The development of the Chinese economy and China

1
The development of the Chinese economy and
Chinas role in the global economy
2
(No Transcript)
3
(No Transcript)
4
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.

5
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.

6
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.

7
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.

8
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.

9
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.

10
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.

11
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.

12
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.

13
Structure of the Chinese economy, by employment
and by GDP.
14
(No Transcript)
15
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.

16
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.

17
China toward a market economy

• It was Deng Xiaoping who gave a new push to
  Chinas transition to the market when he made a
  well publicized trip to Southern China. In
  1993-1994 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.

18
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.
  

19
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.

20
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. l
21

• Company structure
• In 2001 there were 8.600 large companies. They
  included
• 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

22
Chinese commercial policy

• Protection of the domestic market. Up to the mid
  1990s,the Chinese market was heavily protected by
  tariffs. More recently there has been 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.

23
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.

24
(No Transcript)
25
(No Transcript)
26
(No Transcript)
27
Ratio of Chinese GDP accounted for by foreign
trade (in percentage term)
28
(No Transcript)
29
(No Transcript)
30
(No Transcript)
31
Projected GDP per head at PPP (purchasing power
parity exchange).
32
(No Transcript)
33
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
  cross-country exchanges within the area,
  involving both inputs, components, semi-finished
  goods. Thailand, Singapore, Malaysia, Indonesia,
  Taiwan e South Korea are all affected.

34
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.

35
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.
• Chinas 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)

36
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) Chinas 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.

37
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.
• Indias GDP has also been downsized by about 40.

38
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 lAPEC 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.

39
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.

40
The ASEAN Association of South East Asian Nations

• 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.

41
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 Chinas role in the global economy
  by 2020?