A Presentation on China's Western Development
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Transcript of A Presentation on China's Western Development
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Advanced Topics in Intl Trade and Finance
Under Focus: -Geopolitical and trade aspect (Shaheer Khan) - Financial system (Jon Wright)
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Chinas Go West Policy
Eastern China saturated. Growth slowing down.
71.6% of Chinas land area covered by western provinces
But not much development in the west
Future Chinese economic growth to come from the development of western China
BUT HOW TO SUPPLY ENERGY TO SUPPORT THAT DEVELOPMENT?
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Arabia Sea Gawadar Port in Pakistan
Construction started 2002
Phase 1 has been completed.
Phase 2 under construction now
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Gawadar in 2002
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Gawadar in 2012
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Low construction cost due to the natural shape of the land that protects ships from bad weather:
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Currently a 16,000km trip for a ship (2 to 3 months) from Saudi Arabia to
Shanghai
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Oil imports + Goods Exports
Oil supplies directly moving into the inner provinces of China (2000km trip) rather than first going to Shanghai and then moved inland
Bulk exports from inner provinces travelling south through Pakistan, and shipped from the Gawadar port
Very large savings in transportation costs
Risks that Chinese ships face from pirates, bad weather and political rivalry on their way to China eliminated
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Easier to do in the Chinese system
Due to the centralized aspect of the Chinese system, risky decisions are faster and easier to take
Chinese government does not have to worry as much about getting votes passed through the Senate/Congress, a long process that can take decades
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The Financial Aspect
This is a $43 Billion project. So how does the Chinese financial system make financing
available for such large projects? What are the challenges being faced by the financial
system?
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Pre-reform periods (1949-1978) - Peoples Bank of China virtually the only bank, - merged with the Ministry of Finance until 1978
Bank Ownership
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Plural Bank system
1983 Big 4
1986 Big 5
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Big 4 Division of Responsibilities
The Bank of China (BOC) listed Dec 2005
Financing foreign trade and investment
The China Construction Bank (CCB) listed June 2005
Financing construction and fixed-asset investment
The Industrial and Commercial Bank of China (ICBC) listed June 2006
Financing the business activities of the SOEs
The Agricultural Bank of China (ABC) listed 2010
Financing the rural and agricultural sectors
All four banks are among the largest 10 banks (by assets) in the world.
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Shadow Banking
estimated 27 trillion RMB in 2013, i.e., 47% of GDP
Share of new credit doubled 20% to 40% from 2008 to June 2013
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Set rates
Interest rates (of deposits and lending) are set administratively (net interest margin approx. 3%).
Floor on lending rates removed July 13
Banks are allowed deposit interest rate of 1.1x base rate.
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Fixed Exchange and Banks
Government must purchase foreign exchange
Excess money supply must be sterilized
Strategy 1: Banks must purchase bills at low rates
Strategy 2: raise reserve requirement ratio