1. Globex 2016 China’s Economy: Growth and Global Connections Prof. Susan Mays smays999@yahoo.com WeChat: susanmays

2. 2 China’s Economy (2 or 3 credits) 2. Introduction activities 3. Topic: China economic overview, continued 1. Admin 4. Speaker sessions: check w some students…

3. 3 China has had four very different economic systems in less than 100 years PRC High Socialism, <30 years – Mao pursues centrally- planned, socialist development, emphasizing industry & infrastructure for a closed, self-reliant society PRC Reform Era, >35 years – Deng ushers in an “open door” policy which allows for reform of the centrally planned economy, market growth, and foreign trade Instability, ~40 years: China’s economic growth is thwarted due to warlord disputes, the Sino-Japanese War (1937-1945), and the civil war between the Guomingdang and the CCP The Qing Dynasty: a mainly agricultural economy but one with significant trade, including foreign trade 1978-Present 1949-1978 1911-1949 1644-1911

4. 4 1980s: SEZs for trade; originally Shenzhen, Zhuhai, Shantou, & Xiamen, near HK-MC-TW; later Hainan Island & Shanghai’s Pudong

5. 5 Note the locations of Taiwan, Hong Kong, and Singapore

6. 6 Hong Kong is on the southeast coast of China, near new-ish city of Shenzhen and the province of Guangdong

7. 7 Opening in the 1980s, but mainly from 2000, China’s economy has grown rapidly & become increasingly globally integrated (1) Date sources: tradingeconomics.com; China’s General Administration of Customs; World Bank.

8. 8 In 2Q of 2010, China surpassed Japan to become the world’s 2 nd largest economy 1. US17.955.817.955.8 2. China10.98.019.514.1 India2.11.68.06.2 3. Japan4.132.54.738.1 4. Germany3.4413.846.9 5. UK2.843.841.2 6. France2.437.741.2 ~GDP ~GDP/cap ~GDP ~GDP/cap ($b) ($000) (PPP, $000) (PPP, $000) Notice that China’s ~GDP/capita is relatively low)

9. 9 China’s GDP growth has surpassed forecasts… BRIC, GDP Forecast, shown in US$ trillion 1 (1) Goldman Sachs’ Global Paper No. 99, October of 2003.

10. 10 Today let’s review “three moves” 2.Moving “up the value chain” 3.Moving into a mixed economy 1. Moving to the cities

11. 11 Lack hukou, so lack services Abuses and insecurities Education: 64% middle or high school Changing demographics: 1 ~65% not in mfg mostly >30, married, w/ jobs 1. Moving to cities: largest migration in history, in 2016 we think ~260mm+ migrant workers in China’s cities (1)Author’s estimates from various sources. (2)Estimates from data in Chinese Academy of Social Sciences, Li Chunling, “Institutional and Non-institutional Path: Different Processes of Socioeconomic Status Attainment of Migrants and Non-migrants,” 2012. More migrant workers are bringing spouses and children and are staying longer in urban areas Millions of Migrant Laborers in Chinese Cities

12. 12 1 (cont.): With moving to cities, China’s total urban population likely crossed the 50% mark in 2010-2011

13. 13 1 (cont.): Moving to cities; internal labor migration…

14. 14 (1) China’s National Bureau of Statistics, 2011. (2) OECD Economic Surveys: China 2010, page159, Figure 6.2 from China Statistical Yearbook 2009. (3) OECD Economic Surveys: China 2002, page 8, Table 1, from China Statistical Yearbook 2000; CIA World Fact Book 2008. 2. Moving “up the value chain”: China’s labor has moved from agr > mfg > services, with services >44% by 2015 Labor pool is about 1 billion; 1 non-agr increased by about 50 percent from 2000-2010 Share of Employment 3 Share of GDP 3

15. 15 3. Moving to a “mixed” economy, from state ownership In recent years, analysts estimate that the state sector is responsible for about 40% of GDP (1) “Other” includes urban collectives, cooperatives, & township/village enterprises (per China Statistical Yearbook, 2004), &“private sector” includes: joint ownership, LLCs, share holding corp.s, private enterprises, enterprises funded from HK, TW, and Macau, & self-employed people. Graph data from China Statistical Yearbook, 2000 & 2004. (2) OECD Economic Surveys: China 2009, pages 27, 106, 160, Figures 1.3, 4.4A, and 6.3, from China Statistical Yearbook 2009, CEIC, National Bureau of Statistics Industrial Microdatabase, and Joint NBS-OECD analysis. Transition: GDP by Ownership Form 1

16. 16 3 (cont.): Moving to a “mixed” economy: orgs have different ownership forms, w/ differing practices & cultures Various ownership forms in China: Private Chinese companies Private “Chinese” companies Joint ventures (Sino-foreign) Multi-national companies (MNCs); wholly foreign owned enterprises (WFOEs) State owned enterprises (SOEs) State invested companies ~40% of China’s economy Other forms

17. 17 Foreign Direct Investment (FDI), in BoP 1 (1) Data source: World Bank, see data.worldbank.org, “balance of payments” includes non-cash investments and commitments. WTO entrance in 2001 furthered and formalized foreign trade and aspects of the private sector China had to: 1) lower tariffs, 2) allow foreign firms to sell directly to the Chinese domestic market, and 3) open the telecom and finance sectors to more foreign competition China’s leaders believed that foreign competition would further domestic reforms

18. 18 Three consequences 1.Higher incomes…and consumer spending 2. Mega cities…and mega infrastructure 3. Global integration…and globalizing institutions ???

19. 19 1. Higher incomes: Incomes have increased substantially, so demand for consumer products is rising (1)National Bureau of Statistics China; People’s Daily; tradingeconomics.com; data trend combines rural and urban averages. (2)IMF; World Bank; CIA; over 600 million internet users; RMB up 30% since 2005; over 270mm rural migrant workers in cities; migrant worker income tends be between rural and urban averages. Annual Disposable Income Per Capita 1 Gini Co-efficients for Income Inequality 2 China.40 in 2001.47 in 2009.478 in 2012 United States.41 in 1997.45 in 2007 ~.46 in 2012 Urban Income ~ 3x Rural Latest Data 2013: Urban: Y29,945 = ~US$4,325 Rural: Y8,896 = ~US$1,428

20. 20 1. Higher incomes, yet China still has great contrasts…

21. 21 2. “Mega-cities”: China’s urbanization creates demand for infrastructure, energy, and public services 3 of the world's top 6 “City Clusters” (a.k.a. megalopolises or mega-regions): The Pearl River Delta, ~120 million (~200?), near Hong Kong: The Yangtze River Delta, ~88 million (~120?), near Shanghai: The Bohai Rim, ~66 million, near Beijing: __________________________________________ 5 cities of over 10 million versus 3 in India, 2 in the US, Japan, and Brazil 14 cities of over 5 million, over 20% of the world total 41 cities of over 2 million, 20% of the world total

22. 22 2. “Mega-cities”: State-owned banks turn household savings into loans for gov-financed city infrastructure (& SOEs) IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012 STATE OWNED BANKS LARGE STATE OWNED ENTERPRISES FAMILY GOV. FINANCED INFRASTRUCTURE LARGE STATE OWNED ENTERPRISES

23. 23 Enrollment in Postsecondary Institutions (1,000s) 3. Global integration: global & high-value business links are supported by growth in higher education & China’s HR

24. 24 3. Global integration, yet China is relatively restrictive for FDI Source: Rhodium Group, Hanemann and Bao, “A New Momentum for FDI Reforms in China,” 2013

25. 25 In the past 15 years, China’s economy has sustained growth, despite fundamental weaknesses in China’s system A few examples of major debates… Rule of law (lacking) Export-led development (over reliance on low-wage manufacturing) Financial system (capital markets and the banking system are inadequate) “State capitalism” (growing and inefficient) Corruption: both political and economic Over-investment and too-high capital formation (versus a consumer driven economy) Foreign companies: face new obstacles, less favoritism Environmental degradation: food supply, air and water pollution

26. 26 Today: “three moves” and “three outcomes” 2.Moving “up the value chain” 3.Moving into a mixed economy 1. Moving to the cities 1.Higher incomes…and consumer spending 2. Mega cities…and mega infrastructure 3. Global integration…and globalizing institutions?