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China Economy

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Liza Barlow

on 21 January 2015

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Transcript of China Economy

China's Booming Economy
Information on the Chinese Economy
Role of Government in Business
President Xi's Reform
Billionaires and the Regular Citizen
Challenges
Future for the Economy
Limited Transportation
Traffic
"During the rush hours, about 20 percent of roads and intersections are in total gridlock and the traffic speed is less than 5 km/hour"-Zhong-Ren Peng
Poor road infrastructure
Narrow, overcrowded streets
Construction materials and devices needed to improve the cities will be negatively effected by the poor working conditions
City:
Rural areas
Dirt streets
Narrow, dangerous passages
Inefficient Urban Sprawl
Amount of urban construction land
Jack Ma and the Alibaba IPO
What is Alibaba?
Jack Ma
Worlds largest online commerce company

$248 billion
in transactions last year

80%
of China's online market
Central Government Supporting Strategic Industries
“Of
42 mainland Chinese companies
in the Fortune500 list of the world's biggest firms in 2010,
all but three
were owned by the government.”

- Government chooses most lucrative businesses to support, including
petroleum, coal, and information technology.

Reserved sections for urbanization increased by
58%
Real Estate and the Average Chinese Person
in the past decade.
Farmers given proper compensation.
NOT
“China would need to find

- about the size of the Netherlands - to accommodate urban growth in the next decade.”
34,000 square kilometers

Rising Inequality
Financial inequality sparks between the city workers and countryside farmers.
Real estate dominates
20-30%
of the Chinese Economy
12 to 24
new cities annually
The government has spent
$2 trillion
and counting
Most people in China live on
less than $2.00
a day, these apartments cost upwards of
$50,000 to $60,000
U.S.
Resource Allocation
tension
Market will have a more prominent role in allocating resources
Government will have a "basic" role
Macroeconomic management
Market regulation
Public service delivery
Management of social stability
Environmental protection
Top
10%
"Economy will maintain strong, sustainable, and balanced growth"
"Restructure the roles of the government and the market"
of chinese households own
85%
of the country's total assets and
57%
of the nation's total income
Collision of location-based classes may provoke
social disruption
Government tightening and loosening on allowed loans
JK
JK
JK
JK
General Economy Info
World's second largest economy by nominal GDP
World's largest economy by purchasing power parity
World's fastest-growing major economy
What's Next For China's Economy?
Economists say it is just a matter of time until China’s GDP becomes the world’s largest.
International economists in China warn that government’s GDP statistics are accurate only as indication of direction
Projections for China's Economy
Chinese President Xi Jinping said China's economy will maintain strong, sustainable and balanced growth
vs
"Ghost city"
Environmental Damages
density of people
Expansion of cities leads to
expansion of pollution
$300 billion

spent of illnesses caused by pollution
per year
commutes and energy consumption
4 issues ranked from most to least challenging
1. Inefficient urban sprawl
4 issues
Limited transportation

Inefficient urban sprawl

Rising inequality

Environmental impacts
2. Environmental impacts
3. Rising inequality
4. Limited transportation
Boom
Bust
JK: Too many challenges to overcome. Too much money needed for urbanization with too many risks.
"China is growing too slowly and accumulating debt too fast. Its leaders have rejected fundamental reform." -Gordan G Cheng
- Market access rules that favor state-run firms
- Support profitable companies
In 2010,
75
of the confederation's list of the
100
biggest publicly traded Chinese firms were
controlled by the government.
Special Economic Zones
-
Early 1980's
, under
Deng Xiaoping
, China founded special economic zones
- Regions with economic and other laws, which are more free-market oriented (nationwide ones suspended)
- EX:

Free Trade, Free Ports, Urban Enterprise, Export Processing Zones..
.
Substantially boost
economic efficiency
Sources
JK:
http://www.worldbank.org/en/news/feature/2014/03/25/reforms-in-land-use-and-local-finances-will-help-make-chinas-urbanization-more-efficient
http://insights.som.yale.edu/insights/what-should-we-understand-about-urbanization-china
http://www.iol.co.za/business/news/china-debt-could-bust-world-economy-1.1751928#.VLbctxZHE20
http://www.lincolninst.edu/pubs/1302_Urbanization-in-China
http://nationalinterest.org/feature/the-doomed-dragon-chinas-economy-headed-crash-landing-11619
Allows government to focus on strengthening specific roles
"Economy where the government plays a
regulatory
, rather than a
directly interventionist
role."
State-Owned Enterprises
Increase dividend payout to 30%
Encourage
private participation
in state-owned firms
SASAC will manage state
capital
instead of state
assets
Create
competition
instead of privatizing
Give private enterprises more access to capital, land, energy
"Over time, economic role of SOEs is eroded and overall economic efficiency improves."
Former CEO of Alibaba

Current richest person in China

Net worth of
$19.5 billion
AI
AI
AI
AI
AI
AI
AI
AI
AI
AI: Housing bubble is said to burst
anytime now as the banks aren't being
paid back the loans they sent out to
construction companies. No one is
making money in this market, only
losses.
AI
http://www.forbes.com/sites/ryanmac/2014/09/22/alibaba-claims-title-for-largest-global-ipo-ever-with-extra-share-sales/
http://projects.wsj.com/alibaba/
http://www.forbes.com/china-billionaires/list/#tab:overall
http://www.cbsnews.com/news/china-real-estate-bubble-lesley-stahl-60-minutes/
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/05/15/is-chinas-housing-bubble-popping/
Optimism Towards Xi's Reform
Doubts About Xi's Reform
Opposition
by beneficiaries of the old system
Unrealistic expectations as a result of his
reluctance to give up government control
He has a vision, but
lacks a real plan
"...few details on the sequencing and time table for reforms."
Lack of urgency
Established himself
as a leader to be taken seriously
Anti-corruption campaign
Steps taken to
address past issues
with reform
New "leading small group" and State Security Commission
Bold reform plans
"This is by far the most ambitious, comprehensive reform plan that I've ever seen,"
Diluting Government Control
"...economic reform is a necessary tool to ensure the longevity of the present political system."
"...proclaiming sweeping goals, without providing any road map at all for getting there."
GP
http://people.hofstra.edu/geotrans/eng/ch5en conc5en/China_SEZ.html
http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Special_Economic_Zone.html
http://www.economist.com/node/21528264
http://www.nytimes.com/2013/05/25/business/global/beijing-signals-a-shift-on-economic-policy.html?pagewanted=all&_r=0
http://phx.corporate-ir.net/phoenix.zhtml?c=87772&p=irol-newsArticle&ID=1335469
http://www.nytimes.com/1989/11/19/books/spinning-their-wheels-in-china.html
http://www.mckinsey.com/insights/corporate_finance/past_lessons_for_chinas_new_joint_ventures
Three Main Roles
- State Supporting Strategic Industries



- State-controlled Special Economic Zones



- Government Role in Creating Joint Ventures
- Aim= attract foreign investment/technology (joint ventures)
- SEZ's part of export-oriented strategy
- Incentives for foreign investors:
labor, land use, tax incentives
Creating Joint Ventures
- Partnership between foreign and chinese investors
- Advantages:
local work force/ facilities, good relationships, entry to industrial sectors
- Disadvantages:
conflicting interests, cost, division of profits, risk with intellectual property
NC: Until there are specific and realistic policies in place to work towards President Xi's ideas, there is no real reason to believe that reform will come quickly enough to save China from economic collapse.
-
Beijing Jeep
joint venture failure
- Jeep could set up offices in Beijing, but after a few years, Chinese take over
- Safeguard intellectual property
-
Different priorities and goals
- Additional Problems:
CH consumers couldn't afford, culture clash in work site
- Negotiations over exit conditions
Largest exporter of goods in the world.
Starting in 2011, China became the world’s No. 1 trader, surpassing the U.S., and the world’s No. 2 economy, topping Japan.
NC:
http://www.brookings.edu/research/opinions/2013/11/17-xi-jinping-economic-agenda-kroeber
http://www.hoover.org/sites/default/files/research/docs/clm43am.pdf
http://knowledge.wharton.upenn.edu/article/road-chinese-dream-xi-jinpings-third-plenum-reform-plan/
http://www.businessweek.com/articles/2013-11-18/the-trouble-with-chinas-reform-plan#p4
http://www.reuters.com/article/2013/11/15/us-china-reform-idUSBRE9AE0BL20131115
Transitioning from an investment-driven to a
consumer-driven
economy
Reducing monopoly power
of SOEs
Lending through non-state banks
Private sector taking the lead in
economic development
A comprehensive reform plan was introduced to put China’s public finances on a more stable footing.
For 2015–16 average growth is expected to ease to slightly above 7 percent
GP: Not necessarily boom, but slowed down growth doesn't mean bust. 2nd largest economy would need catastrophic event to bust, largest exporter maintains external stability. "China will be lucky to grow over 7%. Despite that, China will continue to be the world’s fastest growing major economy this year and next, and arguably into 2016 as well, says Bill Adams, senior international economist for PNC Financial in Pittsburgh."

LB: China has a rocky road ahead of them because of the many issues that they need to take care of, but in the long run their growth outlook is solid.
Without policy action, the slowdown in China’s potential growth in the medium term could be more severe.
Growth is now decelerating toward 7%
(with his reforms)
International Economists say direction of the Chinese economy is plainly downward.

LB:
http://www.worldbank.org/en/country/china/publication/china-economic-update-october-2014
http://www.reuters.com/article/2014/11/15/us-china-economy-idUSKCN0IZ0LR20141115
http://www.wsj.com/articles/the-end-of-chinas-economic-miracle-1416592910
http://www.forbes.com/sites/billconerly/2014/03/10/china-economic-forecast-2014-2015-rocky-growth/2/
http://en.wikipedia.org/wiki/Economy_of_China
LB
Full transcript