中國竹簾 The Bamboo Curtain

Key Economic Data

GDP Growth Fonte: Banco Asi á tico de Desenvolvimento

Growth of industrial value added Fonte: Banco Asi á tico de Desenvolvimento

Investment

Consumption

Foreign Trade Fonte: Banco Asi á tico de Desenvolvimento

Exchange rates Fonte: Banco Asi á tico de Desenvolvimento

Inflation

Monetary Indicators Fonte: Banco Asi á tico de Desenvolvimento

Monetary Indicators Fonte: Banco Asi á tico de Desenvolvimento

Consumer Confidence Fonte: Banco Asi á tico de Desenvolvimento

GDP Growth Fonte: Banco Asi á tico de Desenvolvimento

Inflation

Monetary Policy Fonte: Banco Asi á tico de Desenvolvimento

GDP Growth Fonte: Banco Asi á tico de Desenvolvimento

Renminbi vs USD

Stages of Chinese Development Soviet Planning (49/58) Soviet Planning (49/58) Great Leap Forward (58/64) Great Leap Forward (58/64) Cultural Revolution (64/76) Cultural Revolution (64/76) Reform and Opening Policy (78/..) Reform and Opening Policy (78/..)

China in 1949 Three sectors of activity Three sectors of activity –State sector –Private sector –Agriculture sector

GDP high growth rate GDP high growth rate Investment in infrastructures and heavy industry Investment in infrastructures and heavy industry Enforcement of the central planning instruments Enforcement of the central planning instruments Chinese economy Soviet style Chinese economy Soviet style

Great Leap Forward « Last year we produced 5,3 million tons of steel. Can you double it this year? » « Last year we produced 5,3 million tons of steel. Can you double it this year? » Mao Zedong questions the ministry of industry in July Mao Zedong questions the ministry of industry in July « I can! » the minister answered « I can! » the minister answered

Great Leap Forward Agriculture becomes collective Agriculture becomes collective Creation of the agriculture communes which encompass 98% of the population Creation of the agriculture communes which encompass 98% of the population Steel furnaces are build to increase steel production Steel furnaces are build to increase steel production Peasants abandon agriculture Peasants abandon agriculture Floods and droughts also affect agricultural output Floods and droughts also affect agricultural output Between 14 and 43 million people starve to death Between 14 and 43 million people starve to death Substandard steel production Substandard steel production

Great Leap Forward « The economic disaster was 30% due to natural phenomena and 70% due to human errors » « The economic disaster was 30% due to natural phenomena and 70% due to human errors » –Liu Shaoqi, China President

Cultural Revolution Struggle between different groups within the Communist Party Struggle between different groups within the Communist Party Social and political upheaval causes a steep decline on the agriculture and industrial production Social and political upheaval causes a steep decline on the agriculture and industrial production

Cultural Revolution The Cultural revolution removed all incentives and responsibility regarding economic performance by bringing forward ideological fervour while punishing those with knowledge and skills The Cultural revolution removed all incentives and responsibility regarding economic performance by bringing forward ideological fervour while punishing those with knowledge and skills Mass mobilization against power structured lead to total chaos Mass mobilization against power structured lead to total chaos Xenophobia denied the country access to investment opportunities and technology transfer Xenophobia denied the country access to investment opportunities and technology transfer

Opening and Reform Deng Xiaoping is politically rehabilitated by Hua Gufeng, the man chosen by Mao Zedong to lead the country and put the Cultural Revolution to an end Deng Xiaoping is politically rehabilitated by Hua Gufeng, the man chosen by Mao Zedong to lead the country and put the Cultural Revolution to an end

China in 1978

Economic backwardness when compared with neighbouring countries with huge technological gap Economic backwardness when compared with neighbouring countries with huge technological gap Stagnation of the labour and capital productivity Stagnation of the labour and capital productivity Collective and state property where totally ineffective in producing wealth Collective and state property where totally ineffective in producing wealth Excessive concentration of authority Excessive concentration of authority Collective and state property where totally ineffective in producing wealth Collective and state property where totally ineffective in producing wealth Excessive concentration of authority Excessive concentration of authority Prices controlled by the central government Prices controlled by the central government Banking sector dominated by the People ’ s Bank of China which main mandate is to finance the government plan Banking sector dominated by the People ’ s Bank of China which main mandate is to finance the government plan No legal framework for the economic activity No legal framework for the economic activity

Mao Zedong failed

Mao Zedong Failed To increase per capital income To increase per capital income To increase the capital stock, know how or to import capital To increase the capital stock, know how or to import capital To motivate workers, peasants or company managers To motivate workers, peasants or company managers To efficiently allocate resources To efficiently allocate resources To satisfy domestic demand To satisfy domestic demand To produce essential goods and services To produce essential goods and services

A New Way Based on this analysis the Communist Party recognizes the commanding need to improve the population ’ s living conditions by offering a bigger number of goods and services Based on this analysis the Communist Party recognizes the commanding need to improve the population ’ s living conditions by offering a bigger number of goods and services

Reform and Opening Policy Acquire technology overseas by expanding economic cooperation Acquire technology overseas by expanding economic cooperation Creation of a new legal framework for foreign trade and investment Creation of a new legal framework for foreign trade and investment Redefinition of property rights, decollectivization, decentralization to facilitate the access to the production factors Redefinition of property rights, decollectivization, decentralization to facilitate the access to the production factors Change from a administrative regulation system to a government orientated marked regulated system Change from a administrative regulation system to a government orientated marked regulated system Improvements on the management capability and responsibility of company managers Improvements on the management capability and responsibility of company managers

Four Modernizations « It doesn ’ t matter the cat ’ s colour as long as it gets the mouse » « It doesn ’ t matter the cat ’ s colour as long as it gets the mouse » « To be rich is glorious » « To be rich is glorious » –Deng Xiaoping, Communist Party Secretary general

Four Modernizations The initial plan focus on the following areas outlining ambitious objectives The initial plan focus on the following areas outlining ambitious objectives –Industry –Agriculture –Science e technology –Defence

Tiannanmen and the Economy In 1989 China ’ s development suffers a setback with the Tiananmen events on the night of June 4 In 1989 China ’ s development suffers a setback with the Tiananmen events on the night of June 4 Reformist prime minister Zhao Zyiang is replaced by Li Peng, a Soviet Union formed technocrat Reformist prime minister Zhao Zyiang is replaced by Li Peng, a Soviet Union formed technocrat

Tiannanmen and the Economy Establishment of a new economic management system known as Socialist Market Planed Economy Establishment of a new economic management system known as Socialist Market Planed Economy Planning is responsible for macroeconomic regulation while is up to the market to allocate resources Planning is responsible for macroeconomic regulation while is up to the market to allocate resources The plan offers a medium to long term orientation under the leadership of the State Commission for Planning, which coordinated macroeconomic forecasting The plan offers a medium to long term orientation under the leadership of the State Commission for Planning, which coordinated macroeconomic forecasting

Reforms 1979 to 1984 – efforts to reform and modernize the rural areas and the agriculture in order to avoid social upheaval among peasants 1979 to 1984 – efforts to reform and modernize the rural areas and the agriculture in order to avoid social upheaval among peasants

Reforms 1984 to 1989 – economic modernization of the urban areas with the growth of cities and the beginning of the migration from the rural to urban areas 1984 to 1989 – economic modernization of the urban areas with the growth of cities and the beginning of the migration from the rural to urban areas

Reforms In 1998, Zhu Rongji replaces Li Peng as prime minister and a new reform stage begins In 1998, Zhu Rongji replaces Li Peng as prime minister and a new reform stage begins The objective was to increase the international competitiveness of the Chinese economy The objective was to increase the international competitiveness of the Chinese economy

Reforms By 1998, China had brought under control inflation without jeopardizing a robust economic growth By 1998, China had brought under control inflation without jeopardizing a robust economic growth Macroeconomic management was now done indirectly without resorting to the government direct intervention on the production decisions, price structure or resources allocation Macroeconomic management was now done indirectly without resorting to the government direct intervention on the production decisions, price structure or resources allocation

WTO China accedes to the WTO on December 11, 2001 China accedes to the WTO on December 11, 2001 Talks went on for 15 years Talks went on for 15 years Accession to the WTO meant the full integration of China on the global market Accession to the WTO meant the full integration of China on the global market

WTO Beijing compromises to: Beijing compromises to: –Reduce tariffs and eliminate them over a pre defined period of time –Reduce barriers to agriculture products trade –Promote transparency –Liberalize domestic retail networks –Dismantle all non tariff restrictions on trade –Eliminate state monopolies on agriculture and industrial sectors –Force state owned enterprises to operate on the market rules –Eliminate export subsidies

Five Years Plan 2006/2010 The 11 th five years plan was approved by the National People ’ s Congress in March 2006 and is now being enforced under the leadership of president Hu Jintao and premier Wen Jiabao The 11 th five years plan was approved by the National People ’ s Congress in March 2006 and is now being enforced under the leadership of president Hu Jintao and premier Wen Jiabao

Five Year Plan 2006/2010 Key points of the five year plan Key points of the five year plan –Adoption of a scientific approach to development aiming at building a harmonious socialist society –Bigger attention given to the improvement of the population quality of life and environmental protection –Development of new socialist policies for the rural areas –Improvement on the competitiveness of the industry –Reinforcement of the service sector –Expected average yearly GDP growth of 7.5%.

China and the International Crisis The international financial crisis is slowing the pace of the Chinese economy via foreign trade The international financial crisis is slowing the pace of the Chinese economy via foreign trade Most likely effects are firms going bankrupt and a rise in unemployment Most likely effects are firms going bankrupt and a rise in unemployment With capital flows between China and the world still heavily controlled, Chinese banks have had relatively little direct exposure to the turbulence rocking the world economy With capital flows between China and the world still heavily controlled, Chinese banks have had relatively little direct exposure to the turbulence rocking the world economy China rode the crisis managing to change its economic development model China rode the crisis managing to change its economic development model

Challenges ahead for China Demography Demography Inflation Inflation Environment Environment Property rights protection Property rights protection Corruption and transparency Corruption and transparency Integration on the global economy Integration on the global economy

中國竹簾 The bamboo curtain João Francisco Pinto