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Development of China - An Economy in Transition Kennyzhang@asiapacific.ca Slide 2 3 Purposes 1.To Know China China matters 2.To Know Chinas Development Development matters 3.To Know Chinas Development Impacts on Us Are we prepared? Slide 3 5 Topics 1.Why China? 2.Why development? 3.What happened to Chinas development? 4.What next? New challenge ahead 5.Summary Slide 4 1. Why China? 1.1 Facts: Where? http://china.scmp.com/map/http://china.scmp.com/map/ What? http://www.asiapacificbusiness.ca/backgrounder s/pages_contents.cfm?ID_Briefing=1 http://www.asiapacificbusiness.ca/backgrounder s/pages_contents.cfm?ID_Briefing=1 Country Comparisons: http://www.asiapacificbusiness.ca/backgrounder s/compareIE.cfm http://www.asiapacificbusiness.ca/backgrounder s/compareIE.cfm Slide 5 1. Why China? (contd) 1.2 Nicknames: Awaken Dragon History; Land; Population; Economy; see 2.2.2. Growth Engine http://www.business-standard.com/updates/news.asp?story=3084 http://www.business-standard.com/updates/news.asp?story=3084 GDP growth 7.6% (98-02); 3 times of world average Top FDI Recipient US$52.7b/7% (2002), $57b (2003) Global Factory http://news.bbc.co.uk/2/hi/business/2415241.stm http://news.bbc.co.uk/2/hi/business/2415241.stm Labour cost, production chain, export Threaten to the World Domestic crisis (population, energy, food, economy); global integration (trade, currency); rising powerful state (economy and military) Slide 6 2. Why Development? 2.1 Long term trend 2.2 Chinas position: past & present Slide 7 2.1 Long-run of Economic Growth - Selected Countries Slide 8 2.2 Chinas Development Position Fast growth Large scale Low level Source: http://www.adb.org/Documents/Books/Key_Indicators/2003/default.asp http://www.adb.org/Documents/Books/Key_Indicators/2003/default.asp Slide 9 2.2.1 GDP and GDP Per Capita Growth Rate (PPP): 1700-1995 Slide 10 2.2.2 Share of GNP (PPP) Slide 11 2.2.3 GDP Per Capita (PPP): 1700-1995 Slide 12 Source: MOFCOM, China, at http://www.mofcom.gov.cn/table/jcktj/lszl/lszlqxt.htmlhttp://www.mofcom.gov.cn/table/jcktj/lszl/lszlqxt.html Slide 13 3. What Happened? Economic Reform Transition to the market Global Integration Slide 14 3.1 History of Chinas Development First Five-Year Plan (1953-1957) A new economic order modeled on the Soviet Union example, emphasizing the development of capital-intensive heavy industry Great Leap Forward (1958-1960) The break away from the Soviet model and introduction of a new program aimed at rapidly raising industrial and agricultural production Cultural Revolution (1966-1976) The pursuit of Maos own development strategy of a self-reliant economy and political struggle Economic Reforms (1978- ) To move the economy from a planned economy to one that is more market-oriented Slide 15 3.2 Economic Reforms: Rural reform Increase of agricultural production and rural income Open-door policy Turnaround from an inward-looking, self-reliant economy to one that participates in the world economy (foreign trade, FDI, and SEZs) Industrial reform Enterprise reform and price reform Financial reform Companys responsible for financial performance and borrow money from banks; raise capital at the stock market Slide 16 3.2 Economic Reforms (Contd): SOEs reforms Ownership/Assets restructuring Western China development Regional development WTO accession Trade policy change, legal reform, structure adjustment Go Global strategy Outward investment, cross-board M&As, overseas listing Slide 17 3.3 Model of China Development #1: Socialist planned economy: Government planning is basic means of allocating resources Production quotas: quantity rather than quality Suppress consumption to increase saving: invest in heavy industry Self-reliant and uninvolved in foreign economic relation Results: Shortage in supply: production and consumption goods Slow and unstable economy growth Slide 18 3.3 Model of China Development (contd) #2: Socialist market economy: Market is basic means of allocating resources State controls at the macroeconomic level Economic structural Reform Results: Competition: establishment of the diversified ownership Efficient: profit maximization Open: involved in foreign economic relation Fast economy growth Slide 19 Comparison of Two Development Models Slide 20 4. New Challenges Ahead Population and environmental pressures Employment insecurity Growing inequality and poverty Macroeconomic instability stemming from incomplete reforms/transitions International player: economically and politically Slide 21 4.1 Population and Environmental Pressures Large in # (1.3 b) Low rate (