Transcript China: How to Deal with International Financial Crisis

China’s New Deal: How to Response
to International Financial Crisis
Hu Angang
Center for China Studies and
School of Public Policy & Management
Tsinghua University
CEA annual conference, Oxford · July, 2010
Can China Save the World?
• China won't see GDP rise more than 4% in
2009, and the country's economy may not
grow at all. Time Magazine, 03/02/2009
• Not surprisingly, China has now become the
focus of a world that is looking for a way out of
the swamp. Time Magazine, 10/08/2009
• “The Chinese Worker - Person of the Year 2009”
- We found some of the people who are
leading the world to economic recovery:
Chinese men and women, their struggles in
the past, their thoughts on the present and
their eyes on the future. Time Magazine,
16/12/2009
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Growth rate of GDP and industrial value added
over the same period last year (2008-2009)
%
GDP
Industrial Value
Added
Export
Import
2008 Q1
10.6
21.3
29.0
2008 Q1-Q2
10.4
21.8
31.0
2008 Q1-Q3
9.9
22.3
29.0
2008 Q1-Q4
9.6
12.9
17.3
18.5
2009 Q1
6.1
5.1
-19.7
-30.9
2009 Q1-Q2
7.1
7.0
-21.7
-25.2
2009 Q1-Q3
7.7
8.7
-21.2
-20.3
2009 Q1-Q4
9.1
11.0
-15.9
-11.2
11.9
19.6
28.7
64.7
2010 Q1
Data Source: China Monthly Economic Indicators, 2010, issue 2.
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Macroeconomic Indicators in G20
Countries
GDP
CPI
Fiscal
Unemployment
growth growth
deficit/GDP
US
-2.5
-0.4
9.7
UK
-4.7
2.2
7.8
Japan
-5.3
-1.4
France
-2.2
Germany
9.9 Brazil
GDP
CPI
Fiscal
Unemployment
growth growth
deficit/GDP
-0.3
4.9
6.8
3.4
12.2 Argentina
0.7
6.3
8.4
0.6
5.1
7.4 Mexico
-6.8
5.3
4.8
2.3
0.1
10.0
7.9 Korea
0.5
2.7
4.8
4.0
-4.9
0.4
8.2
3.2 Indonesia
4.6
4.8
8.1
1.4
Canada
-2.5
0.3
8.3
3.1 India
6.5
10.7
10.7
8.0
Italy
-4.8
0.8
7.8
5.0 Saudi Arabia
0.2
Russia
-8.0
11.7
8.2
7.2 South Africa
-1.8
7.1
24.3
6.0
Austrilia
0.9
1.8
5.3
3.8 Turkey
-5.9
6.3
13.0
5.4
China
9.1
-0.7
4.3
1.8 EU
-3.9
0.3
10.0
6.3
Note: China’s unemployment data is cited from Work Report of Government (2010).
Data Source: The Economist, Feb. 20th-26th 2010, pp. 89-90.
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5.0 n.a.
3.2
Questions to be Addressed
• What are the reactions of countries around world
when facing financial crisis triggered in US?
• How does China deal with the crisis?
• Why does China react so rapidly and successfully?
• What are the implications drawing from China’s
actions?
• How does China spur its transition of
development model in post-crisis era?
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Agenda
• Chinese Way to Deal with International
Financial Crisis
• Post-evaluation of International Financial
Crisis
• China’s Experiences of Cope with International
Financial Crisis
• From Accelerating Development to
Accelerating Transition
• Conclusion
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Chinese Way to Response to
International Financial Crisis
• China’s new deal: fighting with international
financial crisis
– Compare with 1998 Asia Financial Crisis
• Threat
– Huge external shock: lower external demands
• Strength
–
–
–
–
GDP is 2.5 times of 1998 in 2008
Foreign reserve is 13 times of 1998 in 2008
Rate of return on sales of SOEs is 3 times of 1998 in 2008
NPL (non-performing loan) is only 2-3%, and profit rate of state
owned banks is 17% in 2008
– Fiscal revenue is 6 times of 1998 in 2008
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Chinese Way to Response to
International Financial Crisis
• China’s new deal: fighting with international
financial crisis
– 4 trillion fiscal stimulus package
• 5/11/2008, 10 policies to spur economic growth
• 12/2008, Central Economic Work Conference - spur
economic growth, balance economic structure, expand
domestic demand
• 03/2009, NPC annual assembly - expand domestic demand,
keep growth, adjust structure, upgrade development level,
focus on reform, more active, look on people’s livelihood
and promote harmonious development (扩内需、保增长；
调结构、上水平；抓改革、增活力；重民生、促和谐)
• 03/2009, 11 industrial revitalization plans
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Chinese Way to Response to
International Financial Crisis
• 4 trillion fiscal stimulus package
• Four focuses
– Government investment: 4 trillion in two years, of which, 1.18 trillion
is fiscal expenditure
– Industrial revitalization plans to upgrade technology and improve
international competition capacity
– Improve innovation capacity
– Promote social development: expand social security net, increase
employment
• Seven aspects
– Improve macro-control, expand domestic demand, promote
agriculture development, change growth pattern, deepen openness
reform, promote social development and improve government
capacity
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Chinese Way to Response to
International Financial Crisis
• 4 trillion fiscal stimulus package
Investment (billion RMB) Proportion (%)
People's livelihood projects
400
10.00
Rural people's livelihood projects
370
9.25
Infrastructure
1500
37.50
Social sector
150
3.75
Energy conservation and environment projects
210
5.25
Structure adjustment and technology upgrade
370
9.25
Reconstruction after earthquake
1000
25.00
Total
4000
100
Data Source: NDRC website.
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Chinese Way to Response to
International Financial Crisis
Fiscal stimulus has spurred non-state investment
Funds for Investment in Fixed Assets and its Structure in the Whole Country
Total Investment
in Fixed Assets
(trillion)
Ratio of
State budget
(%)
Ratio of
Self-raising and
Other Funds (%)
9th Five-year
13.9
4.7
68.1
10th Five year
29.6
5.3
75.7
2006
11.0
4.4
81.5
2007
13.7
4.2
84.8
2008
17.2
4.6
82.9
2009
22.5
5.6
86.0
2010 (predicted)
27-28
2009-2010
49.5-50.5
(7.3-7.4 trillion USD)
Data Source: China Statistical Yearbook (2009), and IMF.
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Post-evaluation of International
Financial Crisis
•
•
•
•
•
Keep robust economic growth during the crisis
Maintain high employment rate
Increase household income
Keep CPI stable
Improve the situation of international balance
of payment
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Post-evaluation of International
Financial Crisis
• China has kept its robust economic growth
during and after the crisis
– Several suspects about China’s performance
•
•
•
•
V-shape
U-shape
L-shape
W-shape
– The real case that the economy is only SLOW
DOWN in China
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Post-evaluation of International
Financial Crisis
• China has contributed over 50% of the world
economic growth in 2009
16.0
14.2
14.0
12.7
12.0
11.3
10.0
10.0
10.1
9.6
9.1
8.0
6.0
4.9
4.0
3.6
5.1
4.5
5.2
3.0
2.0
0.0
-2.0
2003
2004
2005
2006
China
Data Source: China Statistical Yearbook (2009), and IMF.
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World
2007
2008
2009-0.8
Post-evaluation of International
Financial Crisis
• China has created many job positions
– World unemployment rate has reached 6.6% in 2009, of
which, youth unemployment rate is 13.4% (ILO, 2010)
– Absorb new labors, and the first time employment rate (初
次就业率) of college graduates is 74% in 2009, and has
achieved 84% at the end of 2009
– Urban employment number has rebounded, only slightly
declining at Q4 of 2008. 1.46 million unemployed workers
has been reemployed during January to November, 2009
– Solve unemployment of migrant workers, only 4.6% of 20
million migrant workers are unemployed at the end of
2009
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Post-evaluation of International
Financial Crisis
• Urban employment number has rebounded
14
12
10
9.80
9.70
2004
2005
11.84
12.04
2006
2007
11.13
11.02
2008
2009
8.59
8
6
4
2
0
2003
Annual newly employed person (million)
Data Source: China Statistical Yearbook (2009), and Work Report of Government (2010).
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Post-evaluation of International
Financial Crisis
• Household income has kept increased
– Annual per capita disposable income of urban
households and annual per capita net income of rural
households has increased 9.8% and 8.5% respectively,
and higher than GDP growth rate 8.1%
– International financial crisis has increased 17 million
poverty population in east Asia and Pacific region, and
about 4 million population will drop into 1.25
consumption dollar per day to increase total poverty
population into 21 million in 2010 (ADB, 2009)
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Post-evaluation of International
Financial Crisis
• Keep CPI stable
– China’s CPI is -0.7% in 2009, of which, 0.9% in
urban areas and -0.3% in rural areas
– Base on the definition of The Economists, China
was in the deflation stage
– China is likely to have moderate inflation in 2010,
the primary task is to prevent the deflation and
over-production which has happened during
1998-2002
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Post-evaluation of International
Financial Crisis
• Improve the situation of international balance
of payment
– The proportion of the trade balance to the total
GDP has decreased from 7.6% in 2007, to 6.6% in
2008, then to 4% in 2009
– Three major influences of financial crisis to
country’s economy are (1) uncertainty of liquidity,
(2) decline of international capital and (3) decline
of international trade, among them, only the third
factor has influenced Chinese economy
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Post-evaluation of International
Financial Crisis
• China’s global economic position has been
strengthened during the crisis
– China has been the second largest economy (exceed
Japan) in exchange term in the world
Exchange rate (%)
China
2006
2007
2008
2009
2.66
3.38
4.33
4.70
13.13
13.75
14.20
13.85
US/China
4.94
4.07
3.28
2.95
Japan
4.38
4.38
4.91
4.65
Japan/China
1.65
1.30
1.14
0.99
US
Data Source: 2006-2008 data is from WDI 2009, 2009 data is from The Economist, Feb. 20th-26th 2010.
Data Source: Maddison, 2010.
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Post-evaluation of International
Financial Crisis
• China’s global economic position has been
strengthened during the crisis
– China has been the largest economy (exceed US) in PPP
term in the world
PPP, billion 1990 US Dollar
2005
2006
2007
2008
2009
China
7268.73
7928.48
8306.66
8908.89
9594.88
US
9009.77
9253.03
9447.35
9485.14
9248.01
1.24
1.17
1.14
1.07
0.96
6985.55
7185.19
7360.32
7402.91
7114.20
0.96
0.91
0.89
0.83
0.74
US/China (time)
EU (12 countries)
EU (12 countries)/China (time)
Data Source: Maddison, 2010.
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Post-evaluation of International
Financial Crisis
• China’s global economic position has been strengthened
during the crisis
– China has been the second largest manufacturer in the world (%)
% of world total
2000
2005
2007
2008
2009
Manufacture value added
China
6.64
9.79
11.24
13.28
15.60
India
1.13
1.38
1.65
Japan
17.85
16.69
16.50
16.42
15.40
US
26.63
25.47
23.85
20.50
19.00
Germany
6.80
6.37
6.35
6.45
UK
3.94
3.36
2.71
Russia
0.88
1.01
1.16
Manufacture export
China
4.48
8.76
11.28
India
0.70
1.04
1.32
Japan
8.70
6.66
5.89
US
13.40
9.56
9.12
Germany
9.26
10.71
10.62
UK
5.78
5.24
4.24
Russia
0.88
1.14
1.54
Data source: United Nation Industrial Development Organization, Statistical Country Briefs; UNIDO, International
Yearbook of Industrial Statistics 2010, 18 March 2010; 2009 data is from Zhongyu Wang (2010)。
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Post-evaluation of International
Financial Crisis
• China’s global economic position has been strengthened
during the crisis
– China has been the largest exporter and second largest importer in the
world
Top 5 merchandise trader (2009)
Rank
1
2
3
4
5
Export
Country Export (billion USD) % of world
China
1202
9.6
Germany
1121
9.0
US
1057
8.5
Japan
581
4.7
Netherland
499
4.0
Import
Country Import (billion USD) % of world
US
1604
12.7
China
1006
8.0
Germany
931
7.4
France
551
4.4
Japan
551
4.4
Top 5 service trader (2009)
Rank Export Export (billion USD) % of world Country Import (billion USD) % of world
1 US
470
14.2 US
331
10.6
2 UK
240
7.2 Germany
255
8.2
3 Germany
215
6.5 UK
180
5.1
4 France
140
4.2 China
158
5.1
5 China
129
3.9 Japan
146
4.7
Data source: WTO, International Trade Statistics 2010, 26 March 2010
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Post-evaluation of International
Financial Crisis
• China’s global economic position has been strengthened
during the crisis
– China has been the forth largest sourcing country of patent application
Rank and Ratio of China’s Selected R&D indicators in the World
Ratio of R&D expenditrue to the world (%)
Rank of R&D expenditure
Ratio of patent applications to the world (%)
Rank of patent applications
Ratio of SCI\EI\ISTP indexing papers to the world (%)
Ratio of SCI indexing papers to the world (%)
Rank of SCI\EI\ISTP indexing papers
Rank of EI indexing papers
Rank of SCI indexing papers
2003 2004 2005 2006 2007 2008 2015
2.5
2.9
3.5
4
4.9
13
6
6
6
6
4
3
2
6.3
8.3
8.8
8
9.6
4
3
4
4
4
3
5.1
6.3
6.9
8.4
9.8 11.5
4.5
5.9
7.5
9.8
5
5
4
2
2
1
3
2
2
2
1
1
5
5
5
3
2
2
Source: Center for China Studies, Report on overall thoughts and targets of twelfth five-year plan, 2009.9.
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China’s Experiences of Cope with
International Financial Crisis
• Accumulations of 30 years’ reform
• China’s learning, adoption and competition capacity
• China’s specific state capacity
–
–
–
–
–
Capacity of distinguishing and dealing with potential crisis
Decision capacity
Political mobilization capacity
Fiscal capacity
Social governance capacity
• Two hands: balance of invisible hand (market) and
visible hand (governemnt)
• Initiative coming from both central and local sources
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From Accelerating Development to
Accelerating Transition
• Crisis has pushed China to spur its transition
– Improve industrial structure
• Industry (secondary sector) is the main driver of
economic growth
• Service (tertiary sector) should be improved in coming
years
• Social service expenditure, especially education
expenditure needs to increased, at least to 4% of GDP
– Promote energy conservation
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4. From Accelerating Development to
Accelerating Transition
• Challenges on carbon emission and environmental
protection
2000
1.386
Energy consumption (billion TCE)
GDP (GDP, trillion, 2005 price)
Energy consumption per unit GDP
1.12
(ton TCE/10000 Yuan)
Electricity (billion kwh)
1355.6
Electricity consumption per unit GDP
(billion kwh/10000Yuan)
Sulfur dioxide emissions
19951
(thousand tons)
Chemical oxygen demand
14.45
(COD, million tons)
2005
2.360
18.49
2006
2.587
20.45
2007
2.805
20.10
2008
2.914
25.30
2009
3.07
27.55
2010*
1.276
1.265
1.372
1.152
1.113
1.022
2500.3
2865.7
3281.6
3495.8
3714.7
1059
1108
1170
1200
1212
25494
25888
24681
23213
23200
14.14
14.28
13.82
(30.29)
13.21
22940
1273
Note: * is estimated data, and energy consumption is calculated in 2005 instant price, brackets present data from bulletin on first national
pollution census.
Data source: China Statistical yearbook (2009) and Bulletin on First National Pollution Census (2010).
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From Accelerating Development to
Accelerating Transition
• Over-industrialization, over-heavy-industrialization, overdependent on export, over-investment and over-extensive
growing
2009
Energy Consumption (billion TCE)
Coal production (billion tons)
Crude oil consumption (billion tons)
Natural gas (billion cubic metres)
Electricity (TWh)
Steel consumption (billion tons)
Refined copper (billion tons)
Electrolytic aluminium consumption (billion tons)
Ethene (billion tons)
Cement (billion tons)
Note: TCE refers to Tonne Oil Equivalent.
Data source: Bulletin of Economic and Social Statistics (2009).
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2008
2.91
2.77
3.5
80.63
3495.76
0.54
45.41
123.18
98.07
1.35
2009
3.07
2.97
3.8
88.7
3714.65
0.69
75.3
143.9
106.6
1.63
Growth rate (%)
6.3
9.2
7.1
9.1
6.2
22.4
39.7
14.4
8.0
17.0
From Accelerating Development to
Accelerating Transition
• Challenges of climate change
Carbon Emission in China (2005-2030)
CO2 (billion tons)
% of world
Data source: IEA, 2007.
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2005
2010
2015
2020
2030
5.1
6.7
8.35
10
12.8
19.2
22.2
24.5
22.4
30.5
Conclusion
• Crisis is external pressure of China’s transition
and development
• China needs to continue its reform and transition
– Balanced development among urban and rural,
different regions, income gaps, investment and
consumption
– Innovative development: from factor driving to
innovation driving
– Green development: from black development into
green development
– Sharing development: from let somebody rich first to
all people rich together
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Conclusion
• China: a new engine of growth
– Emerging and developing countries contribute to an
increasingly large share of global growth
– As the crisis has unfolded, global growth has relied
primarily on the emerging and developing economies, with
nearly half coming from China alone
– Indeed, China has become a global growth engine that
should be treated as an additional driving force behind the
recent growth performance in converging countries
– China also has more power to influence global factor and
goods prices than any other converging country (OECD,
2010)
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Thank you!