Transcript CCER China Economic Observer & Langrun China Economic …

Outlook of China’s Economy
--- An Introduction to CCER China Economic Observer
Feng Lu
China Center for Economic Research
Peking University
January 2010, New York
CCER
China Economic Observer (CEO)
• Quarterly symposium started
in 2005 under the leadership:
• Prof. Justin Lin, the founding
director of CCER,
• Prof. Guoqing Song, the best
macro-economist in China,
• Prof. Qiren Zhou, the current
director of CCER.
• 19 symposium have been
held so far.
Langrun Forecast
• Cutting-edge issues on China’s economic growth and
reform policies are regularly discussed in the event.
• Langrun Forecast, quarterly projection on China’s macro
economy is released in the event.
• Langrun Forecast is
named after the
beautiful Langrun
Garden in the Peking
university campus,
now used as office
space by CCER.
24 participating institutions now
Bank of China International Securities
Essences Securities
Bank of Communications
Guotai Junan Securities
Blue Oak Capital
HSBC
BNP Paribas
Industrial and Commercial Bank of China
China Center for Economic Research,
Peking University
Institute of Quantitative & Technical Economics,
Chinese Academy of Social Scieneces
China Galaxy Securities
Merrill Lynch
China International Capital Corporation
Limited
Morgan Stanley
China Merchants Securities
Nomura Securities
China Securities Co., Ltd
Shenyin Wanguo Securities
Citibank
Standard Chartered Bank
CITIC Securities
UBS
Department of Economic Forecasting,
the State Information Center
Unirule Institute of Economics
• New participating institutions are welcomed!
9 Macro-economic indicators
are projected regularly
Institutions
GDP
CPI
IVA
FAI
Resale
Export
Import
Interest rate
X rate
BNP
ICBC
SIC
Guotai Junan
Citibank
HSBC
BOC
Blue Ork
Merrill Lynch
Morgan Stanley
UBS
CASS
Shenyin Wanguo
Nomura
China Galaxy Securities
China Merchants Securities
CICC
CSC
CITIC
BOC Internatioanl
CCER
Average
10.6
10.2
10.0
10.8
10.4
9.9
10.0
11.1
11.3
11.6
10.0
9.9
10.5
11.0
10.2
11.2
10.1
10.6
11.1
11.0
10.9
10.6
1.4
0.4
-0.1
0.7
0.8
0.1
0.5
0.3
0.5
0.6
0.4
0.2
0.3
1.2
-0.2
0.0
-0.1
0.7
0.6
0.9
0.0
0.4
16.0
15.2
16.0
14.0
15.1
13.0
13.5
16.1
17.6
15.5
14.0
15.3
14.3
18.0
16.0
18.0
15.0
15.9
18.5
14.2
17.2
15.6
30.7
35.0
30.0
35.5
30.0
30.0
34.0
42.1
33.5
30.0
31.0
32.0
37.0
35.0
35.0
36.0
32.0
34.7
32.8
31.0
30.0
33.2
15.4
15.8
15.5
15.6
15.5
15.0
15.5
..
16.3
16.2
15.0
15.5
16.8
15.3
16.0
17.0
15.7
15.6
16.5
15.5
15.5
15.8
-8.3
0.0
-10.0
0.0
-7.5
6.0
-3.1
-13.8
-7.4
-4.3
-1.4
-11.0
-5.2
-8.1
-10.0
-4.0
0.0
6.2
1.3
5.9
-9.0
-4.0
12.5
30.0
-8.0
18.5
10.0
8.0
2.3
5.9
13.2
9.6
6.7
-7.0
17.8
11.3
-0.1
15.0
0.0
25.5
21.5
21.0
12.0
10.8
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
6.83
6.83
6.82
6.82
6.80
6.80
6.82
6.84
6.83
6.80
6.80
6.80
6.82
6.70
6.77
6.75
6.83
6.81
6.82
6.83
6.82
6.81
According to 11 participating institutions,
China’s economy will grow nearly 10% in 2010
Institutions
2010 GDP
Releasing date
Chinese Academy of Social Sciences
9.1
Dec 2009
CICC
8.8
Dec 2009
Essences Securities
10.1
Dec 2009
CCER (GSGH, Goldman Sachs)
11.4
Dec 2009
Bank of Communications
10.0
Nov 2009
J.P. Morgan Chase
9.5
Oct 2009
Merrill Lynch
10.1
Nov 2009
Morgan Stanley
10
Dec 2009
Standard Chartered Bank
10
Dec 2009
State Information Center
8.5
Dec 2009
CITIC
10.1
Dec 2009
Average
9.78
Review on the BRICs projection
• The BRICs Report projected that China’s economy size
will surpass USA in 2041. It may be reviewed in light of
actual situation since 2003 when the report released.
Time table for BRICs taking over G6
Surpassing in 2041:
China: $ 28.003 trillion.
USA: $27.929 trillion.
6
UK
Germany
Japan
USA
5
China
Italy
France
Germany
Japan
India
4
Italy
France
Germmany
Russia
3
Italy
France
Germany
Brasil
2
G6
BRICs
1
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Factual evidence: Relative growth of
China vs. USA (2003-2008)
• China annual GDP growth was higher than USA by 8.7%
and 12.2% in real and nominal terms in domestic currency.
• Allowing changes of RMB exchange rate, China’s annual
growth in USD was higher by 16.3%, ie., “China’s
converging rate vs. US ” was 16%.
China
USA
China/USA
Cumulative Per annum Cumulative Per annum Cumulative Per annum
Real GDP growth
171
11.3
112
2.4
152
8.7
GDP deflator
135
6.3
116
3.0
117
3.2
Nominal GDP growth
231
18.3
130
5.4
177
12.2
Exchange rate
119
3.6
100
0.0
119
3.6
GDP growth in USD
276
22.5
130
5.4
211
16.2
What will happen if China continues
“the 16% converging rate”?
• China’s GDP of 34 trillion yuan in 2009 converts
into $ 4.98 trillion, about 35.6% of US economy.
Now US economy is 2.8 times as large as China.
• If China continues “the 16% annual converging
rate” in next 10 years, the current ratio of China’s
economy to US will be more than quadrupled
(1.16^10 = 4.4).
• In the assumed case, China’s economic scale
will surpass US in 7 years (1.16^7 = 2.82).
More realistic scenarios!
• China is unlikely to continue “the 16% annual
converging rate”.
• Assuming “a much lower annual converging
rate of 10%”, the extend of accumulative
change will be 285% and 314% in the coming
11 and 12 years.
• With the assumptions, China’s total economic
size will surpass US by 2021-2022.
The undated projection!
• In view of the recent actual situation, China
will probably surpass USA in the early next
decade, and almost certainly before 2025.
• The surpassing point will come 15-20 years
earlier than the BRICs Report’s projection
released 7 years ago.
China economic size surpasses US: Revised projection
New projection:
bofore 2025
6
UK
Germany
Japan
Old projection:
by 2041
USA
USA
China
5
0
4
3
2
2000
1
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
It should be noted:
• With the projected Chinese per capita
GDP equivalent to about 20%-25% of
Americans, China will still be a poor
country relative to US in the next decade,
even the revised projection turns out to
be true!
Many challenges faced by China!
• 1) Reform in land system, household registration
system,
• 2) Reduce income inequality and increase
consumption；
• 3) Environmental protection and emission controls;
• 4) Population aging problems and continued poverty
alleviation agenda；
• 5) Reform in RMB exchange rate and interest rate
policies to improve macro-management system;
• ……
A few final remarks on
China’s macro-economic policy reforms!
• One reason for China not continuing
“the 16% converging rate” is that the
annual nominal growth rate of 18.3% is
sustainable.
• It implies that China may not badly lack
domestic demand, neither necessarily
need fast growth of trade surplus to
assure the desirable aggregate demand.
China needs to improve
open macro-economic policy system!
• China may need a more flexible exchange rate
regime to adjust external demand and imbalance.
• China also needs a deregulated interest rate
regime to adjust domestic demand and monetary
shocks to assure more stable growth.
• To improve demand management regime better
serving the rapidly evolving open macroenvironment is an urgent task for China.