Transcript China

China: Macro-Economic Policy and Performance
China
During Transition
www.cia.gov
Chinese Economy
hdr.undp.org
t=trillion
b=billion
U.S.
China S. Korea Japan
GDP (PPP) $12,400b $8,200b $983b
$3,900t
GDP (PPP) $41,800 $6,200 $20,300 $30,400
Per Capita
$1,100
Public Debt
$8,800b
$242b
$188b
$1,154b
Saving Rate
16.8%
43.6%
31.4%
24.4%
Special Economic Zones
• Zones that offer various incentives
(such as tax incentives for foreign
investors, and greater independence for
international trade)
• These incentives target export markets
and production and pricing in these
zones are market oriented.
GDP Growth Rate vs Inflation
20
% Growth
15
10
Inflation
GDP Growth Rate
5
-5
Year
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0
Data for Charts from www.stats.gov.cn/english/
• Strong Economic growth throughout the 80s
• Responding to a spike in inflation and
sluggish growth, Deng Xiaoping toured
Southern China to encourage economic
growth
• The result was an economic rebound
GDP Growth Rate vs Inflation
20
% Growth
15
10
Inflation
GDP Growth Rate
5
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0
-5
Year
• 1997: The Asian Crisis
• China’s currency was pegged to the US Dollar
– This protected the Chinese Currency from Currency
Speculators
• Most Foreign Investment in China was in physical
capital
– This prevented Capital Flight from devastating the economy
Asian Crisis in
Thailand
• 1997- Baht un-pegged
• Value of Baht plummets
• Resulting loss of monetary value caused
many debtors to be unable to pay foreign
debt, leading to the collapse of many banks
and businesses, including Thailand’s largest
bank, Financial One
• IMF Bailed Thailand out by providing $20
Billion in relief funds
Asian Crisis in China
• China’s Exports dropped
as a result of the worsening Global Economy
• Deflation of prices experienced for the first time
• Government employed an Expansionary Fiscal Policy
• China’s currency, the RMB, was pegged at a constant
8.3 RMB to the American Dollar. As the prices of
other Asian Countries’ currency fell, Chinese Exports
became relatively more expensive, however China
managed to endure this and maintain the constant
value.
Macro-economic Equation
•
•
•
•
• Y = C + I + G + NX
• NFI + I = (Y - C - T) + (T - G)
(Y - C - T), or the Private Savings Rate last
measured at 12.5% can be attributed to a
strong desire to invest at the household level.
High Private Savings have led to high rates of
Domestic Investment in small business.
Many entrepreneurs must save their own
starting capital instead of relying on bank,
thus the high levels of Private Savings.
The Private Savings not used to invest in
small business can be sent overseas to invest
in foreign markets and capital.
Macro-economic Equation
• Y = C + I + G + NX
• NFI + I = (Y - C - T) + (T - G)
• Public Savings last year were -$32.2 Billion,
or a debt of about 1.7% of GDP (vice 12.5%
Private Savings)
• Total Savings is highly positive, allowing for
both high Domestic and Foreign Investments.
• Growth of small business is high, but still
relatively small compared to the Savings Rate
Engle Curve vs Trade Balance
60
E ngle
C oeffic ient
Rural
50
40
E ngle
C oeffic ient
U rban
30
20
T rade
Balanc e
(H undreds
of Billions
10
0
19
80
19
85
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
Hundreds of Billions (% for Engle)
70
-10
-20
Year
• Engle Co-Efficient reflects % of income
spent on food
• Above 40% is considered impoverished
Engle Curve vs Trade Balance
60
E ngle
C oeffic ient
Rural
50
40
E ngle
C oeffic ient
U rban
30
20
T rade
Balanc e
(H undreds
of Billions
10
0
19
80
19
85
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
Hundreds of Billions (% for Engle)
70
-10
-20
Year
• Notice General Trends:
– Engle Co-efficient drops (more income that can be
spent/saved)
– Trade Balance increases (More net outflows of
capital
• For every yuan that China saves, it can use to invest
in domestic capital or foreign assets
One idea for further research
• How can the Chinese Economy
continue its explosive growth while
making a more favorable trade balance,
both for the Chinese people and all of
China’s trading partners.
– Perhaps the recent un-pegging of the
Chinese Yuan will help to alleviate this
problem?
Questions?
Ma Yuan
Walking on a Mountain Path
Southern Song dynasty
kaladarshan.arts.ohio-state.edu