Lecture 1 An Introduction to China s Economic and

Lecture 1 An Introduction to China’s Economic and Business Environment Prof. Zhao Zhongxiu, Ph. D Vice President, University of International Business and Economics Vice Chairman, China Society of World Economics Tel: +86 10 6449 2618 Fax: +86 10 6449 3861 Email: zhxzhao@uibe. edu. cn 2018/2/12 1

Topics l l Is there a Chinese Model? China profile Features of Chinese economy Meeting the challenges 2018/2/12 2

Overview l l l The last 30 years have witnessed a mushrooming of business interest in investing in China. It is a widely recognised fact that foreign direct investment in China presents many challenges to western business practices. Key issues concern how to cope with the highly distinctive institutional and cultural characteristics of the host country. China has changed significantly towards market economy. China as a rising power. However, for certain reasons, the Chinese market remains different from those western markets politically, economically as well as culturally.

China: an emerging power? 2018/2/12 4

China as the second largest economy in the world Can Great Wall prevent crisis in Wall Street? Chinese Model of Development? 2018/2/12 5

What is Chinese Model of Development There is no short cut to prosperity. What are the roads lead to Beijing? You may name numerous ways that contribute to China’s success. I would say that two wheels push China’s development. l l 2018/2/12 Socialist market economy Powerful government 6

Is there a Chinese Model? • Socialist market economy • Powerful government In the western political dichotomy l liberty against tyranny l democracy against authoritarianism China has its unique culture and tradition 2018/2/12 7

Is there a Chinese Model? • Socialist market economy • Powerful government In the western political dichotomy l liberty against tyranny? In China, socialism l democracy against authoritarianism? In China, meritocracy Again in China, it has long history. Social value such as equality, family, social order, social responsibility, etc 2018/2/12 8

Is there a Chinese Model? • Socialist market economy • Powerful government Beijing Consensus In the western political dichotomy l liberty against tyranny? In China, socialism l democracy against authoritarianism? In China, meritocracy 2018/2/12 9

Beijing Consensus l China's rapid growth over the past 30 years prompted Goldman Sachs' Joshua Cooper Ramo to advance in 2004 the possibility of a "Beijing Consensus" as an alternative road to development. The Beijing Consensus, says Ramo, consists of three features: l l l The first is a commitment to innovation and constant experimentation in reforms. The second, a rejection of per capita GDP as the only measure of progress; sustainability and equality also count. And the third, a commitment to self-determination. Less developed countries should ensure their own financial integrity and keep great powers in check. For details, please visit http: //fpc. org. uk/fsblob/244. pdf 2018/2/12 10

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l l Just recently, China became the home to the world's largest private solar research facility, and the world's fastest computer. China is building faster trains and newer airports. Obama's State Of The Union Address 2011 2018/2/12 13

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Is there a Chinese Model? • Socialist market economy • Powerful government Four unique sub-systems in Chinese Model l Social organization l Economic development l Government l Outlook on the world 2018/2/12 15

Is there a Chinese Model? • Socialist market economy • Powerful government Four unique sub-systems in Chinese Model l Social organization § § § 2018/2/12 Social structure is an undifferentiated society of extremely high mobility Social consciousness believes in a government of neutrality State and societies are intermingled with each other, penetrated by each other 16

Is there a Chinese Model? • Socialist market economy • Powerful government Four unique sub-systems in Chinese Model l Social organization l Economic development § § § 2018/2/12 Market competition Openness State-owned enterprises Government intervention and regulations Transition by experimentation , trials of error 17

Is there a Chinese Model? • Socialist market economy • Powerful government Four unique sub-systems in Chinese Model l Social organization l Economic development l Government § § 2018/2/12 Takes care of people’s welfare like parents: putting people first Meritocracy Neutrality By rule of law 18

Is there a Chinese Model? • Socialist market economy • Powerful government Four unique sub-systems in Chinese Model l Social organization l Economic development l Government l Outlook on the world § § § 2018/2/12 Live in peace and harmony with others Doing business in the mutually beneficial way, sustainable to the future, and with respect to our socio-cultural differences Chinese should never govern non-Chinese 19

China Profile l World largest developing country l l 2018/2/12 population: over 1, 354 million low income level: $6100 GDP per capita in current dollar(2012) about 47. 4% residents living in rural area (2012) Human development index: 0. 699 (0. 937 -US) Rank: 101 th of 185 (HDR 2013) 20

Gross domestic product Billion US dollars, current prices and PPPs, 2008 18000. 0 16000. 0 15283. 6 14369. 4 14000. 0 12000. 0 10000. 0 7926. 5 Series 1 8000. 0 6000. 0 4358. 3 4000. 0 2018/2/12 Source: OECD Factbook 2010: Economic, Environmental and Social Statistics - ISBN 92 -64 -08356 -1 - © OECD 2010 21 EU 27 USA CHN JPN IND DEU RUS GBR FRA BRA ITA MEX ESP KOR CAN TUR IDN AUS NLD POL ZAF BEL SWE CHE GRC AUT NOR CZE PRT CHL ISR DNK HUN FIN IRL SVK NZL SVN LUX EST ISL 3297. 8 2909. 7 2262. 7 1984. 5 2186. 0 1871. 7 2121. 7 1545. 3 1434. 2 2000. 0 1344. 4 1300. 2 991. 7 675. 1 909. 7 659. 2 831. 2 324. 7 340. 5 493. 5 315. 6 329. 9 377. 9 27. 7 56. 3 119. 7 190. 8 202. 2 243. 0 256. 9 11. 8 41. 4 116. 4 184. 4 198. 1 204. 0 247. 3 280. 0

Main Economic Indicators 2010 2011 2012 International trade in goods* 2972. 8 3642. 1 3866. 8 Trade Surplus* 183. 1 155. 1 231. 1 FDI* 105. 7 116 111. 7 Reserve Assets* 2648. 3 3181 3311. 6 Urban registered Unemployment Rate: 4. 3% 4. 1% CPI 3. 3% 5. 4% 2. 6% Economic growth rate 10. 3% 9. 2% 7. 7% * $ bil

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19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 中国的经济增长 16 4 2018/2/12 China's Economic Growth 1978 -2011 14 12 10 8 6 结构性减速阶段 潜在增长率9. 8% 2 底线是 7% 0 % 27

中国的对外贸易 l China’s trade with the world : 1978 -2012 in billion USD

FDI TO CHINA 1978 -2012: 100$mil

Outward FDI from CHINA 1990 -2012: 100$mil

中国的外汇储备： 1999年 12月-2013年 6月： 34966. 86亿美元 数据来源：国家外汇管理局

Economic Growth: China vs US 2004：China $1. 97 trillion，annual growth rate 8% US $11. 99 trillion，annual growth rate 3% US 2042年 China 2018/2/12 32

Economic Growth: China vs US 2004：China $1. 97 trillion，annual growth rate 8% US $11. 99 trillion，annual growth rate 3% harmonious development 2018/2/12 2042年 33

Size of Economy : US vs China Source: World Bank World Development indicators Database 2018/2/12 34

中美经济规模情景比较： 2012年为基准年，美国年均增长率2. 7%，中国为 7. 3% 2030年

Features of Chinese economy l Typical Dual Economy l Advanced technologies and economic sectors l l Backward rural area and west territory l l l 2018/2/12 IT, biotech, telecommunications, space program, etc; Modern large cities: Beijing, Shanghai, Shenzhen, Hong Kong Growing middle class and rich people 18. 8% population under $1 a day, rank 34 th of 60 (2004) Estimated 230 millions excess labor force in agriculture Great challenges in education and health care programs 36

l Economy in transition l From central planning economy towards market economy l Encourage entrepreneurship l Privatization 60%+, in local economy even big share l l l 2018/2/12 FDI SOEs keep dominating pillar industries Limited government 37

l Structural adjustment l declining sectors § § § l Booming sectors § § 2018/2/12 forestry, military equipments, out of date manufacturing, local small factories county and township government agencies technologies industry, automobile, real estate, high education, tourism, entertainments, etc infrastructure 38

l Jobs l Job destruction due to sector declining l Baby boomers in 1980 s l Abundant rural labor force l College graduates 0. 4 million enrolled 20 yrs ago, now 6. 3 million. l Inequality l Gini coefficient increases over 0. 4 (0. 46) A measure of inequality of wealth or income within a population between 0 and 1. 0. 4 is widely considered as a high-risk level l 2018/2/12 Gap between rich and poor widens 39

New driving forces for meeting the challenges of global financial crisis l Promoting investment for long-term development l l Infrastructure: high speed train system Health and education R&D Rural development l l reform in land use rights Socialist new rural development l Promoting consumption Flexible FX rate l Improve export efficiency l 2018/2/12 40

Visible hand l l 600 500 Industrial policy Regional development policy Social development : harmonious society Rural development China Grain Production: 19502010 400 300 200 100 0 2018/2/12 1950195519601965197019751980198519901995200020052010 41

Pro-globalization: Trade surplus and Value Chain l Image value added in China l You pay $40 for a pair of footwear, made in China. l How much does the China’s manufacturer earn from the production? China’s comparative advantage and competitiveness l l 75 cents! How much does a Chinese worker earn? § l l 8 dollars a DAY Structure upgrade l Currency appreciation l Increasing labor cost l Soaring oil price and other materials Challenges l l 2018/2/12 Financial crisis and world recession Domestic competition 42

Economic integration for Greater China l CEPA Closer economic partnership arrangements between mainland Hong Kong, Macao l APEC none NAFTA style 2018/2/12 43

New round of reform and openness 2018/2/12 44

Thank you! 谢 谢! 2018/2/12 45