful Contextual Knowledge
• China has many structural imbalances that will need
to be addressed for sustainable growth to continue
• The economy remains reliant on credit growth, with
overall debt rising to 280% of GDP in mid-2015.
• China will need to move away from imitating/copying
Western technologies towards generating innovation.
• Wages in Chinese manufacturing have more than
tripled since 2008. Wage costs are now almost four
times higher than in Bangladesh, Cambodia, the Lao
People’s Democratic Republic, and Myanmar.