CHINA S RISE & A CHANGING WORLD NOVEMBER 7, 2017 KOÇ UNIVERSITY
GDP, Current Price, Trillion USD Chinese Economy Rising Source: UN Statistical Division 7,00 6,00 5,00 4,00 3,00 2,00 France Germany Italy Japan Spain Turkey UK China 1,00 0,00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Crude Steel Production CRS 2010
Expressway System Lenght km https://people.hofstra.edu/geotrans/eng/ch3en/conc3en/interstatemileage.html
China Impact Trade Domestic Market & FDI China s Investments Financial Impact & Fx Reserves International Projects Asia Centered World Economy Plight of the Middle Class? Rise of Populism?
Drivers of Past Growth SAVINGS DEMOGRAPHICS ADMINISTRATIVE SYSTEM FINANCIAL SYSTEM WAGES HUKOU
Potential Dampeners SAVINGS DEMOGRAPHICS ADMINISTRATIVE SYSTEM FINANCIAL SYSTEM WAGES HUKOU
More Dampeners SAVINGS DEMOGRAPHICS ADMINISTRATIVE SYSTEM MIDDLE INCOME TRAP FINANCIAL SYSTEM WAGES HUKOU POST STIMULUS PROBLEMS
China & Knowledge Power R&D Expenditure Education & Researchers Study Abroad Publications Patents Process & Product Innovation Industry Results Successes
Post Stimulus Problems Global Crisis & Chinese Response Debt Problem Over Capacity Shadow Banking Housing Markets
Q&A
Manufacturing Value Added Current USD UN Data 3,5E+12 3E+12 2,5E+12 2E+12 1,5E+12 1E+12 5E+11 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 US CH
Top 10 Comparison countries
Recent Quarterly Growth Trading Economics
GDP 2011 Ranking World Bank Rank Country Million Int. Dollar 1 United States 15.094.000 2 China 7.318.499 3 Japan 5.867.154 4 Germany 3.570.556 5 France 2.773.032 6 Brazil 2.476.652 7 United Kingdom 2.431.589 8 Italy 2.194.750 9 Russian Federation 1.857.770 10 India 1.847.982 18 Turkey 773.091 40 Singapore 239.700
Making GDP comparable Statistical inaccuracies Exchange rates Managed rates Financial flows Prices Frictions-distortions-tastes Non traded goods and services Purchasing Power Parity World Bank-ICP 2005, 2011 Penn World Tables-PWT 2005, 2011(2009)
GDP 2011 ppp Ranking World Bank Rank Country Million Int. Dollar 1 United States 15.094.000 2 China 11.379.182 3 India 4.533.919 4 Japan 4.383.325 5 Germany 3.204.596 6 Russian Federation 3.015.670 7 Brazil 2.304.646 8 France 2.289.849 9 United Kingdom 2.223.368 10 Italy 2.001.007 15 Turkey 1.288.638 40 Singapore 316.741
GDP percap 2011 ppp Ranking World Bank Rank Country Million Int. Dollar 1 Luxembourg 89.992 2 Qatar 88.919 3 Macao SAR, China 77.607 4 Norway 61.882 5 Singapore 61.103 6 Kuwait 54.654 7 Hong Kong SAR, China 49.990 8 Switzerland 49.151 9 United States 48.442 10 United Arab Emirates 48.222 50 Turkey 17.499 91 China 8.466
Ranking-Change & Significance Using PWT 7.1 July 2012 2011 GDP= 47 B Yuan PPP adjusted 13-14 T USD Probably overtake US in 2013? The significance of GDP rankings Assumptions and Uncertainties GDP and per capita GDP
2 WEIGHT OF INDUSTRY
Üretimin Bileşenleri Trilyon ABD Doları GDP by Components China US 2010 Current USD 9,00 8,00 7,00 6,00 5,00 4,00 China USA 3,00 2,00 1,00 0,00 Agriculture Industry Manufacturing Construction Trade Transport Other
Classification
Other
Manufacturing-GDP share % 2009 35 30 25 20 15 10 5 0
Sectoral Classification Primary Sector (Agriculture) Secondary Sector (Industry) Industry Manufacturing Mining Utilities Construction Tertiary Sector (Services) Transportation, Storage and Post Information Transmission, Computer Services Wholesale and Retail Trade Hotel and Catering Services Financial Intermediation Real Estate Leasing and Business Services Scientific Research, Technical Services and Geological Prospecting Management of Water Conservancy, Environment and Public Facilities Services to Households and Other Services Education Health, Social Security and Social Welfare Culture, Sports and Entertainment Public Management and Social Organization
Sector Shares in GDP 2011 % World Bank AGRICULTURE INDUSTRY SERVICES China 10,3 46,2 43,4 Korea 2,8 36,8 60,4 Japan 1,2 25,9 72,9 Singapore 0,0 27,9 72,1 Turkey 9,3 25,9 64,7 Germany 0,8 26,8 72,4 United Kingdom 0,7 21,2 78,1 United States 1,1 19,6 79,3 World 2,7 25,2 72,0 European Union 1,5 24,1 74,5 Upper middle income 7,3 36,2 56,5
Agricult GDPShare-Income Level World Bank 45 40 35 30 25 20 High income Upper middle income Lower middle income Low income 15 10 5 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Services Share by Income Level World Bank 80 70 60 50 % 40 30 High income Upper middle income Lower middle income Low income 20 10 0
Industry GDPShare-Income Level World Bank 45 40 35 30 % 25 20 15 High income Upper middle income Lower middle income Low income 10 5 0
Service Share & Implications Trends Change by service type Personal-Household vs. Business Specialization vs. Industry shares Role of government services Role of off-shoring Implications Employement Wages
3 Saving and Investment Rates
Investment and Growth A simple model Harrod-Domar K/Y=Capital-Output ratio (COR) dk/dy=k, incremental COR, icor dy=(1/k)*dk dy/y= (1/k)*dK/Y g= i/k Growth rate= Investment rate/k HIGHER the INVESTMENT HIGHER the GROWTH Not necessarily vice versa
Chinese ICOR thru time Beim, 2011 Avg investment in preceeding 3 years/change in GDP
Limitations of the COR approach Product innovations Productivity improvements Changes in capacity utilization Efficiency of investment Project selection-profitability İmplementation efficiency Different types-impacts Residential, Infrastucture, Plant and Equipment
Investment Rate over Time %GDP 50,0% 45,0% 40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% Fixed Capital Formation-gross Inventory Accumulation Total Capital Formation 0,0%
Country Investment Rates 2010 World Bank REGION Investment Rate % China 47,7 Turkey 20,0 Singapore 22,1 USA 15,2 EU 18,6 World 19,9
Country Investment Rates % World Bank 60,0 50,0 40,0 30,0 20,0 China Korea, Rep. Japan Singapore Turkey Germany Netherlands United Kingdom United States 10,0 0,0
Investment Rate Income Groups World Bank 35 30 25 20 15 High income Upper middle income Lower middle income Low income 10 5 0
Funding the Investments Savings Identity Y+NFP=C+I+X-M+NFP S=I+CA s= i + CA/Y Private and Government components of Consumption and Investment Saving deficit and surplus
Country Savings Rates 2010 World Bank REGION Saving Rate % China 52,8 Turkey 13,7 Singapore 46,6 USA 12,0 EU 18,6 World 19,9
Country Savings Rates % World Bank 60 50 40 30 20 China Korea, Rep. Japan Singapore Turkey Germany Netherlands United Kingdom United States 10 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Savings Rates Income Level % World Bank 35 30 25 20 15 High income Upper middle income Lower middle income Low income 10 5 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Saving and Investment Rates 2010 Savings Rate % Investment Rate % China 52,8 47,7 Turkey 13,7 20,0 Singapore 46,6 22,1 USA 12,0 15,2 EU 18,6 18,6 World 19,9 19,9 Q: What are the Current Account Deficit/Surpluses of these countries as % GDP?
4 Level of integration with the world
Channels of International Economic Interaction International Trade Exports Imports International Direct Investment Inward Outward International Financial Investment Inflow Outflow
Top Export-Importers 2011 WTO Rank Exporters Value Share Rank Importers Value Share 1 China 1898 10,4 1 2 United States 2266 12,3 United States 1480 8,1 2 China 1743 9,5 3 Germany 1472 8,1 3 Germany 1254 6,8 4 Japan 823 4,5 4 Japan 855 4,6 5 Netherlands 661 3,6 5 France 714 3,9 6 France 596 3,3 6 UK 638 3,5 7 Korea, 555 3,0 7 Netherlands 599 3,2 8 Italy 523 2,9 8 Italy 557 3,0 9 Russia 522 2,9 9 Korea 524 2,8 10 Belgium 477 2,6 10 Hong Kong 511 2,8
China Share-World Exports % UNCTAD 12 10 8 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Export Share-Product Category 35,0 UNCTAD 30,0 Total all products 25,0 20,0 15,0 10,0 5,0 Manufactured goods (SITC 5 to 8 less 667 and 68) 7) Chemical products (SITC 5) Machinery and transport equipment (SITC Other manufactured goods (SITC 6 + 8 less 667 and 68) Iron and steel (SITC 67) Textile fibres, yarn, fabrics and clothing (SITC 26 + 65 + 84) 0,0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Exports Close Up 2010 Manufacturing Exports Share: 15 + % Data processing Equipment : 46 % D/P including Hongkong : 50 % Data Communication Eq. : 40 %
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 2008 2009 2010 Billions USD Top two FDI destinations World Bank 350 300 250 200 150 China USA 100 50 0
Industry Output Share-Ownership NBS 2012 9% 18% 31% 42% State Private HK, Macao, TW Foreign
China-Outward Direct Investment 75 Billion USD in 2011 One of the top source countries 178 countries, 16.000 companies Green field and M&A Expected to exceed inward FDI by 2015 Cumulative 2-3 Trillion USD by 2010?
USD Million Chinese ODI over time 80000 70000 60000 50000 40000 30000 20000 10000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FDI-Top Source countries 2010 UNCTAD 350000 300000 250000 200000 150000 100000 50000 0
Financial Investments FDI vs. Financial Investments Capital Controls Outward flows Relatively low control Official reserves and investment Private flows? Inward flows severely restricted
China-Official Reserves SAFE, Monthly Data Dec 1999 June 2012, Billion USD 3.500 3.000 2.500 2.000 1.500 1.000 500 0 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105109 113 117 121 125129 133 137 141 145149
5 Government s Role
Growth oriented management system Fiscal-Administrative Decentralization vs. Political Levels of administration and depth of decentralization Scope for local initiative Human Resouces Management Growth Incentives
Goverment Expenditures-Central Share 2010 % 90 OECD and NBS 80 70 60 50 40 30 20 10 0 Canada France Germany Netherlans UK USA China
Administrative Structure Center Province Level 33 22+5+4+2 Municipality Level 300 County Level 3000 Township Level 40,000 Village 700,000 (1M natural)
Administrative regions http://en.wikipedia.org/wiki/template:prc_provinces_big_imagemap
6 Distribution of enterpreneurial and industrial skills
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 250,0 Registered non-agricultural institutional employment Millions 200,0 150,0 100,0 TVE non TVE 50,0 0,0
Registered non agricultural institutional employment % 42% 58% TVE non TVE
Low Reginal and Firm Level Concentration of Industry Regional Dispersion 27 of 31 provinces have auto idustry Similar in all industries Industry Concentration Low CR levels compared to other countries-except SOE dominated sectors Steel: Top 4 less than 20% Auto: Top 5 less than 35% Large number of producers per sector 150 Auto Producer 8.ooo Auto Supplier 1.200 Steel Producer
Impacts Disadvantages Problem benefiting from Economies of Scale Efficiency-environment Advantage Availability of industry and management skills Fertile enterpreneurial eco-system
7 Scale of social cultural change
Traditional>Socialist>Market Based economy & Society Culture: Family-Society-Individual Authority: Emperor-Party-Markets Social Security: Up and down Equality: Up and down Rising status of the business person
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Gini Coefficient Gini over time 50 45 40 35 National 30 25 20 15 10 5 Rural Urban 0
One Person in Every 1400 in China has at least 10 Million Yuan Chinese Wealthy Hurun Report 2012 Wealth Limit M Y Number Avg. age Wealthy 10 1.020,000 39 Super wealthy 100 63,500 43 Billionaire 1000 4,000 1 in 1300 wealthy 2nd largest middle class: 150-200 M
Income Level Classification Low-income and middle-income economies are sometimes referred to as developing economies. Income group: Economies are divided according to 2011 GNI per capita, calculated using the World Bank Atlas method. The groups are: low income, $1,025 or less; lower middle income, $1,026 - $4,035; upper middle income, $4,036 - $12,475; CHINA & TURKEY high income, $12,476 or more.
Sectoral Classification Primary Sector (Agriculture) Secondary Sector (Industry in general sense) Industry Manufacturing Mining Utilities Construction Tertiary Sector (Services) Transportation, Storage and Post Information Transmission, Computer Services Wholesale and Retail Trade Hotel and Catering Services Financial Intermediation Real Estate Leasing and Business Services Scientific Research, Technical Services and Geological Prospecting Management of Water Conservancy, Environment and Public Facilities Services to Households and Other Services Education Health, Social Security and Social Welfare Culture, Sports and Entertainment Public Management and Social Organization
References The Future of Chinese Growth,David O. Beim, 2011