China has experienced rapid economic growth, becoming the world's third-largest economy by 2007, driven by a focus on manufacturing and exports. However, this growth has resulted in significant environmental degradation and income disparity, with a considerable portion of the population living in poverty. Moving forward, China aims to shift its economic focus towards domestic consumption and social equity while continuing to attract foreign investment and maintain a sustainable growth rate.

1. CHINA’S MIRACLE
WITH MACROECONOMIC MANAGEMENT
GM 545 - BUSINESS ECONOMIC
Instructor: Jeannice Samani
Student: Khanh Chau
August 2008

2. Agenda
 China’s miracle
 Develop the economy
 Cool down the economy
 Backside
 New direction
 Future prospect

3. China’s miracle
• World largest population of 1.3 billions.
• Climbed up the world’s ladder of largest
economy at an astonishing speed.
• 5th world’s largest economy in 2005; 3rd
world’s largest economy in 2007 with $3,429
trillion GDP.
• Predicted to assume the world top position in
2020.
• Annual GDP growth at 10% during the last
decade.
• Within the reach to double real GDP per capital
in 9 years.

4. Develop the economy
- Kick off GDP
GDP = Co + Ig + Xn + G
 Kick off GDP: increase manufacturing (Ig),
exports (Xn), boost consumption (Co).
 Remedies: monetary policy with interest rate
and tax incentive(Co).
 Low interest rate to increase the investment
spending (Ig)
 Tax incentive to increase consumption (Co),
accelerate manufacturing(Ig).
 Fixed exchange rate to depreciate the yuan
currency, stimulating export(Xn)
 VAT rebate for export goods (Xn)

5. Develop the economy
- Kick off GDP
 Facilitate foreign investment along with tax
incentive for export and manufacturing.
 To kick off export, and accelerate GDP growth,
Government maintains a fixed exchange rate
policy, that has depreciated China currency on
the global market, giving competitive
advantages to China export activities.
 Export is China’s main force driver to growth.

6. Industry outlook,
% GDP 2006
China's Industry outlook, % GDP 2006
Se r v i c e s
39%
A gr i cul t ur e,
f or est r y, &
f i shi ng
12%
C onst r uct i on
6%
In d u st r y
43%

7. Develop the economy -
China Import partners,
% 2004
China's im port partners, % 2004
Japan
Others
17%
39%
EU
12%
Russia ASEAN
U.S South Korea11%
2%
8% 11%

8. Develop the economy-
China export partners,
% 2004
C hina's Expo rt partners, % 2004
Ot he r s
S out h K or e a US
20%
6% 26%
A S EA N
9%
EU
J a pa n
23%
15 %
H ong K ong
2 1%

9. Develop the economy -
China exchange rate
China exhange rate against US$
Yuan versue US$
8.3
8.2
8.1
8
7.9
7.8
2004 2005 2006
Year
Yuan per US$

10. Develop the economy
- China exchange rate
 China exchange rate policy has severe impacts
to global economy.
 IMF has addressed to China to ease and float
exchange rates for many years date back.
 China has implemented a “ managed floating”
exchange rate since July 2005.
 China’s “crawling peg” exchange rate is
identified.
 Government intervenes the exchange rate
with fluctuation allowance of +/-0.5% in a
day.

11. Develop the economy
- China trade surplus
China's perpectual trade surplus, 1998-2005
900,000
800,000
700,000
Trade v olume
600,000
Total exports (US$ million)
500,000
Total imports (US$ million)
400,000
China trade surplus
300,000
200,000
100,000
0 1999 2000 2001 2002 2003 2004 2005
1998

12. Develop the economy -
China GDP growth
1952-2005

13. Develop the economy -
GDP growth 2002-2005

14. Develop the economy
- Arithmetic growth
 Government plan to double GDP per capital
from 2000 to 2010 with a target annual
growth of 8%.
 Outpaced GDP growth at an average 10%
in the last 10 years.
 China, now, is able to achieve its goal to
double GDP per capital faster than initial
plan.

15. Develop the economy -
China’s global position
 GDP grew average 10% during the last 10
years and at 11.4% in 2007, the fastest
pace in 13 years of economic reforms.
 China now ranks as the world’s 3rd largest
economy (2007).
 World’s 3rd largest trader , contributing
13% of global merchandise trade.
 China’s competitive position on the global
market has remarkably improved.

16. Cool down the economy -
China CPI 2007/08

17. Cool down the economy -
China inflation
China's inflation, 2004 to 2008 Inf lat ion
I n f l a t i o n ( %)
10
8
6
4
2
0
Year
2006 2007 2008
2004 2005

18. Cool down the economy -
China inflation
 China’s inflation is typically a demand pull
inflation.
 Remedies to cool down the overheating
economy and reduce the inflation:
 Increased interest rates 6 times in 2006.
 No more tax incentive in manufacturing and
export sectors .
 Apply the unification of enterprise tax.

19. Cool down the economy-
Interest rate & investment
 Interest rate and investment relationship is out
of economic rule.
 Investment continues to rise despite 6 times
increasing interest rate in 2006. GDP in 2007 is
the world fastest pace in such so high growing
scenario.
 Economists expect further foreseen interest rate
to raise.

20. Backside -
Miracle with a price !!
 Environment is deteriorated and natural
resource is depleted severely, that potentially
harm to the country’s economy stability.
 China overtook the United States as the leading
emitter of carbon dioxide about a year ago.
 Its emissions are now increasing about 10 times
faster than in the United States.
 China now is number 1 contributor of green
house emission.

21. Backside- Miracle
with a price
 Widening gap of income disparity is
dramatically evident.
 300 mio or 23% population still lives under
poverty with less than $1/day. And more
than 30% of population live under $2/day.
 Credit problem and liquidity remains
country’s burden to resolve.

22. Backside –
Rich and Poor!!

23. China new direction
 Change the economy direction to develop its
own domestic economy (no more focus on
export market).
 Target to grow service industry from 39% in
2007 up to 50% in 2020 ( no more focus in
manufacturing).
 Promote “knowledge economy” and “higher
value-added goods manufacturing”.
 Encourage China’s indigenous innovation to
reduce china’s dependence on foreign
technology from 60% to 30%.

24. China new direction
 Redress the important social and economic
imbalances.
 Shorten income disparity gap.
 Thrive for a “ harmonious society” with
increasing government spending on socials
services: education, healthcare, human
capital, pension, welfare enhancement.

25. Future prospect
 China's outstanding economic achievement
is deserved of global admiration.
 Weakening global economy puts a helpful
break to slow down China economy.
 Thus bring the growth rate in line of 8%
target, help to release inflationary pressure,
and adjust social economic imbalances.
 China continues to be the major recipient of
foreign direct investment.
 China remains its potentiality to sustain
rapid growth in the foreseeable future.

26. Future prospect
 Will economists’ prediction of China
to assume the world’s top position
in 2020 come true?

27. Thank you