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Impact and Comparison of Chinese Economy to Global and Indian economy.

By : Simranjot Singh MBA-EXE 5th Semester

Roll Number 10

1 2 3 4

An Overview of Globalization
China and Globalization Challenges under Globalization

Comparison with Indian Economy


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Contents

1. An Overview of Globalization

1-6 Growing Number of Global Phenomena

1-1 Free Flow of Information

1-5 Convergence of Business Cycles Among Economies

Globalization

1-2 Free Movement of Labor

1-4 Integration of Financial Markets

1-3 Expansion of Global Trade


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Rapid and Free Flow of Information


Breakthroughs in computer, communication and multi-media technologies in the past few decades have facilitated freer flow of information. A student in Beijing can almost simultaneously obtain information of Oxford University, as long as he or she has access to the Internet. According to our statistics:
In the year 2000 In the year 2006

Every 18 out of 1,000 Chinese people had access to the

Every 105 out of 1,000 Chinese people had access to the Internet

The number increased 5 times in 6 years

Internet

The global sharing of knowledge and technologies is at an all-time high.

Free Movement of Labor

Relaxation of restrictions on labor movement across borders leads to freer exchange of professionals and skilled workers. On every Monday morning, business class of almost all the flights from HK to Beijing is full, the vice versa on the other way round every Friday afternoon. Everyday, China has 20m rural labors working in cities.

Expansion of Global Trade

According to World Development Indicator: The international trade as a percentage of global GDP increased from 7.6% in 1948 to 28.4% in 2005.
International Trade/Global GDP

28.4% 25% 20% 12% 1%~ 2% 5% 7.6%

19th

century

Mid-19th

6 Century
1913 1948 1999 2000 2005

In Chinas case: the trade as a percentage of GDP increased from 9.7% in 1978 to 64% in 2006 (around 700 % increase)
70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

Global production network is taking root in the Chinese market. MNC setting up base in CHINA

Integration of Financial Markets


Global financial markets are increasingly integrated in the context of financial deregulation. Development of off-shore financial market and derivative instruments Evolution towards financial conglomerates Rapid flow of capital
12% 10% 8% 6% 4% 2% 0.03% 0% 1940 1950 1960 1970 1980 1990 2000 2010 1.40% 5.50%

The proportion of international financial flows in global GDP

11.12%

Financial policies in different countries are more than ever intertwined . 9


Interest

rate policy, exchange rate policy, banking supervision cooperation and coordination etc.

Convergence of Business Cycles Among Economies

No obvious links were witnessed between business cycles of major industrial economies after World War II, with the only exception of the world-wide economic crisis between 1973 and 1975 Today, the business cycles in the Asian Pacific Region, Europe and America become quite synchronized:
Asian Financial Crisis in 1997 triggered economic slowdown in Europe and America.
The sluggish economic performance in the U.S. in 2001 turned into a worldwide phenomenon. A global stock market volatility witnessed with the sudden plunge in Chinese stock market On 27th February 2007.
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Growing Number of Global Phenomena

Today, what happening in one country can easily extend beyond the country of origin and become a global issue.

Examples:
Environmental Damage Terrorism
Global Phenomena

Infectious Diseases

Financial Crisis National Safety and Security

Internet breakdown
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Implications of Globalization

Generally speaking, the world is becoming a global village. Globalization is a double-edged sword: opportunities vs. competition & challenges. Common prosperity under globalization requires considerable efforts. Efficient economic outcome from globalization needs facilitated cooperation and common enforcement.

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2. China and Globalization


2-1 Chinas Engagement in Globalization

2-2

A Win-Win Option for China and the World

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Chinas Engagement in Globalization


A Snapshot of Chinas Development
Annual Growth Rate 9.7% 6.7% 17.2%

1978 GDP Per capita disposable income of urban residents Trade Trade as the percentage of GDP Actual Utilized FDI Foreign Exchange Reserves RMB 362.41bn RMB 343 US$ 20.64bn 9.7% 0 US$0.167bn

2006 RMB 20.9tn RMB 11,759 US$ 1.76tn 64% US$73.5bn US$1.07tn

36.8%

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Chinas Participation in International Trade

China ranks No.3 in international trade, and the contribution of trade to GDP has risen to over 60%. China plays an important role in international production chain, taking advantage of its large pool of labor force.

Chinas demand for import has been growing, with a total of US$ 791.6 billion worth of goods imported in 2006, marking a year-onyear increase of 20.0%. And China has basically maintained a balance between import and export.

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Chinas Reforms and Opening-up

Chinas financial industry is increasingly opened and playing by international rules.


In banking Sector
Foreign banks established in China 246 representative offices, 161 branches, 18 subsidiaries as of end-March 2007. Through restructuring and reforms, local banks are benchmarked against international standards and best practices. Introduction of foreign strategic investors brings in the much-needed know-how. China kicked off the QFII and QDII schemes in succession, which serve as an avenue for Chinas integration into the international financial markets. China is developing its financial markets and various financial instruments according to international practice.
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Chinas Active Participation in International Affairs

China is playing an increasingly important role in world economic and political arena, evidenced by its participation in and cooperation with:
Multilateral Institutions: UN, WTO, IMF, World Bank, etc. Regional Organizations: ASEAN+3; ASEAN+1; Cooperation among China, Japan and Korea; relationships between China and South Asian countries; Shanghai Cooperation Organization; China-Africa Cooperation Forum etc. Cross-border Taskforce: Asian Financial Crisis, Anti-terrorism, Six-party talks on North Korea issue, etc.
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A Win-win Option for China and the World


From the Perspective of China

Reduction in poverty

The number of people living on less than US$1 per person per day in China was reduced from 634million in 1981 to 212million in 2001. The proportion of people living under such poverty line decreased from 63.8% in 1981 to 16.6% in 2001. Chinas share in global trade increased from 0.6% in 1978 to 14.2% in 2006.

A broad international market

China has made big strides in increasing real per capita GDP.
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Ratio of 2006 to 1990 real per capita GDP 5.0 4.0 3.0 2.0 1.0 0.0 2.1 1.9 1.8 1.8 1.8 1.7 1.6 1.3 4.1

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From the Perspective of the World

Contributions to global poverty reduction

China accounts for more than one fifth of the worlds population, so the poverty alleviation of China has contributed significantly to that of the world.

The worldwide population living under poverty line decreased from 1,482 million in 1981 to 1,089 million in 2001, representing a dramatic reduction from 40.4% to 21.1% measured by its share in global population. Excluding China, the sheer number of people living under poverty line worldwide increased from 848 million to 877 million.
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From the Perspective of the World

Contributions to abundant commodity supply with reasonable prices in world market

China has provided to the world the quality products with reasonable
prices, such as clothes, shoes, & some electronic products. inflation in rein.

China has made important contributions to keeping the global


Consumer Price Index

2003
US EU Germany 2.27 2.07 1.05

2004
2.68 2.14 1.67

2005
3.39 2.19 1.95

France
UK

2.40
2.91

2.26
2.96

1.74
2.83

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From the Perspective of the World

An engine for the worlds sustained economic growth


During Asian financial crisis in 1997, China managed to maintain
a growth rate of 8.8%, and played a positive role in stabilizing and reviving the regional economy. In 2001, the worlds economy grew at a low rate of 2%, while China maintained growth of 9%. In 2005, Chinas economy grew at a rate of 10%, contributing to the robust global growth of 4%.
Economic Growth Rates of Different Regions and Countries % 2000 World China EU US 4 8 4 4 2001 2 8 2 1 2002 2 9 1 2 2003 3 10 1 3 2004 4 10 2 4 2005 4 10 1 4
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From the Perspective of the World

Contribution to global and regional peace & stability


China is a country with Confucianism embedded in its national characteristics that values harmony. In such a spirit, China plays an important role in mediating and resolving international disputes.

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Challenges Under Globalization

For China, globalization means both opportunities & challenges.


External Challenges

Internal Challenges

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Key Challenges
#1

Need for rebalancing growth

#2

Need for adjustment of savings & investment

#3

Need for the next generation of talent and reformers

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Consumption Share of GDP 90 80 70 60 50 40 30 20 10 0

Percent

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SA R

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Ch in

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Ko r

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1990

2006

But consumption as the percentage of GDP fell. (62% in 1990, 50% in 2006).

Chinas consumption share is much lower than that of most other Asian economies.
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In

do n

pi n

es

Current Account as Share of GDP 10 8

1990

1995

2000

-2

RMB Equivalent of Foreign Exchange Reserve 120000 100000 80000 60000 40000 20000 0

2000-10

2001-03

2001-08

2002-01

2002-06

2002-11

2003-04

2003-09

2004-02

2004-07

2004-12

2005-05

2005-10

2006-03

2006-08

RMB Equivalent of Foreign Exchange Reserve

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2007-01

Rapid build-up in Chinas foreign exchange reserves led to excess liquidity.

RMB 100 Mn

2005

In the meantime, Chinas current account surplus has surged in recent years.

Percent

6 4 2 0

Excess liquidity is partly interpreted into continuous surge in real estate and stock prices as well as loan supply.
112 111 110 109 108 107 106 105 104 103 102
Ju 6 l-0 A 6 -0 g u 6 -0 p Se 06 ct6 -0 v o 6 -0 c e

4500 4000 3500 3000 2500 2000 1500 1000 500 0

2004-04

2004-06

2004-08

2004-10

2004-12

2005-02

2005-04

2005-06

2005-08

2005-10

2005-12

2006-02

2006-04

2006-06

2006-08

2006-10

2006-12

2007-02

Shanghai Composite Stock Index


300000 250000
RMB 100 Mn

200000 150000 100000 50000 0

Real Estate Price Index of 35 Major Cities

20 05 20 01 05 20 03 05 20 05 05 20 07 05 20 09 05 20 11 06 20 01 06 20 03 06 20 05 06 20 07 06 20 09 06 20 11 07 20 01 07 -0 3

nJa

07

7 -0 b Fe

Bank Loan Balance

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2007-04

Challenge II: Need for adjustment of savings & investment

Both household and corporate savings are very high. Thin social safety net and high cost of education and housing lead to high precautionary private savings Thorough reforms in social security system, medical-care and education are needed. Sustained increase in social sector spending is needed.
Government Education Expenditure in Selected Countries(2004)
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Percnt of GDP

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Lack of effective monitoring and legal enforcement caused pollution as over-investment goes.

Our Response: Less waste + less energy use = cleaner environment


Low sulfur fuel + clean vehicle + technologies = better air quality More effective enforcement + better cultivation = workers death numbers and hospital admissions decrease
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Challenge III: Need for the next generation of talent and reformers Success depends on the energy and ideas of Chinas leaders.

It is harder than ever to attract, develop and retain talent.


Need for better enrollment system to identify the best minds at home and abroad Need for popular participation and strengthened official accountability Need careers open to talent. Need clean environment to nurture a new, committed generation of leaders.

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Facts GDP GDP growth Per capita GDP Inflation Labor Force Unemployment

India $1.31tn 8.90% $1124 7.48% 467million 9.4%

China $4909.28 9.60% $7818 5.1% 813million 4.20%

Fiscal deficit
Foreign Direct Investment Gold Reserves Foreign Exchange Reserves World Prosperity Index Mobile Users Internet Users

5.5%
$12.40bn 15% $2.41bn 88th position 842million 123.16million

21.5%
$9.7bn 11% $2.65tn 58th position 687.71million 81million

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China will continue to reform its political structure, develop socialist democracy, expand citizens orderly participation in political affairs, and ensure that people exercise democratic elections, democratic decision-making, democratic management, and democratic supervision in accordance with the law.
--President Hu Jintao, during his April 2006 visit to US

It is important to build a contingent of public servants who are politically reliable, professionally competent and clean and honest and have a good work style.
--Premier Wen Jiabao, in 2004, report to the congress
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Questions to be discussed.
1.How have the changes in technology contributed to globalization of markets and production?
2.Would the globalization of production and markets have been possible without these technological changes?

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Thank you!

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