1. Susan Mays, Ph.D., contact mays999@gmail.commays999@gmail.com Globex Faculty Fellow, Peking University; Faculty, The University of Texas at Austin China’s Economy: Growth and Global Connections Macro-economy and Challenges 北京大学工学院 PKU College of Engineering Globex

2. 2 The components of GDP, which is the national “output” or “income” GDP = Consump + Gross Investment + Gov Spending + (Exports – Imports) GDI = Private Consump + Investment + Gov Spending + (Net Exports) GNI = Consump + Gross Capital Formation + Gov Spending + (Net Exports) Note: Greens terms are both “Consumption”: We split private consumption (also called “consumer consumption”) and government spending (also called “government consumption”)

3. 3 China’s private consumption and savings as % of GDP Aurthur Kroeber, “China’s Consumption Paradox,” Eurasian Geography and Economics, 2011, data from Chamon and Prasad (2008) and NBS (2010.)

4. 4 Decline in consumption as a percent of GDP under rapid industrialization China1995-201112% Japan1955-197014% Korea1975-198821% Korea1956-198844% Malaysia1982-199712% Thailand1982-199712% India1960-200626% U.S.1900-195025% Aurthur Kroeber, “China’s Consumption Paradox,” Eurasian Geography and Economics, 2011, data from IMF in 2011.

5. 5 Why was China’s consumption percentage so low to begin with? Aurthur Kroeber, “China’s Consumption Paradox,” Eurasian Geography and Economics, 2011, data from IMF in 2011.

6. 6 Components of GDP: household down, while government and corporate up Aurthur Kroeber, “China’s Consumption Paradox,” Eurasian Geography and Economics, 2011, data from Bai and Qian in 2009.

7. 7 China’s gross national savings (investment) as % of GDP IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012

8. 8 Incomes have increased and growth rate has increased (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 Urban Income ~ 3x Rural Latest Data 2013: Urban: Y29,945 = ~US$4,325 Rural: Y8,896 = ~US$1,428

9. 9 Banks turn households savings into loans for large SOEs, infrastructure, local governments, (…and real estate dev?) IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012 STATE OWNED BANK LARGE STATE OWNED ENTERPRISES FAMILY GOV. PROJECTS (INFRASTRUCTURE) LARGE STATE OWNED ENTERPRISES

10. 10 The share of working-age people will now decline, likely leading to less savings Carl Bonham and Calla Weimer, “Chinese Savings Dynamics,” Oxford Economic Papers 65, 2013, page 183.

11. 11 Taxation and government revenues (taxes, SOEs, fees, etc.) IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012

12. 12 The central government’s 2014 commitment to fiscal and tax reform in order to reduce risks from local debt Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014. “Public finance is the foundation and a critical pillar for state governance. A scientifically designed fiscal and tax regime is the institution that guarantees resource allocation optimization, market unification, social equality, and long- lasting security and peace for a nation.” XI Jinping’s Team, 2014

13. 13 The “Two Ratios” were brought under control in 1994 Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014.

14. 14 China’s central government has more tax revenue than expenditure commitments Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014.

15. 15 Local governments have been increasingly funded by land transfers IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012 Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014.

16. Susan Mays, Ph.D., contact mays999@gmail.commays999@gmail.com Globex Faculty Fellow, Peking University; Faculty, The University of Texas at Austin China’s Economy: Growth and Global Connections Macro-economy and Challenges 北京大学工学院 PKU College of Engineering Globex

17. 17 China’s military spending 2009201020112012 China2.2%2.1%2.0%2.0% U.S.4.6%4.7%4.6%4.2% www.data.worldbank.org