Transcript The economic disaster was 30% due to natural phenomena and 70

中國竹簾
The Bamboo Curtain
Key Economic Data
GDP Growth
Fonte: Banco Asiático de Desenvolvimento
GDP Growth
Fonte: Banco Asiático de Desenvolvimento
GDP Growth
Fonte: Banco Asiático de Desenvolvimento
GDP Growth
Fonte: Banco Asiático de Desenvolvimento
Foreign Trade
Fonte: Banco Asiático de Desenvolvimento
Investiment
Fonte: Banco Asiático de Desenvolvimento
Inflation
Fonte: Banco Asiático de Desenvolvimento
Monetary Indicators
Fonte: Banco Asiático de Desenvolvimento
Renminbi vs USD
Renminbi
exchange rate
was fixed until
2005
 Accumulated
appreciation vis a
vis USD 20%

Stages of Chinese Development
Soviet planning (49/58)
 Great Leap Forward (58/64)
 Cultural Revolution (64/76)
 Reform and Opening Policy (78/..)

China in 1949

Three sectors of
activity
– State sector
– Private sector
– Agriculture sector
1949-1958
GDP high growth rate
 Investment in infrastructures and heavy
industry
 Enforcement of the central planning
instruments
 Chinese economy Soviet style

Great Leap Forward
«Last year we
produced 5,3 million
tons of steel. Can you
double it this year?»
 Mao Zedong
questions the ministry
of industry in July
1958.
 «I can!» the minister
answered

Great Leap Forward
Agriculture becomes collective
 Creation of the agriculture communes
which encompass 98% of the
population
 Steel furnaces are build to increase
steel production

Great Leap Forward
Peasants abandon agriculture
 Bad agriculture yields due to floods and
droughts
 Between 14 and 43 million people starve
to death
 Substandard steel production
 Only in 1964 steel production achieves the
same level as in 1958

Great Leap Forward

«The economic
disaster was 30%
due to natural
phenomena and
70% due to human
errors»
– Liu Shaoqi, China
President
Looking for a new model
Beijing wanted a different model from the
Soviet Union
 There was a first incentive to increase
agriculture productivity by allowing
peasants to use 5% of the land to grow
on their own

Cultural Revolution
Struggle between
different groups within
the Communist Party
 Social and political
upheaval causes a
steep decline on the
agriculture and
industrial production

Cultural Revolution
The Cultural revolution removed all incentives
and responsibility regarding economic
performance by bringing forward ideological
fervour while punishing those with knowledge
and skills
 Mass mobilization against power structured lead
to total chaos
 Xenophobia denied the country access to
investment opportunities and technology
transfer

Opening and Reform

Deng Xiaoping is
politically
rehabilitated by
Hua Gufeng, the
man choosen by
Mao Zedong to
lead the country
and put the
Cultural
Revolution to an
end
Opening and Reform

Three new models
– Hua Guofeng – Maintain the pre Cultural
Revolution economic system
– Chen Yun – Maintain the central planning
system
– Deng Xiaoping – Structural problems could
only be addressed by a full reform of the
economic system
China in 1978
China in 1978
Economic backwardness when compared with
neighbouring countries
 Annual GDP growth of 6% between 1949 and
1979, even if the population went from 540
millions to 800 millions
 Stagnation of the labour and capital productivity

China in 1978





Unchanged output e per capital consuption
Huge technological gap between China and the
most developed nations
Collective and state property where totally
ineffective in producing weath
Excessive concentration of authority
By 1978, 80% of the industrial production was
generated by state owned enterprises employing
75 million workers
China in 1978
Total lack of know how
 Prices controlled by the central government
 Banking sector dominated by the People’s Bank
of China which main mandate is to finance the
government plan
 No legal framework for the economic activity

Mao Zedong failed
Mao Zedong Failed
To increase per capital income
 To increase the capital stock, know how or
to import capital
 To motivate workers, peasants or
company managers
 To efficiently allocate resources
 To satisfy domestic demand
 To produce essential goods and services

A New Way

Based on this analysis
the Communist Party
recognizes the
commanding need to
improve the
population’s living
conditions by offering
a bigger number of
goods and services
Reform and Opening Policy





Acquire technology overseas by expanding economic
cooperation
Creation of a new legal framework for foreign trade and
investment
Property rights redefinition and decolectivization,
decentralization e facilitate the access to the production
factors
Change from a administrative regulation system to a
government orientated marked regulated system
Improvements on the management capability and
responsibility of company managers
Four Modernizations

«It doesn’t matter
the cat colour as
long as it gets the
mouse»
 «To be rich is
glorious»
– Deng Xiaoping,
Communist Party
Secretary general
Four Modernizations

The initial plan focus on the following
areas outlining ambitious objectives
– Industry
– Agriculture
– Science e technology
– Defense
Tiannanmen and the Economy
In 1989 China’s
development suffers
a setback with the
Tiananmen events on
the night of June 4
 Reformist prime
minister Zhao Zyiang
is replaced by Li Peng,
a Soviet Union
formed technocrat

Tiannanmen and the Economy
Establishment of a new economic management
system known as Socialist Market Planed
Economy
 Planning is responsible for macroeconomic
regulation while is up to the market to allocate
resources
 The plan offers a medium to long term
orientation under the leadership of the State
Commission for Planning, which coordenated
macroeconomic forecasting

Reforms

1979 to 1984 –
efforts to reform
and modernize the
rural areas and the
agriculture in order
to avoid social
upheaval among
peasants
Reforms

1984 to 1989 –
economic
modernization of
the urban areas
with the growth
of cities and the
beginning of the
migration from
the rural to urban
areas
Reforms

1991 to 1995
– State owned enterprises
– Companies ownership system
– Pricing system
– Social security system
– Foreign trade system
– Agriculture
– Creation of new macroeconomic management
instruments
Reforms
In 1998, Zhu Rongji
replaces Li Peng as
prime minister and a
new reform stage
begins
 The objective was to
increase the
international
competitiveness of
the Chinese
economy

Reforms
By 1998, China had brought under control
inflation without jeopardizing a robust
economic growth
 Macroeconomic management was now
done indirectly without resorting to the
government direct intervention on the
production decisions, price structure or
resources allocation

WTO
China accedes to the
WTO on December 11,
2001
 Talks went on for 15
years
 Accession to the WTO
meant the full
integration of China
on the global market

WTO

Beijing compromises to:
– Reduce tariffs and eliminate them over a pre defined
period of time
– Reduce barriers to agriculture products trade
– Promote transparency
– Liberalize domestic retail networks
– Dismantle all non tariff restrictions on trade
– Eliminate state monopolies on agriculture and
industrial sectors
– Force state owned enterprises to operate on the
market rules
– Eliminate export subsidies
Five Years Plan 2006/2010

The 11th five years
plan was approved
by the National
People’s Congress in
March 2006 and is
now being enforced
under the leadership
of president Hu
Jintao and premier
Wen Jiabao
Five Year Plan 2006/2010

Key points of the five year plan
– Adoption of a scientific approach to development
aiming at building a harmonious socialist society
– Bigger attention given to the improvement of the
population quality of life and environmental protection
– Development of new socialist policies for the rural
areas
– Improvement on the competitiveness of the industry
– Reinforcement of the service sector
– Expected average yearly GDP growth of 7.5%.
China and the European Union

European
Commission
president
Durão Barroso
and nine
commissioners
went to Beijing
on April 25 to
meet the
Chinese
leadership
China and the European Union
In 2007, bilateral trade rose to 365.15
billion USD
 Trade deficit was 160 billion USD
 For Europe, China is an alluring market
when the United States are undergoing a
economic crisis
 Bilateral relations are overshadowed by
political and human rights issues

China and the International Crisis
The international financial crisis is slowing the
pace of the Chinese economy via foreign trade
 Most likely effects are firms going bankrupt and
a rise in unemployment
 Recent figures show already a reduction on the
import of row materials
 With capital flows between China and the world
still heavily controlled, Chinese banks have had
relatively little direct exposure to the turbulence
rocking the world economy

Asian Situation

A has tem
– Three trillion USD in foreign reserves
– High savings rate
– Well capitalized banks
– Minimal exposure to US mortgage-backed
securities

Effects on Asian economies are expected
to come over the foreign trade channel
Asian situation
Most of Asia emerged from the 1997 crisis
with more cautious banks, stricter financial
regulation, a tighter rein on government
spending and a strong determination to
accumulate
 These characteristics give Asian countries
a bigger capacity to fend off the crisis
then Europe or the United States

Challenges ahead for China
Demography
 Inflation
 Environment
 Property rights protection
 Corruption and transparency
 Integration on the global economy

中國竹簾
The bamboo curtain
João Francisco Pinto
[email protected]
[email protected]