Transcript Lec7 Strategies for Future Growth

PubPol 751-001, Lecture 7
The Chinese Economy and
Economic Policy
Shanghai Pudong 2010
Lecture 7 Can China Maintain its
Trend of Growth?
7.1 Macroeconomic Trend and
Fundamentals for Growth
7.2 Challenges and Constraints
7.3 Strategies for Future
7.1 Macroeconomic Trend and
Fundamentals for Growth
Main features of China’s macroeconomy
Growth trend slowed down, soft landing
achieved, growth rate turning to moderate.
The fundamentals for economic growth are
still healthy.
Some constraints for faster growth are not
easy to break, uncertainty increased.
3
The performance of main macro indictors
Indicators in good status
o Growth soft landing achieved
o Inflation under control
o Unemployment under control
o Manufacturing sector is stable
o Grain production is steady
4
Indictors not in good status
o Growth relies too much on investment
o Income distribution gap gets wider
o Profit margin of firms are narrowing
o Potential of export driving is exhausting
5
China’s GDP Growth Composition
Consum Pulling
ption
GDP, %
Investment
Pulling
GDP, %
Net
export
Pulling
GDP, %
1978
39.4
4.6
66.0
7.7
-5.4
-0.6
1980
71.8
5.6
26.4
2.1
1.8
0.1
1985
85.5
11.5
80.9
10.9
-66.4
-8.9
1990
47.8
1.8
1.8
0.1
50.4
1.9
1995
44.7
4.9
55.0
6.0
0.3
2000
65.1
5.5
22.4
1.9
12.5
1.0
2005
37.9
4.3
39.0
4.4
23.1
2.6
2010
43.1
4.5
52.9
5.5
4.0
0.4
2011
56.5
5.3
47.7
4.4
-4.2
-0.4
2012
55.1
4.2
47.0
3.6
-2.1
-0.1
2013
50.0
3.9
54.4
4.2
-4.4
-0.3
6
China and US Consumption as % of GDP
U.S.
China
2011年1月17日
2009年10月20日
7
The pros and cons for future growth
Advantages
o Overall, China has accumulated moderately
amount of capital, technology and
management skill.
o There is a substantial improvement in
infrastructure construction.
o Manufacturing competitiveness still strong.
o The fundamentals for future growth is
healthy.
8
Disadvantages
o Weak external demands due to the slow
recovery of developed economies.
o US changed global strategy and island
disputes with Japan.
o Tightening social tension due to the
widening income gap.
o Environment pressure and supply
constraints of natural resources.
o Pressure of government function
improvement.
9
The fundamentals for growth in Chinese
economy
Labor：primary industry still hires about 31%
of labor force, and labor cost in manufacture
in 2013 was only US$3.8 per hour.
Capital: high savings rate in Chinese
economy guarantees capital supply not
heavily relying on FDIs.
Developing economy: strong demand for
durable goods.
Scale economy in manufacturing and cheap
research cost.
10
7.2 Challenges and Constraints
Challenges from outside
Stagnant external demand from EU, US and
Japan.
High cost and limited supply of energy.
Tension relationship by land and sea islands
disputes.
11
Challenges from inside of China
Widening of income distribution gap.
Political and government reform to
accommodate the economic development.
Environment deterioration and
overconsumption of resources.
Corruptions of government officials.
High local government debts.
12
Constraints or Shortcomings in the
current China’s market economy:
Incomplete regulations and ineffective
implementation of the regulations.
Incomplete legal system and ineffective
implementation of the legal system.
Positive or negative local governments
behaviors.
“Guanxi” is a still a popular way in doing
business.
Corruption in bureaucratic systems.
Price distortion in production factors
caused by the current economic
institutions lowed the economic
efficiency
Cheap labor due to the lack of social security.
Cheap land due to the land ownership system
and land acquisition law.
Highly discriminated capital price for SOEs
and for private firms due to the government
monopolized financial system.
14
Depressed factor prices lowed production cost
and resulted significant trade surplus.
15
High national savings means less consumption
and less factor payment.
16
Composition of National Savings in PRC,
1992–2007, (% of GDP)
17
Mal-function of local government policy
resulted in social moral deterioration
After the announcement of
new restrictions on
property transaction in
early 2013, people queue to
divorce.
18
Mal-regulated market caused a lot of
market disorder and inefficiency.
Food safety
Fake products
Minic products
Over-competition
Over-advertising
Misleading advertising
Food safety is a problem
rooted in political
system, not simply a
regulation matter.
19
Minic product is a result of non-mature trade
mark regulation.
20
21
Distortions by Cultural Reason
Over-education
Over speculation
Over luxurying
Over packing.
A school in Hunan, students are preparing for exam
22
Fake product, fraud documents are problems of
non-effective legal system.
Fraud document is not
only a social moral
deterioration problem, but
also a problem caused by
the rent seeking behavior
of the troublesome
bureaucratic system.
23
The poison milk: Who’s fault?
The 2008 Chinese milk scandal was a food
safety incident in the People's Republic of
China involving milk and infant formula,
and other food materials and components,
adulterated with melamine.
By November 2008 China reported an
estimated 300,000 victims, six infants
dying from kidney stones and other kidney
damage, and a further 860 babies
hospitalized.
The paper tiger:
Can we get the
truth?
Is that a real tiger in the bushes?
It took two years to
answer such a
question.
2007-10-12 China news agency
reported farmer Zhou
Zhenglong found the extinct
Huanan tiger.
Twenty thousand yuan bonus.
China Focus: China’s “Naked Officials” Move
Their Wealth Overseas, NTDTV, June 6, 2012
 It appears that large numbers of Chinese government and
Party officials are preparing to leave China by moving their
families and wealth overseas first. This phenomenon of
officials—who live in China but have prepared to move
elsewhere—is so common that there is even a name for them
in Chinese: "naked officials" (裸官).
 Roughly 90 percent of Politburo Central Committee members
and Central Discipline Inspection Commission members have
family working or living overseas, according to Hong Kong's
Trend Magazine.
 Many Party and government officials have already fled, often
with ill-gotten gains. According to the Chinese Academy of
Social Sciences, between 1995 and 2008 as many as
18,000 Chinese government and Party officials fled
China—transferring stolen assets worth $130 billion.
 Why is this phenomenon so widespread? And what are
ordinary Chinese saying about it?
7.3 Strategies for Future
Ten years goal
Double of per capita income.
Across the middle income level.
Realize social equity in income increase.
Strategy
Maintain moderate growth, adjust
economic structure, change growth model.
27
Main measures
Promotion of domestic demand：Balancing
the internal and external demand.
Upgrade industrial structure：Balancing the
high and low tech industrial structure,
reducing energy and resources
consumption.
Expanding relations with new partners:
Russia, India, Latin American countries,
African countries and East European
countries.
Speed up urbanization.
28
Detailed Policy
To maintain moderate growth trend:
o Slightly loose financial supply given the
balance of inflation and unemployment.
o Release more institutional reform potential
for growth: financial reform, household
registration reform and government function
reform.
o Promote urbanization development.
o Keep appropriate investment in infrastructure
o Narrow down the income gap to promote
domestic demand.
29
To adjust the industrial structure：
o Promotion domestic demand：improve self
growth ability, realize the balance of internal
and external demand.
o Upgrading industrial structure：Promotion
of seven main strategic new industries, to
realize balance of high and low industry
composition and to realize the energy and
resources saving economy.
o Opening up of the western areas：to realize
the balance development of regions.
30
To change the growth model：
o To improve the growth quality: pay
less attention to the pure growth rate.
o Energy saving economy: green
industry, new materials.
o Resource saving economy.
o Better quality of products.
31
Prospects
Fundamentals for growth are good and potentials
for growth are still large.
Moderate growth for coming 10-15 years is
possible.
High risks exists in how to control the growing
local government debts and not to evolve into
financial crisis.
Risk also exists in whether the anti-corruption
movement realizes the goal in improving the
public administration efficiency.
Overall conclusion is that it is highly possible that
China can achieve the goal of steady moderate
growth for coming 10-15 years!
32
End