MM5005 Business Economics

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Haidir Afesina Hendra Winata Mita Listyatri Andek Prabowo Aprian Eka Rahadi Chairunnisa Mirhelina Franciscus Xaverius Kresna Paska Agung Indri Pramantyo

CHINA and Its Neighbors in 2005

Outline

Milestone

Facts

Challenge

Economy Analysis

Recomme ndation

Analysis

Facts#

In 2003, China became an Asian economic powerhouse with GDP of US$1.4 trillion and the 2nd largest recipient of FDI worldwide

make them the leading among developing economies

Milestone
Mao Zedong Deng Xiaoping 1992 GDP 14.2%

1999 GDP 7.1%

November 2002 With ASEAN, free trade agreement for 2010 & 2015

1949

1970

1978

2001

2004

1949 The communist take over China. China`s economy isolated

Late 1970s Economic reforms, the era of open economy, create policy to attract trade and investment

December 2001 China become the member of WTO and open trade to the world, especially Japan & ASEAN

GDP Formula

Y= C + G + I + (X-M)

Economic Growth

Domestic Consumption

Export - Import

Government Spending Investment

Facts#
In 2003, China became
the world`s 7th largest economy

using market exchange rates

but the world 2nd largest economy using purchasing power purity rates Per capita income in 2003 was US$1,100 (market exchange rates) but US$ 4,995 (ppp)

Challenge
ECONOMIC GROWTH

GDP

DOMESTIC CONSUMPTION GOVERNMENT SPENDING INVESTMENT NETT EXPORT (EXPORT IMPORT)

11,963 RMB BILLION = US$ 1.4 TRILLION

Worlds 7th Largest Economy

Challenge
U.S.$ 1.100

hundreds of million people lifted out of poverty

FORCE MOVE

CHINA

vs

Its NEIGHBORS COUNTRY

CONTINUE PREEXISTING PATH

Porter`s Diamond Analysis

Growing economy attracts FDI Domestic Company Expand overseas
Firm Strategy Rivalry

Low technology Become Globe`s factory (low & light manufactured)

Chance

Emerging economy Economy in transition

Growth population
Demand Condition

Invest on technology Skills and knowledge

Factor Condition

Private sector economy Environmental problem issue The RMB is stable

Highest Saving Rates in 2003

Supporting Infrastructure (supplier and raw material)

Related Supporting Industries

Government

Communist Politics Policy: cut tariffs, WTO Benefits for investor

Facts#

China became an export oriented country especially on textiles, machinery and electronic products by making substantial cuts in import barriers that attracts international trade And make them the world`s 4th leading exporter

And 3rd leading importer in 2003

People

High population

Low skilled

Need jobs

Low wages

Attract investor (save labor cost)

RMB (Yuan)

Chose not to devaluate, even they can set it higher

Use USD in trading

Trusted as international trade currency

Neighbors Analysis
Region The Shanghai Five

FDI as Growth engine for the region High Labor but cheap wages Easy and cheap raw material

Cooperation on security, military and economic

ASEAN
Resources and intermediate goods FDI will be shifted to China

Facts#

China avoided the worst of Asian economic crisis in 1997-1999 due to its closed capital account, large foreign reserve position, the austerity programed introduced in 1993

and massive public expenditures

Macro Economy Social Culture

Chinese people are everywhere around the world

High GDP

Government is rich
Mostly people in the rurals Entreprenuer & family business

Need money and jobs

People are poor Expand

Work harder to live

Hard worker to be rich

Macro Economy Market

High Domestic Consumption Industrial Market increase

High Growth High Domestic Demand

POTENTIAL MARKET
Growth in 2003 Auto sales : 500.000 (1997) 2 millions Mobile telephone : 13.8 million (1997) 269 million Home mortgages : US$2 billion US$142 billion

Macro Economy - Political Legal

Communist party (political power)
Internal Support Global Support

Economic control
Economic Condition

Political Influence

Strong Government Support

Growth

Macro Economy - Technology

Fast Adopt & Customize

Compettitve flexibility MyPad vs iPad Internationalization of R&D

Innovation R&D

Source: Intelligent report, 2005

Recommendations

Innovation in technology Invest in Knowledge and Education (build highly education system and competitive) Try to develop other industry to attract other FDI Eg. Tourism