AQA BUSS4 Section A Briefing - China June 2014 Some Key Features of China’s Economy AQA BUSS4 Research Theme 2014 www.tutor2u.net

Two centuries ago, China was by some distance the world’s largest economy!

China’s global economic influence and power has returned and is unmistakeable!

China remains a Communist state dominated by the Chinese Communist Party but it is also an increasingly open economy where trade accounts for over 70% of GDP

China has achieved a consistently high rate of economic growth in recent decades

In 2010 China overtook Japan to become the 2nd largest economy and sustained the global economy during the financial crisis BRICS: China’s economy is now bigger than Brazil, Russia and India combined!

China has added the equivalent of an economy the size of Portugal every years since 1979

In 2011 China overtook he US to become the world’s producer of manufactured goods

Made in China – the Factory of the World – but for how much longer?

Much of China’s economic growth has been driven by massive investment in infrastructure

For example, China plans to build 56 new airports & relocate/expand 91 others by 2015

China is investing over $300bn in building high speed rail to connect all of its major cities

As a result of rapid economic growth, significant progress has been made in reducing poverty in China

Levels of extreme poverty have fallen dramatically in China in the last 30 years

However, economic growth is now slowing down: a lower target rate of growth of 7% has been set

Since 1978 China has experienced the largest migration in human history

Between 2001 and 2010 migration contributed nearly 20% of China's economic growth

China's intense programme of urbanisation has pushed up consumption and increased income per person

However mass internal migration has created significant social problems

Approximately 1 in 10 people in the world now live in a Chinese city Cities with more than a million people in 2011 USA (9) European Union (18) China (93) New York: 8.2 Los Angeles: 2.8 Chicago: 2.7 Houston: 2.1 Philadelphia: 1.5 Phoenix: 1.4 San Antonio: 1.3 San Diego: 1.3 Dallas: 1.2 London: 7.8 Berlin: 3.5 Madrid: 3.3 Rome: 2.5 Paris: 2.2 Hamburg: 1.8 Budapest: 1.7 Vienna: 1.7 Warsaw: 1.7 Bucharest: 1.7 Barcelona: 1.6 Munich: 1.3 Milan: 1.3 Prague: 1.2 Sofia: 1.2 Brussels: 1.0 Birmingham: 1.0 Cologne: 1.0 Shanghai: 19.5 Beijing: 15.0 Guangzhou: 10.4 Shenzhen: 10.2 Chongqing: 9.7 Wuhan: 8.9 Tianjin: 8.5 Dongguan: 7.1 Chengdu: 6.3 Foshan: 6.2 Nanjing: 5.6 Haerbin: 5.4 Shenyang: 5.4 Hangzhou: 5.1 Xi’an: 4.8 Shantou: 4.0 Zhengzhou: 3.7 Qingdao: 3.6

China’s economic growth provides the tantalising prospect of demand from 1 billion consumers

The growth of the consumer “middle class” in China is driving phenomenal purchasing power

…although it depends on how you define “middle class”

In many market sectors, China is now an emerged rather than emerging market

China has invested an average of 8 China has invested an average of 8.5% of GDP in infrastructure investment in the last two decades

…and it plans to continue massive investment in key infrastructure projects

China is now looking to rebalance its economy away from investment and towards consumption

Despite rapid economic growth, price inflation has remained quite low in recent years

However, as the Chinese economy matures, wages have started to rise significantly

Minimum wages in China are growing fast Source: KPMG 2013

Chinese labour force is forecast to decline after 2015

The shift in China to a higher-wage economy will put pressure on existing business models there

As China grows old, dependency ratios will rise; an aging workforce will be less mobile & probably demand higher wages

China’s rapid growth has helped it develop massive reserves of foreign currency

China’s persistent current account surplus has filled the reserves!

China now has over $3.6 trillion of foreign exchange (forex) reserves

China’s reserves have grown tenfold in the past decade due to a large trade surplus and strong capital inflows

China is investing its reserves in assets outside China through sovereign wealth funds

China also uses massive foreign exchange purchases to hold down the value of its currency

A weaker Chinese currency (Yuan) helps keep Chinese exports cheap in overseas markets

China continues to attract high levels of FDI (foreign direct investment)