Transcript The Inside Story of China*s Transformation

China 2020
Victor Gao
The Annual Conference of “Promote Iceland”
Reykjavik, Iceland
April 28th, 2014
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How Big Is China’s Economy?
Official GDP in 2013: US$9.31 trillion
PPP:
US$ 13.37 trillion
China’s GDP as % of US GDP:
• China
– Official GDP: 55.68%
– PPP:
79.96%
• Greater China (Mainland + HK + Macau + Taiwan)
– Official GDP: 60.52%
– PPP:
88.07%
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Not a Zero-Sum Game
• Total import & export in 2013: US$4.16
Trillion
– Total foreign trade as % of GDP: 45%;
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Total trade with EU:
US$559 Billion;
Total trade with USA:
US$521 Billion;
Total trade with ASEAN: US$443.6 Billion;
Total trade with Japan: US$312.5 Billion
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Changing Mix of Export
• Export of machinery & electronics products
as % of total export:
= 57.3%
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What Sets China Apart?
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The largest population;
The largest manufacturing nation;
The largest trading nation;
The largest energy user;
(The largest polluter;)
The largest foreign exchange reserve;
The largest creditor to the USA;
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What Sets China Apart (2)?
• Largest mobile phone market (1.2 BN +);
• Largest internet market, with 800 MN + mobile
internet users;
• Largest automobile makers and buyers (20 MN + );
• High-quality and fast-expanding infrastructure;
• Building the fastest and largest high-speed rail
network in the world;
• Building more than half of all the new nuclear
power stations in the world;
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What Sets China Apart (3)?
• One single market, with no or minimum
internal trade barriers;
• Approximately 7 MN college graduates
every year;
• Soft landing? Hard landing? Good landing?
• Growth momentum to continue for many
years to come;
• The highest growth rate among all the
major economies;
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What Sets China Apart (4)?
• One ruling party
– With 87 MN party members, CPC is all-pervasive and
controls all important aspects of China;
– Fierce intra-party competition; emphasizing “intraparty democracy”;
– Meritocracy; emphasis on “governance”;
• Distinctively different political system, but with
high government efficiency and mobilizing
capacity, almost unmatched in the world.
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What Is China Today?
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Communism?
Socialism?
Authoritarianism?
Totalitarianism?
Capitalism?
Elite Capitalism?
State Capitalism?
Socialism with Chinese Characteristics?
No pre-existing label captures all the fast-moving changes
of China today;
• Maintaining the one-party rule on the one hand, but
embracing changes and innovation and transformation on
the other hand.
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OECD re China
OECD announced that:
– By 2016, China’s GDP will surpass
USA.
– By 2060, China’s GDP will be 28% of
the world.
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What China Cares Most?
• Maintaining stability at home (anti-corruption);
• Keeping peace abroad;
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Comprehensive and deepened reforms;
Opening to the world (two-way globalization);
Growth and development as top priority;
Further improving productivity (innovation);
Further improving people’s lives;
War on pollution;
Shifting to green development;
Achieving the Chinese dream.
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Doubling GDP in 5 Years
The Chinese GDP doubled in five years:
– GDP in 2007: Rmb 24.66 Trillion Yuan;
– GDP in 2012: Rmb 51.9 Trillion Yuan
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To Double the GDP in 10 Years
In November 2012, China decided to double
its GDP of 2010 by 2020.
– 2010 = Rmb 39.80 Trillion
– 2013 = Rmb 56.88 Trillion (US$ 9.31 Trillion)
– 2020 ≈ Rmb 80 Trillion
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Mega Trends
•Industrialization
•Modernization
•Urbanization
•Globalization
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China and the World
In the coming five years (2014 to 2018):
– China will import US$10 Trillion+ goods
and commodities;
– And will invest US$500 Billion+ overseas;
– 400 to 500 Million Chinese tourists go
abroad.
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The New Paramount Leader?
• Xi Jinping as the Trinity Leader
– Party Secretary General;
– President of the People’s Republic;
– Chairman of the Central Military Commission;
• Chairman of the National Security Council;
• Chairman of the Leading Group on
Comprehensive and Deepened Reforms;
• Chairman of the Cybersecurity Leading Group;
• And so on and so forth.
• One of the Seven?
• One above the Six?
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How Xi Looks at China?
• “China is getting closer and closer to the
center of the world stage.”
• As if being the 2nd largest economy is still
not at the center of the world stage.
• What should be the reasonable conclusion?
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Mega Trends in Energy in China
• Oil: Demand is increasing fast. Need to add 200 to 300 million
tons to oil consumption by 2020;
• Gas: Government has ordered gas consumption to double in five years;
• Coal: Consumption needs to go down: down to 65% in 2014.
• Nuclear: Will go up. 26 new nuclear power stations are being built.
Increase to 5%, or even to 10%?
• Hydro: How much more can it grow?
• New & Renewable: We have to keep faith and spare no efforts. But, alas,
how much can they really contribute to China’s staggering energy demand?
• The great variables:
– Shale gas: When and how can they be developed en masse?
• Shale gas as a bonus and an insurance policy.
– Improving energy efficiency: How to improve? How much to improve?
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Achilles’ Heel: Oil Import
• China’s oil consumption:
– 500 million tons in 2013;
– Oil import at 300 million tons;
– Total oil consumption to increase to above 700 million tons by 2020.
• Dependence on oil import has reached 58%+ in 2013.
• Dependence on oil import expected to go up to above 70% by 2020.
• Potential dangers:
– Maritime security for oil shipping;
– Safety and security of cross-border oil & gas pipelines;
– Major jump in imported oil & gas price;
– Insufficient strategic reserves.
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New Achilles’ Heel: Gas Import
• China’s gas consumption:
– 2013: 167.6 Billion cm (an increase of 13.8% over 2012);
– 2020: ≈ 350 Billion cm.
– At present
• Natural gas = 5.9% of China’s energy production in 2013.
• Only about 14% of China’s populations use natural gas.
• Dependence on gas import:
– Import @ 31.6% of total gas consumption in 2013.
– Total import in 2013 @ 53 trillion cm.
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The Known Known Factor
• Regardless of many unknowns and
uncertainties in the O&G sector in the
world, the most important known known
factor is China’s continued demand for
O&G, and its continued dependence on
O&G imports.
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America’s Energy Independence
• China will benefit from America’s EI;
• With America achieving EI, China will
attract the O&G that America will no
longer import from the rest of the
world, including the Middle East,
Africa and Latin America.
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More Russian O&G Going East?
• The recent developments in Ukraine and Crimea
may cause repercussions for years to come.
• The sanctions imposed on Russia by the western
countries may create dynamics for more Russian
oil and gas to go east.
• This may further strengthen the energy
cooperation between China and Russia for the
long term.
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China’s Ultimate Goals
• 20% of global economy
– 12.6% in 2013 (official exchange rate).
– 15.3% in 2013 (ppp).
• 20% of global trade
– Total foreign trade in goods in 2013 @ US$4.14 trillion; about 11%
of global trade.
• 20% of IPR
– China surpassed USA in 2011 as the largest country in the world in
new patent applications.
• 20% of Fortune 500 companies
– 95 in 2013 (Mainland China, Hong Kong and Taiwan).
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China in the Coming Decade
• Xi Jinping will emerge increasingly as a strong leader, eventually
becoming a paramount leader.
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• China will be the largest economy in the world, with about 20% of the
global economy; and about 20% of global trade.
• China will be the largest importer of O&G, and will continue to invest
in mega deals in O&G throughout the world.
• Rmb will become a major reserve currency. China will settle major
imports and export in Rmb.
• China will have greater democracy and transparency and better
governance and rule of law than today.
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Ukraine As the Watershed?
• The dust raised by the Ukraine crisis may take years to
settle;
• The prospect of a confrontation between Russia and USA /
the West is increasingly real;
• USA / the West cannot afford to confront both Russia and
China at the same time for the long term;
• Washington may not like China that much, but it may have
to dislike Russia more, at least for a few years;
• The realities on the ground seem to maximize China’s
geopolitical leverage and are increasing the prospect that
China will be able to surpass the USA by “abstention”, not
by “confrontation”;
• Be friends with all (almost)! Be enemies with none (almost)!
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China and Iceland
• Iceland in the Chinese = Ice Island;
• China’s FTA with Iceland: the first with an
European nation;
• The currency swap agreement;
• Of great attraction to China: Iceland’s fishery;
geothermal; glaciers; fjords; white night in the
summer; clean air; clear water; volcanic sceneries;
• CNOOC in Icelandic offshore;
• Mr. Huang Nubo and the 99-year lease;
• Gateway to the Arctic region.
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What If?
• Attracting 100,000 Chinese tourists or more
(currently at 10,000) to Iceland?
• Attracting Chinese wealth to Iceland?
• Selling Icelandic water to China?
• Selling more Icelandic fish to China?
• Direct flight between China and Iceland?
• Becoming a globalization center for China
(covering both sides of the Atlantic): training;
R&R; logistics; search & rescue; etc.
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China Can Learn From Iceland
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Environmental protection;
High quality of life;
Transparency;
Stability;
Social harmony;
Green development (hydro; geothermal);
Etc.
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Thank you!
Victor Z. Gao, Esq.
[email protected]
(86) 1390 136 1250
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