中國竹簾 The bamboo Curtain

Key Indicators

Quarterly GDP Growth Source: Asian Development Bank

Contributions to Growth (Supply) Source: Asian Development Bank

Retail Sales Source: Asian Development Bank

Trade Indicators Source: Asian Development Bank

Renminbi vs USD Flexible exchange rate since 2005 up to 2008 with a total valuation of 20% Flexible exchange rate since 2005 up to 2008 with a total valuation of 20% One USD buys 6.8 Renminbis One USD buys 6.8 Renminbis PBC pegged the Renminbi to a basket of currencies used by major trade partners PBC pegged the Renminbi to a basket of currencies used by major trade partners

Bank Lending Source: Asian Development Bank

Inflation

Property Prices Source: Asian Development Bank

Fiscal Indicators Source: Asian Development Bank

GDP Growth Source: Asian Development Bank

China in legal activity sectors 3 legal activity sectors –State –Private –Agriculture

High GDP growth rate High GDP growth rate Investment in infrastructures and heavy industry Investment in infrastructures and heavy industry Central planning mechanisms reinforcement Central planning mechanisms reinforcement Chinese economy is modeled according to the Soviet model Chinese economy is modeled according to the Soviet model

Great Leap Forward Industrialization of the Chinese economy and agriculture collectivization Industrialization of the Chinese economy and agriculture collectivization 98% of the population lived in Agriculture Communes 98% of the population lived in Agriculture Communes Backyard furnace were built to increase steel production Backyard furnace were built to increase steel production

Great Leap Forward Fields were abandoned Fields were abandoned Bad agricultural years due to natural causes such as flooding or drought Bad agricultural years due to natural causes such as flooding or drought Between 14 and 43 million people starved to death Between 14 and 43 million people starved to death Substandard steel production Substandard steel production

Great Leap Forward «This economic disaster was 30% due to natural causes and 70% due to human error» «This economic disaster was 30% due to natural causes and 70% due to human error» –Liu Shaoqi, PRC President

Looking for a new economic model Beijing breaks relations with Soviet Union and tries to develop its own economic model Beijing breaks relations with Soviet Union and tries to develop its own economic model Peasants are allowed to farm 5% of the land for their own use as an incentive to increase productivity Peasants are allowed to farm 5% of the land for their own use as an incentive to increase productivity

Looking for a new economic model In 1964, Zhou Enlai creates the four modernizations concept In 1964, Zhou Enlai creates the four modernizations concept –industry –defense –agriculture –Science and technology

Cultural Revolution Results from a conflict between different groups within the CCP Results from a conflict between different groups within the CCP The social and political upheaval causes a steep decrease in the agricultural and industrial production The social and political upheaval causes a steep decrease in the agricultural and industrial production

Cultural Revolution The Cultural Revolution eliminates incentives to responsibility and economic performance by calling for ideological zeal rather then the development of knowledge and competence The Cultural Revolution eliminates incentives to responsibility and economic performance by calling for ideological zeal rather then the development of knowledge and competence Mobilization of masses against hierarchical structures causes social and economic chaos Mobilization of masses against hierarchical structures causes social and economic chaos

Reform and Opening Deng Xiaoping is politically rehabilitated by Hua Gufeng, who was appointed by Mao Zedong to put an end to the Cultural Revolution Deng Xiaoping is politically rehabilitated by Hua Gufeng, who was appointed by Mao Zedong to put an end to the Cultural Revolution

Reform and Opening 3 visions for the future of China 3 visions for the future of China –Hua Guofeng – Return to the Pre-Cultural Revolution economic system –Chen Yun – Return to the Soviet Style Central Planning system –Deng Xiaoping – kick off reforms to correct structural problems

China in 1978

The economic development lags behind its Asian neighbours The economic development lags behind its Asian neighbours Stagnant capital and labour productivity Stagnant capital and labour productivity Per capita output and consumption remained unchanged Per capita output and consumption remained unchanged Enormous technological gap between China and the most developed nations Enormous technological gap between China and the most developed nations State and collective property were ineffective in creating wealth State and collective property were ineffective in creating wealth Excessive concentration of authority Excessive concentration of authority

China in 1978 Companies lacked leadership Companies lacked leadership Price structure was totally controlled by the Central Government Price structure was totally controlled by the Central Government People’s Bank of China dominates the financial sector which was basically used to finance state intervention in the economy through the plan People’s Bank of China dominates the financial sector which was basically used to finance state intervention in the economy through the plan No legal framework for the economic activity No legal framework for the economic activity

Mao Zedong failed

Unable to raise per capita income Unable to raise per capita income Unable to raise the capital stock, know how or capital inflow Unable to raise the capital stock, know how or capital inflow Lack of motivation for workers, peasants and leaders Lack of motivation for workers, peasants and leaders Ineffective asset allocation Ineffective asset allocation Unable to satisfy the internal demand Unable to satisfy the internal demand Unable to produce essential goods and services Unable to produce essential goods and services

New Model The CCP recognized that living conditions had to be improved by offering a greater number of goods and services The CCP recognized that living conditions had to be improved by offering a greater number of goods and services

Reform and opening policy Technology transfer from abroad using economic cooperation Technology transfer from abroad using economic cooperation Creation of a legal framework for external trade and foreign investment Creation of a legal framework for external trade and foreign investment Changes in property rights through decollectivization, decentralization and easier access to the production assets Changes in property rights through decollectivization, decentralization and easier access to the production assets Move from a system in which the economy was administratively regulated to a system in which is regulated by market forces under State guidance Move from a system in which the economy was administratively regulated to a system in which is regulated by market forces under State guidance Increase in the management capacity in companies and by giving new responsibilities to managers Increase in the management capacity in companies and by giving new responsibilities to managers

Four Modernizations «It does not matter what colour is the cat, so long as it catches the mouse » «It does not matter what colour is the cat, so long as it catches the mouse » «To be rich is glorious » «To be rich is glorious » –Deng Xiaoping, Secretário-Geral do PCC

Four Modernizations Long term plan to develop four key sector in the Chinese economy Long term plan to develop four key sector in the Chinese economy –Industry –Agriculture –Science and technology –Defense

Tiannanmen is marked by the violent suppression of the students movement in Tiananmen Square 1989 is marked by the violent suppression of the students movement in Tiananmen Square Zhao Zyiang, in power at the time, was replaced by Li Peng Zhao Zyiang, in power at the time, was replaced by Li Peng A technocrat trained by the Soviet Union replaces a reformist close to Deng Xiaoping A technocrat trained by the Soviet Union replaces a reformist close to Deng Xiaoping

Tiannanmen Economic Effects Creation of a new economic management system defined as Socialist Planned Market Economy Creation of a new economic management system defined as Socialist Planned Market Economy –The plan was responsible for macroeconomic regulation while the market defined asset allocation –The plan had a medium and long term orientation and was under the management of the National Development and Reform Commission

Reforms Between 1991 and 1995 Between 1991 and 1995 –State owned companies –Company property –Pricing system –Social Security –External trade –Agriculture –Macroeconomic management tools

Reforms In 1998, Zhu Rongji replaces Li Peng and increases the reform’s pace In 1998, Zhu Rongji replaces Li Peng and increases the reform’s pace The objective was to globally increase the Chinese economic competitiveness The objective was to globally increase the Chinese economic competitiveness

Reforms By 1998, China had achieved the capacity to control inflation and economic overheating without jeopardizing the development pace By 1998, China had achieved the capacity to control inflation and economic overheating without jeopardizing the development pace Macroeconomic management was now made without directly interfering in production decisions, pricing system or asset allocation Macroeconomic management was now made without directly interfering in production decisions, pricing system or asset allocation

WTO China joined WTO in December 11, 2001 China joined WTO in December 11, 2001 Negotiations took over 15 years Negotiations took over 15 years Joining WTO means China full entry into the world trade and the global economy Joining WTO means China full entry into the world trade and the global economy

WTO Beijing commitments Beijing commitments –Tariff reduction and full elimination within a pre-defined time frame –Reduce barriers to agricultural products imports –Promote transparency in foreign trade –Liberalization of retail and domestic distribution networks –End all non-tarif restrictions to free trade –Eliminate state monopolies in the agriculture and industrial sector –State owned companies forced to operate within the market rules –Eliminate export subsidies

Five Year Plan 2006/2010 The 11 th Five Year Plan was aproved in march 2006 by the NPC Plenum and is managed by the new leadership of Presidente Hu Jintao and Premier Wen Jiabao The 11 th Five Year Plan was aproved in march 2006 by the NPC Plenum and is managed by the new leadership of Presidente Hu Jintao and Premier Wen Jiabao

Five Year Plan 2006/2010 Key Points Key Points –Adoption of a «scientific approach to development» seeking to build an «harmonious socialist society» –Priority given to improve the living conditions of the population and environment protection –Investiment in the improvement of the rural areas –Increase the competitiveness of the industrial sector –Development of the service industry –Average yearly GDP growth of 7,5%

Challenges ahead Demography Demography Inflation Inflation Environment Environment Intelectual property protection Intelectual property protection Corruption and transparency Corruption and transparency Integration in the world economy Integration in the world economy

中國竹簾 The bamboo Curtain João Francisco Pinto