Transcript China Confronts the Global Meltdown

Current macro management and
Long-term growth scenarios of
Chinese economy
FAN Gang
National Economic Research Institute &
Peking University
06-2009
I. Global Crisis and China:
Policies and Scenarios
I-1, The reasons for the slowdown
• Global crisis;
• Domestic adjustment by itself:
– It is better to have a strong macroeconomic policy
during the booming time, instead of doing little to let
things bubble up!
– Having had that, China does not have big bubbleburst to deal with and possible to recover quicker;
I-2, The good rooms for policy maneuver
• Gov’t debt / GDP = 22%
• Banking sector in good shape;
• 2 trillion foreign reserve.
-- China has been paid off for its financial
prudence and patience.
I-3, Stimulus policies
Fiscal stimulus package and 8% growth
• The net fiscal stimulus is counted for
almost 3% of GDP
• 8% may not be difficult if the stimulus big
enough, but market may feel still cold and
unemployment still high – over capacities.
• It is “sustainable” for one or two more
years .
Monetary policy?
• Quantitative management.
• Interest – rate management is constrained
by the exchange-rate relationships.
Other policies!
• Investment approval and local autonomy;
• Industrial policies;
• Financial policies, such as lending policies to
SMEs and mortgage/real estate.
• Land policies.
• ……
I-4. Signs of bottom-up
Figure :
50
Import and Export Growth (%, y/y) and Monthly Trade Balance ($b)
Bil $
%
50
Trade Balance (Bil $)
Import Growth
Export Growth
40
45
Source: Chinese State Statistical Bureau
09.03
09.01
08.11
0
08.09
-50
08.07
5
08.05
-40
08.03
10
08.01
-30
07.11
15
07.09
-20
07.07
20
07.05
-10
07.03
25
07.01
0
06.11
30
06.09
10
06.07
35
06.05
20
06.03
40
06.01
30
Figure : Change in Industrial Output and Fixed Asset Investment (y/y, %)
35
Industrial Output
30
Fixed Asset Investment
25
20
15
10
5
Source: Chinese State Statistical Bureau
09.03
09.01
08.11
08.09
08.07
08.05
08.03
08.01
07.11
07.09
07.07
07.05
07.03
07.01
06.11
06.09
06.07
06.05
06.03
06.01
0
Figure: Change in Retail Sales of Social Consumption Goods (M/M, %)
29
Nominal series
24
Real series
19
14
9
Source: Chinese State Statistical Bureau
09.03
09.01
08.11
08.09
08.07
08.05
08.03
08.01
07.11
07.09
07.07
07.05
07.03
07.01
06.11
06.09
06.07
06.05
06.03
06.01
4
Consumer Price Index
Ex-factory Price Index of Industrial Products
Source: Chinese State Statistical Bureau
09.03
09.01
08.11
08.09
08.07
08.05
08.03
08.01
07.11
07.09
07.07
07.05
07.03
07.01
06.11
06.09
06.07
06.05
06.03
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
06.01
Figure 7: Change in CPI and Ex-Factory Price Index of Industrial Products (m/m, %)
1.5 Risks of monetary expansion
• The credit expansion is already over the
target (RMB5 trillion);
• M2 growth rate is historically rarely high at
25.5% ;
• World commodity prices are increasing.
Naturally, people start to worry about:
• Inflation, or asset bubbles;
• Bank NPL;
Policy makers are watch too!
• Deflation is still deepen (CPI -1.5% in April,
from 1.2% in March, yoy);
• Not much credit has “sneaked” into the
asset market so far;
• Policy may “switch” the direction, if needed.
II. Structural Problems:
High savings and low consumption
• As observed by everyone, China’s recovery or
growth is still relying on either export or
investment. Consumption is still a week spot.
• And this is particularly a problem in long run
given the possibility that US consumption-saving
relationship may be changed (a bit) by the
restructuring of financial market after the crisis.
• So, for the medium and long run, the key
question remain: how China can increase its
domestic consumption?
Household sector savings rate
Various sectors as % of total savings
60
50
40
30
20
10
Household
Government
Corporate
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Households’ disposable income
/ other incomes
Wage as % of GDP
“Corporate net revenue” as % of GDP
How to increase Households’ Income
• Increasing gov’t expenditures on social
security/health care?
• Minimum wage increase?
• Fiscal / taxation reforms – transfers between
different sectors;
• Redistribution of wealth?
III. Factors Behind
3-decades Growth and Beyond
Table, China’s Growth: Input-driven vs. Productivity Increase
(Percentage points of GDP growth rate)
1953-78
1979-88
1989-98
1999-05
Annual GDP growth
6.15
10.06
9.59
9.11
Of it: Input growth
5.83
6.70
5.16
5.36
2.59
2.58
2.70
3.59
2.39
4.26
2.19
1.56
0.31
3.35
4.42
3.74
Of it: Capital
Human captal
Productivity (TFP)
Table, Explanations to China’s Productivity Increase
1978-88
1989-98
1999-05
2.86
4.37
3.53
Market-oriented reforms
0.68
0.92
0.32
Spill-over effect of FDI
0.16
1.15
-0.35
Spill-over effect of Trade
0.46
0.19
1.33
R&D growth
-0.18
0.16
0.47
Spill-over effect of Human capital
1.02
0.84
0.79
Improvement of infrastructures
0.10
0.49
1.35
Urbanization
0.78
0.74
1.35
Reduction of government costs
-0.14
-0.12
-1.73
Economic Structure
-0.15
0.28
0.21
Total Factor Productivity
(as explained)
Most Factors of Growth are still working
and will work for the next 10-20 years
• High savings;
• Low labor cost;
• Reform effects;
• Globalization effects;
• Education and Technology progress.
• Urbanization.