China Submitted by:RAHUL CHANDA160103106

Topics Covered1. Economic Overview

2. Politico-Economic timeline

3. Comparative study of GDP growth with the United States

4. Contribution of each sectors in GDP

5. Shift to Services sector

6. Internationalisation of RMB

7. Chinese Equity Market Crash

8. Shadow Banking

9. Real Estate Sector

10. Unemployment Statistics

11. Road Ahead: 13th Five Year Plan

Chinese Economic OverviewChina is the second largest economy of the world by nominal GDP, second only to US

China is also world’s largest economy by PPP, surpassing US in 2014

Largest manufacturing nation and also world’s fastest growing consumer market

Largest trading nation in the world and an influencer of the world economy

Initiated economic reforms in December 1978

GDP growth has averaged nearly 10 percent a year—the fastest sustained expansion by a major economy in history

Lifted more than 800 million people out of poverty

Catapulted from 9th positon in terms of nominal GDP with US$ 214b to 2nd position in 2013 with US$ 9214b

Chinese Politico-economic Timeline

1976

•Death of Mao Zedong, end of communist era

•Deng Xiaoping elected as the leader

1978

•December 1978 China opens up the market

•Four modernizations: agriculture, defence, industry and science and technology

•Shifted from a centrally-planned to a market-based economy

1980

•China started to participate in the global economy and also became a part of the International Monetary Fund (IMF) and the World Bank

1990

•Jiang Zemin became the new leader

•Most state-owned companies converted to private entities

•Millions rendered jobless

2001

•Joins the World Trade Organization in December

2002-2007

•Economy experienced an unprecedented economic growth mainly due to booming exports, resilient private consumption, soaring manufacturing and massive investment

2008

•Due to global crisis, China adopted a loose monetary policy

2012

•Adopted sustainable growth model

•Coined “Chinese dream" emphasizing people’s happiness and the idea of a strong China

2015

•China is in the midst of a fundamental transition, moving from an investment-intensive, export-led model of growth, to a consumption- and innovation-driven one

Some Current StatisticsEconomic Indicators 2016 Data Unit

GDP 10866.44 USD (billion)

GDP Annual growth 6.7 %

GDP per capita 6416.18 USD

GDP per capita PPP 13400.27 USD

Unemployment Rate 4.05 %

Inflation rate 1.3 %

Interest Rate 4.35 %

Comparative growth of China w.r.t. US

2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

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China United States

GDP annual growth rate comparison with US

Left side axis has values related to China whereas right side has values related to the US

While US growth rate plummeted from 16% to 1.4%, Chinese economy was maintained at sustainable growth rate of 6.7%

Contribution of each sectors in GDP

China’s GDP is broadly contributed by three broader sectors o Primary industry (agriculture)o Secondary industry (construction and manufacturing) o Tertiary industry (the service sector)

Agricultural; 12.12

Industry; 47.37

Services; 40.51

Share of GDP (%) in 2005Agricultural 9

Industry, 40.5Services, 50.5

Share of GDP(%) in 2015

Shift to Service SectorService sector include following industrieso Transport, storage and post (5% of GDP)o Wholesale and retail trades (10%)o Hotel and catering services (2%)o Financial services (6%)o Real estate (6%) o Mishmash of services categorized as 'other' (18%)

Service sector now employs more than 300 million people, the largest share of the country’s 775 million workers

Services generate more jobs per yuan of output and thus boost the current slow growth rate

The industry expands in tandem with higher household incomes

Hence, families will spend more on education, insurance, restaurants, travel, and the other expense points of middle-class life

And along with encouraged investment in tourism, health care, sports, and education in part through tax breaks, will boost the overall growth

Internationalisation of RMBRenminbi is the legal tender of China, often mistaken with Yuan, which is a unit measuring RMB

Accepted as a Reserve currency by IMF in November 2015

Circumstances leading to this are: China joining WTORMB Financial ChannelsRMB Commodity TradingTrillion Dollar Reserve Currency Decision RQFII Quotas

Impact of Internationalisation of RMBTrade Settlement

Financing and Borrowing

Capital Management

RMB Bilateral Swap Agreements and RQFII Quota Extension

Chinese Equity Market CrashIn June 2015, the Chinese stock market crashed with A listed shares losing 33.33%

After relaxation of restrictions of equity trading, Chinese population started investing in equities heavily using borrowed money (90 million stock traders in 2015)

Less than half of them were qualified to analyse the stock market

Banks started promising unrealistic levels of returns to investors

Companies had highly inflated values as a result

Most importantly, Chinese government misled the population by using the state owned media, sold junk assets at overvalued prices

Formation of a bubble, which crashed on 15th June 2015

Reactions and Measures UndertakenKneejerk reactions – Banning company executives and investors holding more than 5% from trading

Companies totalling 40% of market cap were banned from trading completely

Government is now investing billions of dollars to keep the growth rate above 7%

Shadow Banking

China’s debt has been growing in a pattern similar to that of U.S. before 2008, whose lending soared

Shadow credit doubled to 36 trillion yuan ($6 trillion), or about 69% of China’s gross domestic product in 2012

About two-thirds of all lending in the country by shadow banks are in fact “bank loans in disguise”

Shadow banking is done since in China banks are discouraged from lending to certain industries and are mandated to offer frustratingly low interest rates on deposits

Continued… “Money shortage” in local governments

and new housing projects also contributed to increasing borrowing from shadow banks.

Few economists predict a sharp downturn for China, at least in the short run – China may repeat Japan’s story of 1990

For several years, the central bank and banking regulators looked benignly at the growth of shadow banking

If China were to ignore the systematic risk, then the similarity will not only exist in over lending, but a recession as devastating as 2008 as well

Real Estate China’s main economic goal in 2016 is to manage a soft landing. This will enable it to achieve a smooth transition to a “new normal” that

will allow for slower but more sustainable development

Slower economic growth, in combination with abundant new supply, is set to push up vacancy rates for both office and retail assets across most markets in the mainland

Rental growth, meanwhile, is forecasted to decelerate

Driven by resilient demand, logistics rents in most markets are expected to continue to rise in 2016

Domestic institutional investors are expected to become increasingly active in the market in 2016

Office: Rents in tier I cities are expected to remain steady, while those in a number of tier II cities are likely to come under increasing pressure.

Retail: The retail sector may face headwinds in the near term; rental growth is likely to be sluggish in 2016

Industrial: Huge room for growth in the logistics sector; logistics rents are expected to rise further in 2016

Investment: Offices remain the preferred asset class in the investment market; Chinese capital continues to seek diversification in overseas markets

Hong Kong market: The office sector is expected to continue to experience rental growth, as well as remain a key focus of investors; the retail and logistics sectors are likely to endure a market slowdown

Continued…

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Unemployment Rate (in %) • Before economic reforms in 1978, direct allocation of jobs done

• Post reforms, responsibility system in rural areas and autonomy to job seekers in urban areas was introduced

• During mid 1990s migration control became a problem

• After 1996 economic growth slowed down• During 2008 crisis, again unemployment rates

rose slightly• During recent years, unemployment has risen

steadily due to economic restructuring

Unemployment Statistics

Highlights of 13th Five Year PlanDouble the 2010 GDP and per capita personal income by 2020

Keep annual GDP growth more than 6.5%

Increase R&D spending to 2.5% of GDP

Rapid urbanization (60% of total population)

High speed railways in service

More than 50 million new urban jobs

20 million houses to be built in rundown urban areas

Increase average life expectancy by 1 year

Lift 70 million people out of poverty