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China's economic

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  • 1. Enter the Dragon?Enter the Dragon? Chinas Economic RiseChinas Economic Rise Last slide
  • 2. Enter the Dragon? Chinas Economic Rise Lets begin our examinatio n of China by looking at some basic economic facts and
  • 3. Enter the Dragon? Chinas Economic Rise
  • 4. Enter the Dragon? Chinas Economic Rise These tables show Chinas overall GDP in both nominal and PPP terms compared to other major economies These tables show Chinas overall GDP in both nominal and PPP terms compared to other major economies
  • 5. International Comparison: Real GDP Growth Enter the Dragon? Chinas Economic Rise
  • 6. GDP real growth rate: 9.8% (2008) country comparison to the world: 13% (2007) 11.6% (2006) GDP-Per capital (PPP-Purchasing power parity): $6,000 (2008)country comparison to the world: $5,500 (2007) $4,900 (2006) note: data are in 2008 US dollars GDP composition by sector: agriculture: 10.6% industry: 49.2% services: 40.2% (2008) China Economic Fact SheetChina Economic Fact Sheet
  • 7. Education systemEducation system Growth rate-India@17%, China@13% Primary, secondary education, vocational education trainning in china results in 99.1% literacy rate. Where as in India it is 50 to 60 % Adult literacy India -61% China-91% Expenditure on education India- 10.7% China -12.8% But coming to quality education India is far more better than china
  • 8. Enter the Dragon? Chinas Economic Rise Chinas economic growth (est. only) 1980 1996 2000 Why is China Growing So Fast? How does the IMF(International Monetary Fund) Research Team answer this question? Is China following the old Soviet model? (Recall that the old Soviet model was based on a rapid increase in inputs, especially labor and capital) Or, is something unusual happening in China? In other words, what is the key source of economic growth in China, particularly since 1978 (when the era of rapid growth began)?
  • 9. Continued During 1979-94, productivity gains accounted for more than 42 percent of Chinas growth and by the early 1990s had overtaken capital as the most significant source of growth Enter the Dragon? Chinas Economic Rise Chinas economic growth 1980 1996 2000
  • 10. Continued [Chinas] explosive growth in productivity is remarkable--the U.S. productivity growth rate averaged 0.4 percent during 1960-1989 [compared to 3.9 percent for China] --and enviable, since productivity-led growth is more likely to be sustained Enter the Dragon? Chinas Economic Rise From the Economist: In 2000 Chinas workers were about 26% less productive than ASEANs. By 2005 the Chinese had become 5% more productive. The gap is set to widen: Chinese productivity has been growing at about 6.6% a year, more than double ASEANs 2.9% From the Economist: In 2000 Chinas workers were about 26% less productive than ASEANs. By 2005 the Chinese had become 5% more productive. The gap is set to widen: Chinese productivity has been growing at about 6.6% a year, more than double ASEANs 2.9% Whats the significance of this conclusion by the IMF Research Team? Whats the significance of this conclusion by the IMF Research Team?
  • 11. ContinuedContinued According the IMF Research Team, productivity increases in China were led by Introduction of the profit incentive to rural collective enterprises (which are owned by local governments), family farms, small private businesses, and foreign investors and traders Reduction in state intervention Expansion of property rights in the countryside and decollectivization Enter the Dragon? Chinas Economic Rise Chinas economic growth 1980 1996 2000
  • 12. Why is China Growing So Fast? Does a Getting-the-prices-right argument seem adequate to explain Chinas extraordinary economic growth? (On this question, consider the sources of productivity growth) Is there something missing from the IMF explanation? How might we answer this question from the standpoint of the various theoretical arguments weve studied in class? Enter the Dragon? Chinas Economic Rise Discuss
  • 13. Why is China Growing So Fast? The Getting-the-prices-right argument suggests quite strongly that Chinas economic development is largely, if not solely the product of an unleashed private sector One problem, however, is this: the Chinese state, while loosening its grip, continues to keep the private sector on a short leash Enter the Dragon? Chinas Economic Rise
  • 14. Comparing India and Chinas Growth Stories Comparing India and Chinas Growth Stories Indicators India China Political System Multi-party Democracy One-party authoritarian rule Speed of Growth Economic reforms started in 1991. Average 6% growth rate in past two decades. Economic reforms started in 1978. Average 9.5% growth rate in past two decades. Areas of Specialization Rising power in software, design, services, and precision industry. Dominant in mass manufacturing, electronics and heavy industrial plants
  • 15. Comparing India and Chinas Growth Stories Comparing India and Chinas Growth Stories Indicators India China Gini index (standard measure of inequality) 36.8 47.0 (up 10 points from 15 yrs ago) Foreign Direct Investment 6.8% (up from 0.3% in 2004) 17.8% Future Areas of growth R&D, bio- technology, high- value IT enabled services (legal, medical, engineering architecture), manufacturing, agro- based industry IT business, services and continued manufacturing
  • 16. GDP Growth 2000 to 2050GDP Growth 2000 to 2050 Source: Goldmann Sachs: The Path to 2050 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 [2003 bn US Dollars] Germany Brazil Japan Russia -8-
  • 17. Does China Follow the East Asian Model? Of course, there is nothing surprising about Chinas economic model: We have seen it before in Japan, South Korea, and Taiwan Yet, while the other East Asian economies have been gradually dismantling their developmental state apparatuses, China seems to be in the process of solidifying the elements of its developmental state Enter the Dragon? Chinas Economic Rise Q: Why has China been able build a developmental state while other countries liberalize? Q: Why has China been able build a developmental state while other countries liberalize?
  • 18. Elements of the East Asian Model in China The Chinese state has purposefully created a dual economic structure: one part is based on an ever- expanding private sector, while the other part is based on still prominent state-owned enterprises, or SOEs The private sector is relatively free of state control, but still depends on state policies The state sector, while declining in overall influence, still plays a major part in heavy industry and makes up a high percentage of gross domestic fixed capital formation, gross output value and the number of employees Enter the Dragon? Chinas Economic Rise
  • 19. Elements of the East Asian Model in China State-Owned Enterprises SOEs are concentrated in strategic industries with intermediate technology In the mid-1990s, 512 large SOEs were designated as priority companies; the central government has also promoted bureaucratic- led restructuring in an effort to make these companies globally competitive Examples: PetroChina, Sinopec, and China Telecom Enter the Dragon? Chinas Economic Rise PetroChina is now the worlds BIGGEST company, worth about $1 trillion--

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