The Second Global Shift and China

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The Second Global Shift and Chinas Rise in the
21stCentury

• Victor F.S. Sit
• Advanced Institute for
  Contemporary China Studies
• Hong Kong Baptist University
• March, 2009

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• Outline
• Chinas Economy and the First Global Shift
• The Second Shift in 21st Century Globalization
• Financial Tsunami and the New Global Economic
  Environment
• Chinas Global Strategic Options

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Chinas Economy and the First Global Shift

1. Historic growth in the past 3 decades
2. Major economic power house in 21st century
3. Lessons from the First Global Shift

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Chinas Share in International Sourcing
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Major Economic Achievements (targets) of the
three Recent 5-year Plan
1995-2000 2001-2005 2006-2010 (target)
GDP
Average annual growth rate 8.3 7.5 7.5
2000/2005 total (billion ?) 8,940 18,200 26,100
per capita (yuan) 7,099 13,985 19,270
(US ) 880 1,685 2,569
Budgetary Revenue
Average annual growth rate 16.5 17.6
2000/2005 total (billion ?) 1,338 3,163
FDI
Total (billion US) 289 562
Increase over the previous 5-year 79 94
Foreign Trade
2000/2005 total (billion US) 474 1,422
Increase over the previous 5-year 69 200
2000/2005 total export (billion US) 249 762
Increase over the previous 5-year 67 206
Foreign Exchange Reserve
2000/2005 total (billion US) 165 819
Increase over the previous 5-year 92 396
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• China Benefitted from the First Global Shift
• Achievements in rapid growth
• Global forces FDI export-push
• Labor-intensive, low scale
• Global size and potentials
• Spatial concentration

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Chinas Contribution to Global Economic Growth in
2005
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World GDP Distribution, 2006(value at purchasing
power parity)
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II. The Second Global Shift

1. Meaning and content of the Second Global Shift
2. Reasons

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A. The Second Global Shift

• Main Shifts

Developed Countries
China

• Financial Sector
• Consumer Durables
• Capital Goods

Less Developed Countries
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• B. Reasons
• High savings and real economy VS overspending
  derivatives
• will overtake US as the largest economy
• advantages of large pool of labor cost and
  range
• organizational strength socialist-market
  system
• potential of the largest home market

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Finance for Chinese Enterprises, 2006
Source
Retained Profits 60
Bank Loans 25
Shares and Stocks 15
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III. Financial Tsunami and the New Economic
Environment

1. Demise of the Western Capitalism system
2. New financial and economic landscape
3. Post-Tsunami scenario for developed countries
4. Chinas Response

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The Financial TsunamiSelected key events
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A. Demise of Western Capitalism?

• Basic of Western Economy under Question
• confidence in the market
• system of regulation
• international institutions
• infallibility of the greenback
• Key policies (bailouts and others)
• nationalism
• subsidy
• protectionism

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B. New financial and Economic landscape

• World GDP growth forecast for 2009
• Of the top 10 banks (by market cap)
• 4 are Chinese
• Top 3, all Chinese

Region Growth rate ()
World 0.2
E.U. -0.6
U.S. -0.5
China 7.5
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C. Post-Tsunami Scenario for developed Countries

• Slow down in overall economic growth, a 2-3
  year recession the worst record since the
  Second World War.
• Major contraction of the financial sector with
  increased tightness and conservatism both in its
  operation and regulation, leading to increase
  costs and a clamp on credit even after the
  initial shock due to de-leverage induced by the
  Tsunami.
• Devaluation in both financial and real assets
  will tighten credit further and impact negatively
  on production and consumption. The result is an
  overall shrinkage of market demand.
• To protect local jobs, countries may tilt towards
  trade protectionism.
• High-tech, high value added and knowledge
  intensive industries will be the likely bright
  spot in developed economies. Hence, global
  competition in such products will be very keen.

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D. Chinas response to the Financial Tsunami

• step up pace of development of the financial
  sector, especially in internationalization of the
  Renminbi, such that Chinas lagging financial
  sector may catch up with its real economy. Yet,
  overall progress will contingent on the lapse of
  the Financial Tsunami and cycles of the global
  economy.
• stimulate and develop local demand guided by the
  quest for environmental and economically
  sustainable growth.
• revamp past convention of export-led growth by
  walking on two legs, i.e. future growth will be
  propelled by the twin engines of exports and
  domestic market demand.
• deepen technology and increase value-added of
  conventional industries sectors.
• aim for a balanced economy in line with the low
  skill and large size of Chinas working
  population.

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IV. Chinas Global Strategic Options

1. Key issues for China in the 21st Century
2. The New China Economy and Business opportunities
3. Potential new regional Patten

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A. Key Issues for China

• Major concerns
• Energy source
• Security
• Chinas global political role
• Peace and harmony
• Fair trade and development

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B. The New China Economy and Business
Opportunities

• Possible new development trends
• RMB will be Asias major hard currency
• SOE and large private enterprises will globalize
• Shares and stocks will be major means for fund
  raising of Chinese enterprises
• China investment corporations will lead the way
  and be major players in global investment and MA
• Major banks in China will globalize through MA
• More free flow of private funds from China to the
  rest of the world participate deeper in the
  global economy

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C. Potential new regional pattern

• Coastal region concentration will remain
• Hong Kong will serve as Chinas new global
  financial centre and rivaling New York
• Port city regions will be converted to high-tech,
  high-value added global production platforms
• Western margin will assume faster growth