1. MANAGING ASIAN BUSINESS China: Facing the 21st Century TEAM 5: Bakshi Satpreet Singh Vishnu Priya Srilakshmi Vignesh Sundaram Meinu S Suriya Maran P Sinduja

2. LEADERSHIP OF DENG XIAOPING Primary Goal was Political Stability and Rapid Economic Growth GDP grown at 9.5% Increase in Per Capita Income Increase in Trade by 10 % to 45% China became 7th Largest Exporter Third Largest in terms of PPP

3. AFTER DEATH OF DENG XIAOPING US Block China Membership in WTO Currency Crisis , Regional Recession Reduction in Competitiveness of chinas Export. Losses Growing in state own enterprise and banks. Corruption Pollution

4. HISTORICAL BACKGROUND Spring and Autumn Period (722 BC-476 BC) was an age of thinkers Confucius and Laozi lived then. Warring States Period (475 BC-221 BC): Time of continual warfare between the kingdoms which spawned Sun Tzus Art of War. Qin Dynasty (221 BC-206 BC) is relevant only for Terracotta Warriors. They date from this dynasty. Han Dynasty (206 BC-220 AD) It was another golden age. China expanded west as far as India, opening trade along what would later become the Silk Road.

5. THREE BASIC PILLAR This Three basic pillar sustain Chinas imperial System. Emperor Imperial Bureaucracy Confucianism

6. HISTORICAL BACKGROUND Tang Dynasty (618-907): This was a golden age. Also, Xian was the capital during the Tang Dynasty. Song Dynasty (970-1279): nice artwork from this era and a few temples reconstructed in the Song Dynasty style. Yuan Dynasty (1271-1368) basically means Kublai Khan and the Mongol era. Qing Dynasty (1644-1912): This period was marked by colonialism, internal rebellions and the Opium Wars. Dr Sun Yatsen is regarded by all as the father of modern China. Mao Zedong was the dominant figure in the Chinese Communist Party from the founding of the PRC until his death in 1976. After his death China began to open up to the outside world

7. Republican era (1911-1949) WARLORDS: They fought for control of Beijing, to be recognised as the official government of China . China joined the allies in the Great War hoping to regain at least the territories run by the Germans but the treaty of Versailles awarded them to the Japanese. MAY 4TH INCIDENT : On May 4th 1919 demonstrations broke out in many Chinese cities and people of all classes protested and joined parties like the Guo Min Dang (GMD) and (CCP). GMD/CCP cooperation ended in1927 when GMD leader chiang- kai-shek launched a surprise attack that killed nearly 90% of the CCPs members.

8. CCP- REBUILT : as a rural party during the period of mao Zedong and developed on four crucial issues : how to develop and sustain political activity how to govern territory (ccp) how to use military force effectively land reform Long march ; the communists were force to move, it was a powerful legitimizing force for surviving political leaders. The allied forces defeated Japan, the u.s recognized the GMD as the legitimate govt of china. After full-scale civil war , by late 1949 the (ccp) had routed the GMD. On October 1, 1949 proclaimed the formation of the peoples republic of china

9. The Maoist era(1949 1976) Maoist period can be divided into four eras: political consolidation and economic reconstruction (19491957) great leap forward (1958-1960) economic recovery(1961-1965) cultural revolution (1966-1976) deployed the peoples liberation army throughout the country . Great Leap Forward (1958-1960) abandon the Soviet model of economic development -Soviet scientific planning mass mobilization peoples communes

10. Growing Division (1962-1965) leadership vs. bureaucracy breaking communes into smaller units reorganizing economic reporting, bringing back technical experts, and forcing peasants to return farming. the economy quickly recovered and by 1965 output had returned to pre-great leap level Cultural Revolution (1966-1976) destroy the old and establish the new Red Guards: to destroy the four olds cultural revolution had spun out of control moderates and radicals took center stage Mao dies on Sep 9 1976 Deng emerged as the paramount leader in mid-1978 .

11. Institution of Social Control CCP control the Chinese population, through four layers of administration The central government set broad goals All citizen were required to belong to a unit The Danwei were multi-purpose bodies Key units importance- permission to transfer from one unit to another

12. The Era of Economic Reform Deng inherited in 1978 was relatively stable His strategy involved two principles: Reform measures were legitimate if they promoted rapid economic growth and if they did not weaken the partys control of the political land system; everything else was subject to compromise While the economy has stabilized, Deng still faced a great challenge

13. The Era of Economic Reform 82% of rural income has been stagnant for more than a decade 60% population lived on the international poverty line Mass starvation had occurred Chinas workforce was skilled and disciplined Dengs first step- tighten controls of population Zhou Enlai had initiated two child policy in 1971 and the campaigns slogan was late, sparse, and few

14. The Era of Economic Reform Deng launched one-child policy in 1978. A variety of rewards and punishments were used to enforce the policy The government relaxed the one- child policy where resistance was greatest Deng created space for experimentation and local officials responded enthusiastically The reforms can be divided into four categories Trade and investment reform, rural reform, urban reform and institutional reform

15. Reform in the Countryside The first wave reforms took place in the countryside Deng undertook several measures to increase crop production and raise rural income Created Dual price system He also increased state investment in agriculture and relaxed restrictions on interprovincial trade in agricultural products

16. Reform in the Countryside A related innovation was the Household Responsibility System The reforms had an immediate impact and production of all types jumped sharply Increased production and procurement led to sharp increase I savings Township and Village Enterprise output grew- 30% a year throughout the 1980 and By 1995, 23 million TVEs employed 129 million people.

17. TRADE AND INVESTMENT REFORMS GDP Ratio was only 10% No stock of FDI Strong Demand for imports (Primary fertilizers and capital Equipments). Internationalization was needed .

18. 3 DISTINCT PATHS Piecemeal Trade Reform Liberalization of FDI Foreign Currency

19. In Deng's reform The First was piecemeal trade reform started in 1979 to mid-1990s. Prior 1979, all trade followed 12 Foreign trade corporations(FTC) After that local official started to license their own FTCs , allowed local firm to bypass central government FTCs and reached number 5,075 FTCs registration in 1988 and domestic firm reached 10,000 in mid-1990. In 1980 the central government began slow reduction in import tariff.

20. FDI has played major role in Hong Kong and Singapore compare to Japan and South Korea. FDI troubled political group since it involved much closer foreign ties than simple trade. So suggested to foreign control of Chinese asset in liquidity. But Chinese are more sensitive and restricted in few geographical places. Other than four coastal cities of SEZ in 1980.

21. 3rd set of reform is foreign currency. Until mid-1980 foreign currency transaction was tightly regulated. All Capital transaction required approval of Central bank. Enterprises with foreign capital located in SEZ. In 1986 government introduced dual exchange rate system in domestic firm to buy and sell limited amount of foreign currency.

22. IMPACT OF THIS REFORM Merchandise exports grew from 11billion in 1978 to 24 billion in 1984 14% growth rate In 1996 , Exports were $154 billion FDI was 2.7 billion in 1990 but it exploded after 1993 and reached 42 billion in 1996. Rapid accumulation of foreign reserve Appreciation of Yuan because of large trade surplus and Inbound capital inflow.

23. State- Owned Enterprise Reform The reform in countryside and SEZ has increased production and income. Also Increased pressure in state owned enterprise and protected areas like 78% in industrial output 19% of total employment in 1978. SOE Key sectors are heavy industry, minerals extraction, energy production and banking.

24. In 1978 they paid income tax 19% of GDP. Most state owned enterprises in china were consider overstaffed, inefficient and poorly managed. The world bank estimated manufacturing productivity declined 1.2% annual rate in 1978 to 1983. Iron Rice Bowl System SOEs Share of industrial output continues to fall from 78% to 55% Management Responsibility System

25. INSTITUTIONAL REFORM Implemented between 1978 and 1995. Increased Provincial Autonomy Fiscal Reform Financial Sector Reform Currency Reform

26. PROVINCIALAUTONOMY Tax Contract System Local Govt. got freedom to allocate funds to SOEs and TVEs. Sharp Decline in Central Govt. Revenue Fell from 9.6% to 6% of GDP In 1994 , Established National Tax Service Reduction of taxes from 26 to 18 , VAT was introduced . Single income Tax applied to Domestic firms. Revenue rose from 22% to 50 % in 1993

27. FISCAL REFORMS Local Govt. Appoints the directors Regional Branches of Peoples Bank of China. Pressure Local Branch to overextend Credit. Direct loan to Political Favoured projects. Excessive Credit Expansion and Bad Loans Central Govt. establish New Central Bank Law. Competitive Election for Village Level official.

28. ECONOMIC STRATEGY IN MID- 1990s Establish goal of 8%GDP Planned Economy to a socialist Market Economy From Extensive growth (based on increased input) to Intensive growth (Driven by improvement in efficiency.

29. 5 INITIATIVE Fight against inflation through fiscal and monetary restraint SOEs was to refocused and accelerate Strengthening China Integration with the International economy Increase Productivity Growth Economic and political Stability

30. CHALLENGES ON THE EVE OF NEW MILLENNIUM SOE Reform Unemployment Financial Sector Provincial Center and Province Province tension Political Liberalization and Human Rights Economic Integration Environment

31. WHITHER CHINA ? Impact Asian Financial Crisis : Revealed Weakness Asian development Model China had been Pursuing Threaten Export Market GDP grew by 8.8% Inflation decline to 3% Foreign Investment Grown only 3% Retail Sales Low and inventory pile up

32. Could China Continue to muddle through relying on incremental reform ,Spontaneous Innovation in provinces and annual US approval of MFN? Or Was it time to Fundamental Rethink of Chinas strategy , Perhaps leading to faster and more Comprehensive reform ?