CHINA: The Economic Powerhouse

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CHINA The Economic Powerhouse

• September 19, 2001

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Gross Domestic Product (GDP)

• Total goods and services produced in a nation
  during a period of time.
• Real GDP - adjusted for inflation (vs nominal
  GDP)
• Consumption Investment Government spending
  Exports - Imports

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Gross National Product

• GDP Income from residents received from abroad
  (wages, return on investments, interest
  payments), but subtracting similar payments made
  to those abroad.

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How big is the Chinese economy?

• China (1999) GNP 978 billion
• GDP 996 billion , crossing 1.1 trillion in
  2000

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Per Capita

• Per capita GNP (1999) 780
• 2000 840 -- just 5 of the average income of
  the developed countries
• Adjusted for purchasing power, average income is
  14 percent of the developed country average
• Chinas economy is big but not strong

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Comparative perspective

• US per capita (1999) 30,600
• Japan 32,230
• Indonesia 580
• India 440
• Make sure comparisons are made on the same basis,
  e.g. current dlr, constant dlr, etc.

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How about Hong Kong?

• Population 6.8 million
• GDP (1999) US158 billion (2000) 165 billion.
• GDP per capita US23,530 (2000) 24,370
• (source www.tdctrade.com/main/economic.htm)

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Astonishing Growth rate

• GDP annual growth
• 1979-89 10.3
• 1989-99 10.5
• 1998 7.8
• 1999 7.1
• 1999-03 7.2

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Transformation 1

• Emerging as a MANUFACTURING force in the world
  economy.
• Large domestic market
• Economies of scale the reduction in unit costs
  of additional production that comes from
  servicing a market of 1.3 billion domestic
  consumers.

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Transformation 2

• From a command economy to one that is
  increasingly based on market signals.
• Declining share of the public sector in
  investment, job creation, production and the
  ability to influence resource use.

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Transformation 3

• Declining share of agriculture in the economy.
• In 1979, agricultures share in the GDP was 31.2
  pct
• In 1999, it dropped to 17.3 pct.
• (During the same period, services rose from 21.4
  pct to 32.9 pct Industry stays about the same)

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Transformation 4

• DEMOGRAPHIC profile from an economy with
  high-fertility and low-longevity to one with
  low-fertility and high longevity.
• Effects on education, healthcare and social
  security.
• Modifying one-child policy.

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Transformation 5

• China has a low weighted average tariff rate of
  18 pct.
• Share of trade in total output rose from 13 pct
  in 1980 to 45 pct in 2000.
• Foreign currency reserves 160 billion.
• Foreign Direct Investment 35 to 40 billion a
  year.

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Quality of Growth

• Education and job opportunities
• Gender equality
• Better health and nutrition
• Clean Environment
• Legal System
• Civil and political freedom
• Cultural life

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The Rich and the Poor

• Let some people get rich first.
• Deng Xiaoping
• Widespread poverty in China
• 200 million poor people (consumption per day of
  just US1.08).

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Productivity

• Estimated 40 to 70 pct of Chinas growth since
  1978 came from increases in labor and capital
  inputs.
• This was made possible by moving farm labor to
  manufacturing.
• Or, growth came from 30 to 60 pct gain in
  productivity.
• The productivity should be higher. But how?

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Moving up the value chain

• Technology
• Human capital
• safeguarding natural resources
• need massive amount of foreign investments
• 10th Five Year Plan WTO membership

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Buzz words

• Resources Allocation
• Intermediation
• WTO Implementation
• Time Bomb anywhere?