The Chinese Economy: What’s the real Problem?

Andong Zhu

Tsinghua University

IDEAs Conference on

A Decade After: Recovery and

Adjustment Since the East Asian Crisis

12-14 July 2007

Outline

Introduction The Impacts of the Crisis on the Chinese

Economy What’s the Real Problem? Conclusion

Outline

Similar Story with Other Asian Countries The Chinese Story What’s the Real Problem Conclusion

Similar Story with Other Asian Countries

High GDP Growth Savings Investment Gap CA Surplus High Foreign Reserves Pressure for Appreciation of the Currence Jobless Growth High Inequality Foreign Capital Penetration in the Economy ……

GDP Growth i n Chi na: 1979-2006 (%)

7. 6 7. 8

5. 3

9. 0

10. 9

15. 2

13. 5

8. 9

11. 6 11. 3

4. 1 3. 8

9. 2

14. 213. 9

13. 1

10. 9

10. 09. 3

7. 8 7. 68. 4 8. 3

9. 1

10. 010. 1 10. 210. 7

0

2

4

6

8

10

12

14

16

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Savi ngs and Investment i n Chi na: 1978-2005

20. 0

25. 0

30. 0

35. 0

40. 0

45. 0

50. 0

1978 19791980 19811982 198319841985 19861987 19881989 19901991 19921993 19941995 19961997 199819992000 20012002 20032004 2005

i nvestment rati o

Savi ng rati o

Net Export as % of GDP i n Chi na: 1978-2006

-0. 32-0. 49-0. 32

0. 34

1. 63

0. 82

0. 02

-4. 04

-2. 43

0. 09

-0. 98-1. 07

2. 642. 74

1. 00

-1. 84

1. 261. 58

1. 97

4. 354. 19

2. 612. 422. 132. 57

2. 192. 54

5. 48

6. 76

-6

-4

-2

0

2

4

6

8

Forei gn Reserves of Chi na ($Bn): 1978-2007

0 1 - 1 3 7 9 8 3 2 3 3 6 11 22 19 2152 74

105140 145 155 166

212286

403

610

819

1066

1202

- 200

0

200

400

600

800

1000

1200

140019

78

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Exchange Rate of RMB agai nst USD(?RMB=100USD): 1978-2007

168 155 150 171 189 198233

294345

372 372 377

478

532 551576

862835 831 829 828 828 828 828 828 828 828 819

797758

0

100

200

300

400

500

600

700

800

900

1000

1978

 

1979

 

1980

 

1981

 

1982

 

1983

 

1984

 

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

.7

Empl oyment El asti ci ty i n Chi na

-1. 5

-1

-0. 5

0

0. 5

1

1. 5

2

2. 5

19781979 19801981198219831984 19851986198719881989 1990199119921993 19941995199619971998 19992000200120022003 20042005

Total

Pri mary I ndustry

Secondary I ndustry

Terti ary I ndustry

Decreasing Employment Elasticity

　 TotalPrimary Industry

Secondary Industry

Tertiary Industry

1979-1989 0.34 0.21 0.57 0.58

1991-2000 0.11 -0.11 0.10 0.50

2001-2005 0.11 -0.16 0.19 0.37

Income Inequality in China:1979~2004

.24

.28

.32

.36

.40

.44

.48

80 82 84 86 88 90 92 94 96 98 00 02 04

GINI

Share in Industry Output by Ownership (%)

54.61 35.63 7.4856.17 32.99 5.5551.52 35.07 6.3247.01 34.02 9.8337.34 37.72 13.6933.97 36.59 15.1436.32 39.39 9.1531.62 38.11 11.728.24 38.41 9.01

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Forei gn Owned SOE Col l ect i ve Domest i c Pr i vate

The Chinese Story with the Crisis

One Good Impact: Capital Account Liberalization Stopped

Other Impacts:

The Over-dependency on Foreign TradeForei gn Trade as % of GDP: 1978-2006

- 10

0

10

20

30

40

50

60

70

80

Total I mports & Exports Total ExportsTotal I mports Bal ance

The Over-dependency on Investment

Capi tal Formati on Rate i n Chi na: 1978-2005

38. 236. 1

34. 832. 5 31. 9 32. 8

34. 2

38. 1 37. 536. 3 37. 0 36. 6

34. 9 34. 836. 6

42. 640. 5 40. 3

38. 836. 7 36. 2 36. 2 35. 3

36. 537. 9

41. 043. 2 42. 6

0

5

10

15

20

25

30

35

40

45

50Capi tal Formati on Rate (%)

The Excessive Savings in China: 1981-2004

Gross savi ngs (% of GDP)

32

3635

35

34

35

3635

35

39 3938

40

42

40

39

40

38

36

34

35

38

41

42

30

32

34

36

38

40

42

44

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Decreasing Consumption Rate

Fi nal Consupti on Rate i n Chi na: 1978-2005

50

52

54

56

58

60

62

64

66

68Fi nal Consumpti on Rate (%)

Sweden 25, India 32.5, United States 40.8, China 44.7, Brazil 59.1

0.20

0.25

0.30

0.35

0.40

0.45

0.50

'81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01

Gini Coefficient for China’s Income Distribution

The Increasing Inequality

According to a recent study, In urban area, the top 10% family’s income is

31 times of the bottom 10% family’s income, rather than 9 times, as some statistics show.

If we consider both the urban and rural area, the ratio is 55, rather than 21 times.

Informalizing Labor MarketEmpl oyment I n Chi na: 1978-2005 (0000)

0

5000

10000

15000

20000

25000

30000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

EMP-CI TY EMP-CI TY-SOE EMP-STF&WRK

The Laid-off/privatization Movement

0

5000

10000

15000

20000

25000

30000

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Urban empl oyment

State-owned Uni ts

Col l ecti ve- owned Uni ts

Manufacturi ng

The Laid-off/privatization Movement

Urban employment

State-owned Units

Collective-owned Units

Mining and Quarrying

Manufacturing

highest level 27331(2005)11261(1995)

3628(1991)

932(1995)

9803(1995)

lowest level19040(1995)

6488(2005) 810(2005)558(2005)

8043(2000)

change 8291 -4773 -2818 -374 -1760

Ownership Changes in the Chinese Economy

Shrinking SOE Sector Increasing Private Enterprises’ Share Increasing Foreign Control

Share in Industry Output by Ownership (%)

54.61 35.63 7.4856.17 32.99 5.5551.52 35.07 6.3247.01 34.02 9.8337.34 37.72 13.6933.97 36.59 15.1436.32 39.39 9.1531.62 38.11 11.728.24 38.41 9.01

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Forei gn Owned SOE Col l ect i ve Domest i c Pr i vate

Forei gn Enterpri ses' Share i n Chi na' s I nternati onal Trade (%)

0

10

20

30

40

50

60

70

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Year

EX + IM EXIM

Foreign Capital’s Share in Different Industries in China:2005

“ ” (%)三资 企业在工业总产值中的比重

0 1 2 48 8 10 11 11 13 15 18

23 25 25 25 26 27 28 2932 33 34 34 35 36 37 38 39 40 43 43 46

53 5561 63 66

84

0

10

20

30

40

50

60

70

80

90

烟草制品业

煤炭开采和洗选业

黑色金属矿采选业

有色金属矿采选业

非金属矿采选业

石油和天然气开采业

水的生产和供应业

石油加工、炼焦及核燃料加工业

电力、热力的生产和供应业

黑色金属冶炼及压延加工业

有色金属冶炼及压延加工业

非金属矿物制品业

木材加工及木、竹、藤、棕、草制品业

医药制造业

专用设备制造业

纺织业

化学原料及化学制品制造业

通用设备制造业

化学纤维制造业

农副食品加工业

印刷业和记录媒介的复制

废弃资源和废旧材料回收加工业

燃气生产和供应业

饮料制造业

造纸及纸制品业

食品制造业

金属制品业

电气机械及器材制造业

橡胶制品业

工艺品及其他制造业

塑料制品业

交通运输设备制造业

纺织服装、鞋、帽制造业

()

皮革、毛皮、羽毛绒及其制品业

家具制造业

文教体育用品制造业

其他采矿业

仪器仪表及文化、办公用

通信设备、计算机及其他电子设备制造业

Share of Different Ownership in Different Industries in China:2005

(%)不同所有制企业在工业总产值中的比重

0

10

20

30

40

50

60

70

80

90

100

全国总计

烟草制品业

煤炭开采和洗选业

黑色金属矿采选业

有色金属矿采选业

非金属矿采选业

石油和天然气开采业

水的生产和供应业

石油加工、炼焦及核燃料加工业

电力、热力的生产和供应业

黑色金属冶炼及压延加工业

有色金属冶炼及压延加工业

非金属矿物制品业

木材加工及木、竹、藤、棕、草制品业

医药制造业

专用设备制造业

纺织业

化学原料及化学制品制造业

通用设备制造业

化学纤维制造业

农副食品加工业

印刷业和记录媒介的复制

废弃资源和废旧材料回收加工业

燃气生产和供应业

饮料制造业

造纸及纸制品业

食品制造业

金属制品业

电气机械及器材制造业

橡胶制品业

工艺品及其他制造业

塑料制品业

交通运输设备制造业

纺织服装、鞋、帽制造业

()

皮革、毛皮、羽毛绒及其制品业

家具制造业

文教体育用品制造业

其他采矿业

仪器仪表及文化、办公用机械制造业

通信设备、计算机及其他电子设备制造业

国有及国有控股 私营 “ ”三资

Take away Profits, Leave GDPand…

Pollution

Pollution in the World:1999

Searching a Job？ Or a War？

What’s the Real Problem?

Too much foreign Reserves Too much foreign capital High CA surplus (most of them owned by for

eign capital) Pressure for appreciation of the currence Easy solution or not?

Why We are always the Victim?

Should we just solve the urgent problem or should we rethinking the world political and economic system?

Thanks!