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CHINESE ECONOMY: AN INDIAN POINT OF VIEW

INDEX

World’s 2nd largest economy after United States

World’s fastest growing economy over 30 years,growth

rate averaging 10%

Tight economy according to the plans and policies

high menufecturing power,maximum exports,technical

advancements and high tourism support

an economy fighting with the internal unstablities

GDP growth rate 7.8 annual change

AN OUTLOOK

Wikipedia report says

According to IMF,China’s GDP is totallig to US$ 8.227 Trn and

nominal GDP per capita US$6,085

Initially had Soviet Style planned economy,followed by Mao’s

communism policy

economic growth equal to all G7 countries combined.

powerpoints- high productivity,low labour costs,relatively good

menufecturing

Foreign Exchange Reserves reached $2.85 Trn in 2010 and

expecting growth

Towards the end of 2012,China producing 2nd highest number of

billionairs

domestic retail market worth over 20 Trn Yuan(US$3.2 trn) and

growing over 12% annually

Chinese Economy: a past glance

In the Maoist Era (50 years ago).

Before 1949,the economy of China was fragile and broken

“Building a new China” in the Communist Party’s Rule.

“A GREAT FORWARD” attempt.

LI and Deng approach in the early 80’s.

they emphasise in the folollowing points-a. rising personal income and consumption with

introduction of new managarial system.b. Foreign trade as a major vehicle for econompc growthc.minimum redtape in the economic zones

controlling the power of the SOE(state owned enterprizes)FDI was introducedCulture Revolution started.First GDP reports

chinese economy : the current scenario

widespread corruption,cronysm is

instutionalised and pervasive

Undermined productivity growth

tight controll of communism

“ONE CHILD POLICY” to a social unrest

A critical and unfree economy

China’s weak judicial system is highly vulnerable to political

influence and corruption. All land is state-owned. Individuals

and firms may own and transfer long-term leases that are

subject to many restrictions.

The top income tax rate is 45 percent, and the top corporate tax rate is 25 percent.The overall tax burden is equal to 18.2 percent of total domestic income. Government spending amounts to 23.6 percent of GDP. Public debt has decreased, but large amounts of debt are held in off-budget obligations. Slower growth may undermine fiscal policy.

regulatory framework remains complex, arbitrary, and uneven. Completing licensing requirements costs over three times the level of average annual income. The labor regime remains repressive. The state imposes price controls on a wide range of energy, raw materials, and other basic goods.

The trade-weighted average tariff rate is 4 percent, and layers of non-tariff barriers add to the cost of trade. The investment regime is non-transparent and inefficient. The state continues its tight control of the financial system as its primary means for managing the rest of the economy.

Rule of law

Limited Govt.

Regulatory efficiency

Open markets

www.Heritage.org

protection of private property rights

A freezed up credit market

financial probe with Peoples’ Bank of China

the “GO WEST” policy

U.K. calling,to be the “centre for the global

innovation”

Trade falls a new sign in economic fading

China’s trade declined abruptly in june forecasting a rapid fall in

the further days.

Exports fell by 3.1% & imports contracted by 0.7%

Due to central bank’s cooling credit system,exports have also

gone down

Retail sales have fallen short according to HSBC survey

Exports growth to united states,china’s biggest foreign market fell

to 15.5%

www.Washington post.com

oil price fall affecting GDP slowdownMenufecturing weakness in credit crunchLI Xinping’s china dreamAffects of the global economic slowdown in 2008

the global economic slowdown in 2008 effected mostly on the exports

of the country.GDP growth fell from 14.2% in 2007 to 9.2% in 2009

IMF projection a GDP fallWill China have a safe landing

Global financial markets were roiled after the world’s 2nd largest economy

notched only at 7.7% boost in gdp in the 1st quarter,a disappointment for a

country that jumped 10% or more over three decades.

China- U.S. economic relations

Resumed trade relations in 1972-73

U.S has more than 20,000 equity Joint ventures and

SOEs

U.S. trade defcit with mainland china exceeded $350 bn

in 2006 and it was United states’s largest bilateral trade

deficit

Undervaluation of renimbi relative to U.S.$China United

states

In september 2009,trade dispute emerged between

China and U.S.,resulting n U.S. import tariffs on 35% on

China’s tire imports,and China accusing U.S. to be in a

“grave act of trade protectionism”

U.s. demand for labor intensive goods exceeds

domestic outputs: PRC has restrictive trade practices

which includes a wide array of barriers to foreign goods

and services,aimed to protect SOEs.these practices

includes High tariffs,lack of transparency,requiring firms

to obtain special permission to obtain goods,and

leveraging technology from foreign firms in return for

market access.

Chinese leaders are betting that if they can roll out a smarter

electricity grid before the United States, China can not only

address their domestic energy challenges but also get a head

start on technology standardization

China Aims to Dominate U.S. in Smart Grid Investments

China aims to modernize its energy infrastructure and dominate

clean energy technology markets abroad. At the Smart Grid

World Forum in Beijing late last month, China’s State Grid

Corporation announced plans to invest $250 billion in electric

power infrastructure upgrades over the next five years, of which

$45 billion is earmarked for smart grid technologies. According

to its three-stage plan, China will invest another $240 billion

between 2016 and 2020 (including another $45 billion toward

smart grid technologies) to complete the build-out of a

“stronger, smarter”.

FDI effect in China

A lower base,a higher gain

2nd leader in APEC nations

consists largely of greenfeild Fdi,Hongkong

being the largest source of fdi in PRC.

Cut throat competition from local investors

Labour uncooperation

current inflow- $124.0 billion

June july august september

20.12

24.13

23.09

24.8FDI flows in last four

months

STIMULUS PACKAGE IMPACT

A policy initiated in 2008 to achieve GDP target rate to take he

leap in the economy

RMB 1.5 trn in public infrastructure

RMB 1trn for post quake reconstruction

RMB 370bn for technology advancement

RMB 370bn for rural development

RMB 210bn for sustainable development

RMB 150 for cultural growth

IMPACT

ACHIEVEMENT WITH CLASH BETWEEN FOREIGN AND DOMESTIC INVESTORS

Causes of China’s economic growth

China’s economic growth: Pros & cons

Large scale capital investment

Rapid Production Growth

High rate of savings

High TFP (total factor productivity)

Quick policy formulation and implementation

some other potential factors

- well equipped infrastructure

- technological advancements

- balance between trade and agriculture

Threats to China’s economic growth

Pollution

power shortage

Growing income inequality

Property boom

Inefficient banking sector

Unemployment

Undervaluation of Yuan

overheading Economy

india is dependent upon china’s technological

equipments while china depending upon india’s

bamboo,tea,dry fish and other raw materials.

in the 12th 5year plans,both the countries have put

objectives to improve economic relation.

fight of low GDP.

agricultural growth barrier.

High DQI(development quality index) and low

HQI(health quality index)

tight policymaking v/s unpredictable policymaking

The key comparision factors

Chinese economy : an Indian point of View

high rate of FDI flow

the bilateral trade concept

Large imports

emerging as a menufecturing hub

Leap in the world trade

low export intensity

Inequality in imports

Dynamic economic growth v/s initaiation economic

growth

Geographical diversification

stiff competition

land acquisition conspiracy

poor ASEAN relation

the “look east policy”

Initial condition in 1980china india

Production factors and physical setting for economy

Good basic public health & education

Wide spectrum of formal industrial companies

Much weaker basic public health and education Some strong large conglomerates; many small firms

Economic institutions

Institutional set up often not compatableWith market economy.

Institutional set up broadly compatible with market economy

Other institutions and aspects

Egalitarian land reform & distribution 40% rural people (almost) landless → Thus without subsistence floor

Little gender imbalance Major gender inequality (literacy, participation)

Relatively homogenous society Heterogeneous society (religion, language, caste)

China and India in 1980

GDP per capita (US$2005) 219 304

India China

Capital-labur ratio (US$2005) 1105 1650

Labor force/population 49 36

Average number of years of education 4.7 2.3 Total factor productivity (level) 1/ 11 18

FUTURE PROSPECTS

In near future,China has a strong chance of

emerging as a tecnological superpower and stepback

U.S.

As IMF has projected,China can up their trade growths

from 7.5% to 7.9%by the end of the year

Till 2020, GDP is planned to be amount to 38 trillion,

per capita GDP will reach 26,000 yuan.low labour costs to bring to strenghthen China’s

industrial growth.

boost the tourism sector by innovating newer policies

and add wealth to the economy

CONCLUSION

Expected growth in the economy

Current scenario- a battling moment for India

Future threat to the U.S. as well as for the

developed countries.

SOURCESWikipedia

The times of india

The econmic times

The Economist

Peoples magazine china

Forbes

Time

Reports of Heritage foundation and Wall Street journal

Thomas j. Rowsky’s report on China’s institutional

investments

Swapan and Biswan k. bhattacharya repoprt on India-China

trade relations

Baladasd Ghosal report,