11
Jack GarrityExecutive DirectorAsia Society Washington
May 10, 2011
CHINA GONE GLOBALCHINA GONE GLOBAL
22
“All political power comes from the barrel of a gun.”
33“The economy is the basis for global power.”
4
Can the United States have Guns and Butter too?
5
US Still Out-Spends the Globe on Defense
6
However Military Spending Has Risen Across the Globe
7
China’s Booming Economy
8
Population Overview
9
2010 GDP 2010 GDP Growth Rate: Growth Rate:
10.310.3
China‘s GDP (1990-2010)
10
China‘s GDP Growth (1990-2010)
11
China‘s GDP Map 2010
12
Economic Powerhouse-GDP
13
China‘s GDP Compared to Other Countries (2000-2010)
14
Output and Outlook 1820-2001 India, China and US
15
Forecast of China’s and US GDP
16
China’s real per-capita GDP(1980-2000)
17
Rich- Poor Gap is Enlarging
18
China‘s GDP/per capita (2000-2010)
19
Gini Coefficients 1980-2006
20
China’s household saving
21
Hukou Household Registration
22
China’s GDP per capita of $4,200 in 2010 was only 9 percent of
that in US
China’s standard of living today is roughly comparable to that of :
•Japan in 1954
•Taiwan in 1972
•South Korea in 1976
China’s Living Standard is still low
23
When will China become the largest economy
24
ECONOMIC CONCERNS AND CHALLENGES
25
Major Structural Problems: Stability /Sustainability of Chinese Economy
26
Unsustainable export level (Export over GDP ratio)
27
Unsustainable Low Domestic Consumption (Household consumption over GDP ratio US vs China)
28
Unsustainable Low Labor Income (Declining Labor income over GDP ratio
29
Unsustainable High Saving Rate. (China VS the rest of the world, 1978-2006)
30
Too much Enterprise and Government Savings
31
The Share of Household Saving in National Saving has declined substantially
32
Most government investment in China are Local Government Investments
33
Local government are in deficit. Poor regions have higher deficit
34
Is China’s real GDP growth sustainable ? Optimistic forecast versus official targets
35
How much progress can we expect from the 12th 5 Year Plan
36
The most challenging problems come from regional competition which has been essential for China’s growth
37
The institutional foundation of regional competition
38
Why regional competition is becoming a source of problems
39
Non-Market policies would not work
40
Market oriented policies may work
41
GROWTH DRIVEN BY INVESTMENT AND TRADE
42
CHINA’S FDI INFLOW
43
•Roads
•Power
•Ports
•Airports
•Apartment Blocks
Domestic Infrustructure Spending
44
Railway Crossing| High-speed Network Lengths by Comparison
45
Map of High Speed Railway
46
Map of High Speed Railway (Planned)
47
Will High Speed Railway Speeding Up Economic Growth?
•It will spread economic development farther west, by slashing travel time between Chinese cities it will spur trade and ease the flow of people and ideas, its proponents and tourism industries are all tipped as big winners.
48
Capital Growth
4949
Foreign Direct Investment into China
50
•Factories
•Manufactoring facilities
Foreign Investment Spending
51
China’s FDI inflow VS domestic investment
Source: China National Bureau of Statistics Source: China National Bureau of Statistics
$3596bn
$68bn
$379bn
$20bn
$bn
China's FDI Inflow VS Domestic Investment
0
500
1000
1500
2000
2500
3000
3500
4000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic Investment FDI
52
Government Debt is Scrambling
53
China’s Public Debt is More Than 80% of GDP
54
CDB’s Foreign and Domestic Lending, 2005-2009
55
Investment Contribution to GDP Growth
56
•China’s low returns are getting lower.
•China achieves about $2.20 in economic output per dollar invested, down from $3.40 in 1980. The United States gets almost $6.50.
(Indonesian efficiency surges after I.M.F.- led overhauls in the late 1990s. Every dollar invested produced $5 in output. Now $3)
•China favored sectors like heavy industry and property, producing overcapacity and asset price bubbles. It means China needs more investment in its agricultural sector.
Is China One of the Asia’s Flying Geese?
57
•Intellectual property rights protection
•Directed lending by state banks to Chinese competitors
•Indigenous innovation policy
•Currency undervaluation capital control
•Non-tariff barriers
•Restrictions capital movement
Investors’ Complaints to China
58
Intellectual property rights protection
59
TRADE
60
China joins WTO in 2001
China’s Exports and Imports(2000-2010)
61
http://online.wsj.com/article/SB10001424052748704062604576105691622922576.html
Garment trade with EU
62
Garment trade with US
6363
China in the Global Economy, 2009% share of the global total
Sources: UNDP, NBS, UN Comtrade, SAFE, UNCTAD, IMF, World Bank, RHG; *China‘s share in global total as available from the IMF in November 2010, 101 countries
64
Production surplusProduction surplus
China’s Production Surplus
65Source: WTO data http://www.wto.org/english/news_e/pres11_e/pr628_e.htm
World Trade 2010- Top 10 exporters
66
China and Developing states Projected to keep a favorable trade balance
67
1990
China
4%
2010
20%
China’s Rising Share of Global Trade
$3,517 bn$3,517 bn
$15,518 bn$15,518 bn$138 bn
Surplus: $40 bn Surplus: $571 bn
China:China:
$3,122 bn$3,122 bn
68
20%
1990
U.S.trade
$900 bn
2010 U.S. trade $3,031 bn
20%
26%
$3,517 bn$3,517 bn
$15,518 bn$15,518 bn
Deficit: $ -82 bn
Deficit: $ -529 bn
U.S.’s Share of Global Trade 1990 vs. 2010
69
China’s Global Trade by region 2000 VS 2010 China's Global Trade 2000 VS 2010
other countries and area
Central asia/ caucusus
Canada
central America/ carribean
South Asia
Russia and rest of Europe
Oceana
Africa
south america
Middle East& N. Africa
China HK,Macao
ASEAN
US
EU
Northeast Asia
China's Total
In US bn
2243
16
4
11
13
6
7
10
15
9
3
6
4
6
3
5
times
times
times
times
times
times
times
times
times
times
times
times
times
times
times
times$2,723.5
510.8
479.9
385.6
292.6
230.0
174.7
133.3
109.8
103.8
85.1
80.5
48.4
37.0
31.4
20.5
$373.6
($125.2)
$143.0
$181.7
($16.1)
$210.7
($22.7)
($25.3)
($6.3)
($25.3)
$4.2
$34.6
$26.1
$7.4
$4.0
($17.3)
2010 ——2010 ——
2000 ——2000 ——China’s
surplus
70
Oceana$104
4%
South Asia$81
3%
Other countries and area$21
1%
Central Asia/Caucusus$31
1%
South America$133
5%
Central America/Carribean$48
2%
Northeast Asia$511
MEAF$175
US $386
EU $480
ASEAN$293
Russia and rest of Europe$85
3%
Canada $371%
Africa $1104%
HK,Macao$230
19% 6%
14%
18%
11%
8%
In Billion
China ‘s Global Trade by Region 2010
71
2000 2010
Trade Exports ImportsChina's
surplus/deficit
Trade Exports Imports
China’s surplus/ deficit
EU $71.9 $41.1 $30.8 $10.2 $479.9 $311.5 $168.4 $143.0
Russia and rest of Europe
$12.3 $3.9 $8.5 ($4.6) $85.1 $44.6 $40.4 $4.2
US $74.5 $52.2 $22.4 $29.8 $385.6 $283.7 $102.0 $181.7
Canada $6.9 $3.2 $3.8 $0.6 $37.0 $22.2 $14.8 $7.4
Africa $9.6 $4.2 $5.4 ($1.3) $109.8 $51.7 $58.1 ($6.3)
MENA $17.7 $7.1 $10.6 ($3.5) $174.7 $76.0 $98.7 ($22.7)
Northeast Asia $118.5 $53.5 $65.0 ($11.5) $510.8 $192.8 $318.0 ($125.2)
China HK, Macao $54.8 $45.2 $9.5 $35.7 $230.0 $220.3 $9.6 $210.7
ASEAN $39.5 $17.3 $22.2 ($4.8) $292.6 $138.2 $154.3 ($16.1)
Oceana $12.6 $6.6 $6.0 $0.7 $103.8 $39.3 $64.6 ($25.3)
South Asia $5.7 $3.8 $1.9 $1.9 $80.5 $57.6 $23.0 $34.6
Central Asia/ Caucuses
$1.8 $0.8 $1.1 ($0.3) $31.4 $17.7 $13.7 $4.0
Central America/Caribbean
$4.1 $3.5 $0.6 $2.9 $48.4 $37.3 $11.2 $26.1
South America $8.4 $3.6 $4.8 ($1.2) $133.3 $54.0 $79.3 ($25.3)
Other countries and area
$0.0 $0.0 $0.0 $0.0 $20.5 $1.6 $18.9 ($17.3)
Total $438.3 $245.8 $192.4 $53.4 $2,723.5 $1,548.6 $1,175.0 $373.6
China ‘s Global Trade 2000 VS 2010
72
China’s Share of World Trade (Shadow Chart) 1990-2010
China's Share of World Trade
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
7373
China’s Share of World Total Exports
74
China’s Share of World Total Exports ClearChina's Share of World Exports
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
75
China’s Share of World ImportsChina's Share of World Imports
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
76
Exports: Comparison among US, Germany, Japan and China
7756.2
56.9
61.7
62.5
74.2
86.9
142.4
206.8
227.7
296.6
385.6
Netherlands
Singapore
Inida
Brazil
Malaysia
Australia
Germany
South Korea
Hong Kong
Japan
United States
Netherlands
Singapore
Inida
Brazil
Malaysia
Australia
Germany
South Korea
Hong Kong
Japan
United States
China's Top 10 Trade Partners in 2010
In billion USD
78
Top 10 China's Imports in 2010
25.8
32.9
33.2
38.0
50.4
59.7
74.4
102.0
138.0
176.3
0.0 50.0 100.0 150.0 200.0
RUSSIAN
SAUDI ARABIA
THAILAND
BRAZIL
MALAYSIA
AUSTRALIA
GERMANY
UNITED STATES
SOUTH KROEA
JAPAN
In billion USD
79
Top 10 China's Exports 2010
29.592
31.142
32.333
38.776
40.880
49.711
68.069
68.811
120.262
218.205
283.679
RUSSIAN FEDERATION
ITALY
SINGAPORE
UNITED KINGDOM
INDIA
NETHERLANDS
GERMANY
SOUTH KOREA
JAPAN
HONG KONG
UNITED STATES
In billion USD
8080
China is the NO.1 trading partner of six G-20 nations
8181
China is the NO.2 trading partner of Canada, U.S, Indonesia, Mexico and Brazil
8282
As new powers grow…China is becoming ever more important to their trade.
83
China’s Current Account and percentage of GDP
84
China’s current account surplus
85
Trade Remedy Measures on China’s Exports Value ($ billion)
86
The Disappearing Cost Advantage
87
Comparison of population in China, Indonesia and Brazil
China is now Indonesia's biggest export market, having almost doubled its share in the past decade to about 12.5%.
88
Population Matters
•A Chinese slowdown is a risk.
•Both brazil and Indonesia also have vibrant domestic sectors. Household consumption equated to 65% of Indonesia's gross domestic product last year, similar to brazil and well above china’s level of about 40%.
•In brazil, mortgages outstanding equate to a mere 3% of GDP, compared with 72% in the U.S., and 18% in China.
•Indonesia is set to reap a demographic dividend as its working-age population grows 21 million people by 2020. While china’s working population peaks this decade, creating a headwind thereafter. Brazil’s will peak in 2030.
89
Aging Society
90
RMB EXCHANGE RATE
9191
China’s currency has risen against the dollar recently, but against a broad basket of currencies it is basically flat.
92
RMB against USD 2000-2010
93
REER USD CNY
94
CNY/ EUR/ JPY
95
CNY/USD/JPY/EUR
96
Big Mac index, CNY is the most under valued currency
Source: McDonald’s; The Economist. At market exchange rate (2010 Oct 13th)Source: McDonald’s; The Economist. At market exchange rate (2010 Oct 13th)
97
The Yuan has strengthened against the dollar and euro over the past several years, leading some economists to say it is approaching fair value
98
Does China Really Appreciate Their Currency
99
U.S. imports from China may shrink, they may be replaced by imports from other emerging markets
100
Yuan Internationalization
101
• China keeps a rein on capital moving into and out of the country.
• The government sets the maximum rate banks can pay to
depositors and the minimum they can charge for loans- a boon to
the large state-owned banks because the rules give them a cheap
source of savings and limit competition from private financial firms.
• The managed exchange rate is frustrating Beijing’s commercial
and political aspirations.
• Surplus of foreign reserves is locked away in low-yield U.S.
treasury securities instead of helping develop the country
• The exchange rate has become a sort of burden on china. We are
creating a lot of distortions in the economy to maintain it.
Limiting the international use of the Yuan
102
Currency Changes will be Difficult
•China now accelerating the appreciation of Yuan, now 6.49 = $1 – the lowest since 1990s
•Letting the Yuan rise and fall freely on world markets could cause pain
•Decrease in exports, job loss; Increase in imports
•Remove restrictions on loan and deposit rates, as deposit rates below inflation transfers wealth from savers to borrowers
•Major impact on entire financial system
103
Currency Pros and Cons
•Undervalued currency boosts trade surplus
•Has led to huge increase in foreign reserves
•Yuan prices of imported fuel and food increase
•Domestic inflation rises – now 5.4%
•Other countries upset at China’s “unfair” competition
104
Volume of dollar-Yuan swaps traded increases
105
Top 10 underwriters for offshore Yuan-denominated bonds
106
FOREIGN RESERVES
107
China’s foreign reserve holdings topped $3 trillion in March, nearly three times the holdings of Japan
107
$1.15 trillion is U.S. treasury
108
Foreign-exchange reserves keep rising
109
• China is the world’s largest foreign exchange holder, with reserves
exceeding $3 trillion; three times that of Japan.
• But these reserves do not give the government a good return, since they
are largely invested in low-yield products.
• Some analysts estimate yield could be 3 percent at best, while others
argue that the real value of china’s reserves has eroded when exchange
rates and inflation are taken into account.
•Snowballing reserves add to inflation and are disadvantageous to China in
international talks on its foreign exchange policies.
•Should allow individuals and businesses to hold and manage more foreign
reserves
The Consequence of High Foreign Reserves
110110
Internationalization of the Yuan
111
Using Yuan in Trade Settlement?
112
Criteria for being a dominant international reserve currency
113
The expectation of Yuan’s rise may lead to change of business strategy
114
INFLATION
115
Inflation may lead China to start revaluing its currency
115
116
China’s Consumer Prices
117
• China’s annual inflation hit 5.3%
•The increase in the amount and prices of imported bulk commodities played a major role in increasing China's imports and thus the quarterly trade deficit.
• China's iron ore imports grew by 14.4 percent to 180 million tons in the first quarter. The average price rose by 59.5 percent year-on-year to $156.5 a ton.
•The rising price of iron ore has stimulated domestic production. The quality of metallic minerals mined in China, in general, is lower than the imported ones.
• Soybean imports dropped by 0.7 percent to 10.96 million tons, but its average price increased by 25.7 percent to $573.9 a ton.
• China lifts banks’ reserve ratio to 21%, among the highest in the world.
Inflation facts
118A copper-products plant in Nantong, China: The metal bounced back from recent lows
COMMODITIES
119
Commodity Prices may increase and Hamper Growth
120
Metal prices go up
121
China’s refined copper imports drop
122
Copper reserves for selected countries
123
Steel Market
124
CHINA‘S DEMAND FOR ENERGY
125
China’s power picture
126
Typical urban household in China already has at least one air conditioners
127
Electricity consumption has soared in China
128
China is now the world Largest energy consumer
129
Power Output
Source: China Electricity Council
Unit: billion KWh
130
China and the US source their oil from different areas
131
Shanghai trucker strike as the price of oil surges.
132
In China, coal consumption has surged along with electricity consumption
133
World Gold Reserves in 2010
134
Gold Rush
•The amount individual buyers purchase as an investment is expected to surge two-fold annually.
•And the government's gold reserves are "far from enough", and should be increased to fend off global financial risks.
•Since China deregulated its gold market in 2008 gold sales as a means of investment have surged, with an annual growth of 100 percent from 2007 to 2010, compared with 30 percent for the global investment market during that period.
•Inflation and the weakening purchasing power of the yuan have driven up private demand for gold and this will continue.
•China had more than $2.84 trillion in foreign exchange reserves by 2010, but only 1.7 percent were invested in gold.
•The government needs to expand its share of gold in the foreign exchange reserves to reduce vulnerability to dollar depreciation. The reserve should be at least 5,000 tons.
•In the first quarter, China overtook India to become the largest market for private gold sales.
135
China has gone from the world’s largest coal exporter to the largest importer
136
China’s nuclear
137
LABOR FORCE ISSUES
138
Guangdong Migrant Workers
139
EDUCATION
140
Many college graduates are more willing to work in places where the cost of living is lower as a result slightly smaller cities in China begun to grow at a faster rate.
Source: Chinese college graduates employment annual report
Graduate Employment
141
World Class-Average math and science scores for 15-year-olds in 2009
142
Chinese Travel
143
•The number of outbound travelers totaled more than 57 million
in 2010,a rise of 20.4 percent year-on-year,
• More than 57 million Chinese are expected to travel abroad
this year, and will spend a staggering $55 billion, (China
Tourism Academy).
More Chinese Travelling Abroad
144
Visitors from China spend more
China
Australia
S.Korea
Brazil
France
Germany
Japan
U.K.
Mexico
Canada
Australia
India
France
China
Germany
Brazil
Mexico
U.K.
Japan
Canada20.0
13.4
3.9
3.4
1.7
1.3
1.2
1.1
0.9
0.8
$20.8
14.6
11.6
8.7
5.9
5.8
5.0
4.1
4.0
4.0
Parting with cashVisitors from China ranked among the top 11 in head count and they were No.7 in spending last year.
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
International arrivals to the U.S.International arrivals to the U.S. International visitor spending in the U.S.International visitor spending in the U.S.
Rank In millions Rank In billions
145
CHINA’S INVESTMENT OVERSEAS
146
China’s overseas investment is surging
147
China’s ODI is stepping up
148148
Outward Direct Investment: Flows and Stocks, 1981-2010
USD bn, BOP flow data
Source: PBoC, SAFE, RHG
Stock: $245.75 billion
149
China ODI flow 2003-2009, total $177.2 billion USD
$1.0
$1.2
$1.2
$1.2
$1.7
$2.0
$2.2
$2.3
$3.6
$5.3
$5.4
$8.0
$24.6
Kazakhstan
Macau
Pakistan
Korea Rep
Canada
Russia
United States
Luxembourg
Singapore
Australia
South Africa
Br.Virgin Is.
Cayman Is
Hong Kong $102.1 billion USD