China’s Economic Miracle Under A Macro Economic View
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GM 545 - BUSINESS ECONOMIC Instructor: Jeannice Samani Student: Khanh Chau August 2008 CHINA’S MIRACLE WITH MACROECONOMIC MANAGEMENT
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This is my MBA Business Economic project addressing China’s robust economic growth from a top-10 global economy to the top 3-global economy in 10 years in-row.
Transcript of China’s Economic Miracle Under A Macro Economic View
GM 545 - BUSINESS ECONOMIC
Instructor: Jeannice Samani
Student: Khanh Chau
August 2008
CHINA’S MIRACLE WITH MACROECONOMIC MANAGEMENT
Agenda
China’s miracle
Develop the economy
Cool down the economy
Backside
New direction
Future prospect
China’s miracle
• World largest population of 1.3 billions.
• Climbed up the world’s ladder of largest economy at an astonishing speed.
• 5th world’s largest economy in 2005; 3rd world’s largest economy in 2007 with $3,429 trillion GDP.
• Predicted to assume the world top position in 2020.
• Annual GDP growth at 10% during the last decade.
• Within the reach to double real GDP per capital in 9 years.
Develop the economy - Kick off GDP
GDP = Co + Ig + Xn + G
Kick off GDP: increase manufacturing (Ig), exports (Xn), boost consumption (Co).
Remedies: monetary policy with interest rate and tax incentive(Co).
Low interest rate to increase the investment spending (Ig)
Tax incentive to increase consumption (Co), accelerate manufacturing(Ig).
Fixed exchange rate to depreciate the yuan currency, stimulating export(Xn)
VAT rebate for export goods (Xn)
Develop the economy - Kick off GDP
Facilitate foreign investment along with tax incentive for export and manufacturing.
To kick off export, and accelerate GDP growth, Government maintains a fixed exchange rate policy, that has depreciated China currency on the global market, giving competitive advantages to China export activities.
Export is China’s main force driver to growth.
Industry outlook, % GDP 2006
China's Industry outlook, % GDP 2006
Se r v i c e s
3 9 %
A g r i c u l t u r e ,
f o r e s t r y , &
f i s h i n g
1 2 %
Indust r y
4 3 %
C o n s t r u c t i o n
6 %
Develop the economy -China Import partners, % 2004
China's import partners, % 2004
Others
39%
Japan
17%
EU
12%
ASEAN
11%South Korea
11%
U.S
8%
Russia
2%
Develop the economy- China export partners, % 2004
China's Export partners, % 2004
J a pa n
15 %
EU
2 3 %
AS EAN
9 %
S out h Kor e a
6 %
US
2 6 %
Hong Kong
2 1%
Ot he r s
2 0 %
Develop the economy - China exchange rate
China exhange rate against US$
7.8
7.9
8
8.1
8.2
8.3
2004 2005 2006
Year
Yuan versue US$
Yuan per US$
Develop the economy - China exchange rate
China exchange rate policy has severe impacts to global economy.
IMF has addressed to China to ease and float exchange rates for many years date back.
China has implemented a “ managed floating”
exchange rate since July 2005.
China’s “crawling peg” exchange rate is
identified.
Government intervenes the exchange rate with fluctuation allowance of +/-0.5% in a day.
Develop the economy - China trade surplus
China's perpectual trade surplus, 1998-2005
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
Trad
e v
olu
me
Total exports (US$ million)
Total imports (US$ million)
China trade surplus
1998 1999 2000 2001 2002 2003 2004 2005
Develop the economy - China GDP growth 1952-2005
Develop the economy - GDP growth 2002-2005
Develop the economy - Arithmetic growth
Government plan to double GDP per capital from 2000 to 2010 with a target annual growth of 8%.
Outpaced GDP growth at an average 10% in the last 10 years.
China, now, is able to achieve its goal to double GDP per capital faster than initial plan.
It only requires less than 8.75 years to achieve its arithmetic growth :
70/8 = 8.75 years
Develop the economy - China’s global position
GDP grew average 10% during the last 10 years and at 11.4% in 2007, the fastest pace in 13 years of economic reforms.
China now ranks as the world’s 3rd largest
economy (2007).
World’s 3rd largest trader , contributing 13% of global merchandise trade.
China’s competitive position on the global
market has remarkably improved.
Cool down the economy - China CPI 2007/08
Cool down the economy - China inflation
China's inflation, 2004 to 2008
0
2
4
6
8
10
Year
I nf l a t i on ( %)
Inf lat ion
2 0 0 4 2 0 0 52 0 0 6 2 0 0 7 2 0 0 8
Cool down the economy -China inflation
China’s inflation is typically a demand pull
inflation.
Remedies to cool down the overheating economy and reduce the inflation:
Increased interest rates 6 times in 2006.
No more tax incentive in manufacturing and export sectors .
Apply the unification of enterprise tax.
Cool down the economy- Interest rate & investment
Interest rate and investment relationship is out of economic rule.
Investment continues to rise despite 6 times increasing interest rate in 2006. GDP in 2007 is the world fastest pace in such so high growing scenario.
Economists expect further foreseen interest rate to raise.
Backside - Miracle with a price !!
Environment is deteriorated and natural resource is depleted severely, that potentially harm to the country’s economy stability.
China overtook the United States as the leading emitter of carbon dioxide about a year ago.
Its emissions are now increasing about 10 times faster than in the United States.
China now is number 1 contributor of green house emission.
Backside- Miracle with a price
Widening gap of income disparity is dramatically evident.
300 mio or 23% population still lives under poverty with less than $1/day. And more than 30% of population live under $2/day.
Credit problem and liquidity remains country’s burden to resolve.
Backside –
Rich and Poor!!
China new direction
Change the economy direction to develop its own domestic economy (no more focus on export market).
Target to grow service industry from 39% in 2007 up to 50% in 2020 ( no more focus in manufacturing).
Promote “knowledge economy” and “higher value-added goods manufacturing”.
Encourage China’s indigenous innovation to reduce china’s dependence on foreign technology from 60% to 30%.
China new direction
Redress the important social and economic imbalances.
Shorten income disparity gap.
Thrive for a “ harmonious society” with
increasing government spending on socials services: education, healthcare, human capital, pension, welfare enhancement.
Future prospect
China's outstanding economic achievement is deserved of global admiration.
Weakening global economy puts a helpful break to slow down China economy.
Thus bring the growth rate in line of 8% target, help to release inflationary pressure, and adjust social economic imbalances.
China continues to be the major recipient of foreign direct investment.
China remains its potentiality to sustain rapid growth in the foreseeable future.
Future prospect
Will economists’ prediction of China to assume the world’s top position
in 2020 come true?
Thank you
