Transcript Diapositiva 1 - Ruggero Ranieri

The development of the Chinese
economy and China’s role in the
global economy
Communist China under Mao
• In 1949 the Chinese Communist Party led by
Mao-Zedong captured power. It inherited a
country ravaged by a long civil war.
• Part of the population belonging to the southern
regions had fled overseas, and had established
a rival government in Taiwan as well as feeding
the widespread Chinese diaspora across
Southern Asia.
Communist China under Mao
• The economic model followed by the
Chinese Communists mirrored the Soviet
Stalinist one, by giving priority to the
development of heavy industry.
• There was also a radical agrarian reform,
based on large scale redistribution of land
to the peasants.
• The USSR supplied both technicians and
investment capital for the all the major
industrial projects.
Early economic achievements under
communism.
• In 1960, once the first five year plan had been
completed, China broke off relations with the USSR
for ideological reasons and national and military
rivalry .
• In China economic policy became more radical with
the Great Leap Forward of 1958, which consisted of
forced collectivization of the countryside with the
formation of large communes.
• The results were less production, more inefficiency,
famines, the collapse of industrial production.
Chiese economic development under
Mao
• the key struggle was between political cadres and
technicians or experts.
• The cultural revolution launched by Mao against what
he saw as the moderate, bureaucratic leadership
brought about havoc and destruction.
Chiese economic development under
Mao
• The Chinese model was different from the
Soviet one.
• Heavy industry in China was less
important than in the USSR and there was
less centralization of power.
• On the whole however, the system was
based, as in the USSR, on the transfer of
resources from agriculture to industry.
Chinese economic development under
Mao
• Regions and local bureaucrats and party chiefs
enjoyed a certain amount of freedom.
• While there were a number of big State owned
companies in heavy industry and in the
industrial-military complex, there were also
many regional conglomerates, which were called
collective companies, with close ties to their
respective regional communities.
Chinese economic development under Mao
– China achieved a certain degree of economic
development between 1953 and 1978.
– Starting in 1978, after the disappearance of Mao, a
new era began, under the leadership of Deng
Xiaoping, who carried China gradually towards a
market economy.
The Chinese take-off: moving
towards a market economy
• Starting very gradually in 1978, and much
faster since 1991, China has moved towards
becoming a market economy.
• Initially progress was limited and halting. There
was talk of a mixed system, of a dual
economy, part of which remained under State
ownership and State planning, while the rest
was liberalized.
• This mixed system, with its dual nature,
encouraged a great deal of corruption.
China towards the market
• In 1979 4 Special Economic Zones were set up
in the coastal provinces with the aim of
attracting FDI.
• The special economic zones were in areas not
far from both Hong-Kong and Taiwan.
• In the course of the 1980s more coastal areas
were granted the same privileges previously
granted to the 4 Special Economic Zones.
Structure of the Chinese economy, by employment and
by GDP.
The Tiananmen square repression
• In 1988-9, measures were taken to clamp down
on inflation, and these measures sparked off a
revolt, which threatened to become a political
anti-socialist and pro-west revolution.
• Starting from the blood clampdown on the
protesters in Tiananmen Square, the revolt was
crushed by the more conservative wing of the
Communist leadership.
• For a moment it seemed as China might be
heading backwards.
China toward a market economy
• The conservative coup of 1989-90 did not
succeed in reversing the new course that China
had undertaken from 1978. The collapse of the
USSR was an important factor in this. The push
towards liberalization and capitalism came
especially from the coastal areas, the economic
importance of which had grown enormously.
China toward a market economy
• It was Deng Xiaoping who gave a new push to
China’s transition to the market when he made a
well publicized trip to Southern China. In 19931994 a new wave of reforms was unleashed on
the part of the Communist Party itself. This
seemed to be a open endorsement of a transition
to a capitalist system.
• Among the reforms: a drive towards efficiency on
the part of State-owned companies, a banking
reform, which left banks in the hands of the State,
but compelled them to follow commercial banking
guidelines, the privatization of a number of
economic sectors, the encouragement towards
the creation of a efficient stock market,
membership of the WTO in 2001.
Chinese economic modernization
• In 1983 the banking system was reformed.
• While previously there was a State bank monopoly, a
range of new banks was created, including an
agricultural bank, an industrial bank and many other
specialized banks. All were state-owned.
• Very high investment rates increase the amount of fixed
capital per head and drive up the levels of productivity.
• Regional imbalances become very serious. The
development of new booming manufacturing centres on
the coast undermine the older industries in the interior.
Large parts of Chine remain rural and serve simply as a
reservoir of cheap labour for the new industrial coastal
zones.
FDI in China
Foreign owned companies have acquired an
ever growing importance in the Chinese
economy. The Chinese huge internal market
with its fast growing incomes, its cheap
available work force has attracted huge flows
of FDI.
Domestic Chinese private firms have
struggled, because of uncertain laws on
private ownership and because of scarce
capital. They have preferred to let foreign
firms come in, take them over, and do the job.
Strengths and weaknesses of Chinese industry
Two are the key advantages of Chinese industry: the availability in the country of
raw materials and the huge pool of cheap labour.
Among the raw materials possessed
by China, there is coal (12% of world
output), and to some extent oil and
gas (fractions of world output)
China is the second world producer
and consumer of coal. There is also a
large capacity of hydroelectric energy.
The number of workers in
manufacturing and construction was,
in 2001, 160 million. f which 90 were
based in the countryside and 70 in
towns. Since then numbers have
grown. There is a huge reserve of
labour in the rural provinces eager to
take up jobs in industry and in the
service sector.
Company structure
In 2001 there were 8.600 large companies. They included:
1.
2.
3.
STATE OWNED COMPANIES – In 2001 they
accounted for about 40% of industrial production.
They are still prevalent in heavy industry, energy,
chemicals and petrochemicals, and they are in charge
of state monopolies such as tobacco.
Private companies: they accounted for about 30% of
industrial output. There were important in traditional
manufacturing sectors such as textiles, furniture, and
also in electrical appliances.
Foreign companies: their importance is growing all the
time. In 2001 they accounted for about 30% of output.
A significant share of FDI comes from Hong Kong and
Taiwan, but there a large number of US and European
companies as well. They have a leading position in
the more advanced sectors of the economy, for
example electronics, automobile
Chinese commercial policy
• Protection of the domestic market. Up to the
mid 1990s,the Chinese market was heavily
protected by tariffs. After that there was a
gradual liberalisation, in view of Chinese
membership of WTO in 2001.
• Export promotion: starting in the mid 1980s
Chinese authorities granted both exporters as
well as incoming corporations a preferential
regime, with tariff exemptions. All machinery and
semi-finished products imported into China to be
used for exports were allowed in tariff-free.
China and the Asian economy
• China has enormously increased its economic clout in
the last twenty years. After the demise of the Soviet
Union, China is aspiring to the role of a military
superpower and directly challenging Japanese
supremacy in Asia.
• China is in transition towards capitalism. It is still
however in a anomalous position, not entirely capitalist
and no longer socialist
• China is a great exporter and it is also a great attraction
for FDI. However Chinese corporations do not have the
same strengths and organizational qualities as Japanese
ones.
• China acts as a great assemblage economy, for the
MNCs of the whole world and particularly for Asian
MNCs. China is the country were goods get assembled
to be finished off elsewhere.
Ratio of Chinese GDP accounted for by foreign trade (in percentage term)
Projected GDP per head at PPP (purchasing power parity
exchange).
China and the rest of Asia
• Neighboring countries have benefited from the rise of the
Chinese economy, in particular, from the growth of
Chinese exports ( at an average rate of 17% between
1980-2006 ) and from the growth of FDI flows into China.
Countries belonging to ASEAN have thus see a sharp
rise of their share of incoming FDI. An integrated Asian
economy is gradually taking shape.
• A) MNCs investing in China, often invest in neighboring
countries as well, as a form of insurance in case political
turbulence were to hit China.
• B) Manufacturing in China generates a number of crosscountry exchanges within the area, involving both inputs,
components, semi-finished goods. Thailand, Singapore,
Malaysia, Indonesia, Taiwan e South Korea are all
affected.
China and the rest of Asia
• C) Intra-area trade has grown much faster that
trade between the area and the rest of the world.
• D) Japan has intensified its trade with the rest of
Asia (a process which started in 1985). Often
Japanese companies are the initiators and
leaders of vast, complex production networks.
• E) MNCs account for a large share of total
Chinese exports. Some of these MNCs have
their headquarters in other Asian countries.
MNCs are particularly dominant in high-tech
exports from China and these cover nearly 50%
of total Chinese exports.
China and the rest of Asia
• F) There are first signs that a number of
Chinese companies are becoming world
competitors.
• H) The most important Chinese asset remains
the size of its rapidly growing domestic market.
• China’s domestic market acts, and will act even
more in the future, as the driving engine of the
whole Asian economy, sucking in a huge
amount of imports. In 2007 Chinese imports
have grown more than US imports (although in
aggregate they are still much smaller)
Questions about China
• a) Property rights and the rule of law are
only partially enforced.
• b) Regional differences and social
inequalities breed social protests.
• c) China’s banking system is rigid and
highly bureaucratic (most of it is State
controlled). National accounting is opaque
• d) there is a basic contradiction betweena
one party system and a market economy.
Questions about China
• New figures from the World Bank (2007) have
estimated Chinese GDP at some 40% lower
than previous estimates. China is still the second
economy in size but in per capita terms its GDP
is less than 10% of US per capita GDP. This
new estimate, measured at PPP, (purchasing
power parity) is based on a much wider
selection of goods and services than the
previous one.
• India’s GDP has also been downsized by about
40%.
APEC. (Asian Pacific Economic Cooperation)
• A grouping of countries created in 1989 in
Camberra. It was the result of an Australian
initiative, meant to encourage a strong unitary
action of the countries of the East Pacific in the
context of the Uruguay Round talks.
• Japan supported l’APEC for the same reason.
• Within APEC the USA, backed by Australia,
Canada e Singapore pushes for the
liberalization of trade and FDI.
• China and Malaysia take a more cautious
approach and reject full-scale liberalisation.
APEC. (Asian Pacific Economic Cooperation)
• In 1994 an agreement was reached to liberalize trade
and investment with 2010 for all the industrialized
countries of the region, while less industrialised
countries would have another 10 years, until 2020.
• In 1997, during the financial crisis, Japan proposed to
institute an Asian Monetary Fund, under its
leadership, to assist ailing Asian economies and to
intervene to alleviate the effects of the financial crisis,
thus replacing the IMF. The US vetoed this
suggestion, although later a more limited Japanese
financial rescue package was allowed.
The AFTA (Asean Free Trade Area)
• It does not include Japan, South Korea and Taiwan. Its aim is
a free trade area, AFTA, to be achieved in next few years. A
number of practical tariff reductions and other commercial
measures have already been taken. In 2002 China signed an
agreement with AFTA to eliminate reciprocal barriers within 10
years. Eventually an area of over 2 billion people will be
created. Japan is bound to join eventually. The Japanese
have insisted that the US be included in a preferential
arrangement which it might join.
• A new grouping is emerging in Southern Asia, with India, an
economy which has recently been experiencing fast rates of
growth in the lead. The countries interested will be Pakistan,
Bangladesh, Sri Lanka, Nepal, the Maldives, Buthan.
Questions on China.
• Discuss the Chinese economy.
• 1) How fast is the Chinese economy growing and
how fast will it grow in the future?
• 2) Is China a land of consumerism?
• 3) Is China a technological power?
• 4) How is China contributing to globalization
(migration, foreign trade and foreign investment)
• Present your conclusions on the impact of China
on the Global economy taking account of the
different topics outlined above.
• What will be China’s role in the global economy
by 2020?