I.

CHINA

HISTORICAL STABILITY AND STRENGTH!

Size, population, identity ( 95% Hans Chinese; language, culture) Powerful administrative structure and service, based on open examinations since 605 AD; provided continuity in governance, and helped unity of regions with Centre Huge agri-production ( multi cropping common), strong irrigation systems and canal transport Large industrial base: first manufacturer of iron, on large scale; paper/printing; ceramics; commercial textiles; gunpowder, etc In 18th century, was 33% of global manufacturing (by 1900, 6%)

Relative decline, escalating in 19th century

Rise of European maritime, Mercantilist powers and their economic enclaves in, and coercion of, China ( the Unequal treaties) Japanese push for China resources and market Internal Civil Wars

Why did china decline

China was continental (internal) economy; not mercantilist, colonialist, which left it behind in accretion of economic resources Bypassed by Industrial Revolution (cheap labour reduced Chinese incentive?)

II. CHINA (cont!!)

Emergence as Economic power

Background
Maos China grew at 4/5% pa, but production gains largely offset by population growth; rural poverty high, half national population below poverty line High growth periods (53-58, 61-65)) were offset by effects of Planning mistakes during Great Leap Forward (58-60); famines (59 61); political convulsions of Cultural revolution,( 66 68) Agriculture badly disrupted by imposition of Communes; in large-scale Industry, low ROC meant lack of investable surplus to accelerate growth

Emergence as Economic power

Central Planning of economic production throughout period, but early and considerable devolution of planning to regions started during GLF Awareness in Govt, that along with devolution price signals, financial incentives ( profits, and profit participation) and new technology necessary for major change in prospects Through 70s, massive focus began on upgrading technical education, incl. study abroad; Cultural Revs anti-intellectual bias had been setback

Reform & progress

Contract responsibility system in agriculture incentivized investment and higher production by allowing farmer to keep over plan surplus New free markets for such product developed Collectively owned light industry and services ( trade, retail) in towns and villages encouraged Free-market in over plan large scale industrial production, with profit reinvested or bonused Access to Banks, instead of Govt. Budget only, thus mobilizing the financial intermediation market ( 4 big Chinese commercial banks created from Peoples bank of China)

Reform & progress

Production entities allowed to establish direct links with foreign trade and investment partners Machinery imports encouraged, to upgrade textiles, iron/steel; mining and fertilizer industries FDI legalized; establishment of 4 Enterprise zones (industrial estates with excellent infrastructure, initially tax holiday); then 14 SEZs in major coastal cities; now expanded to over a hundred locations; different purposes and preferential treatments, competition within regions; seen as windows and radiators FDI can be 100% foreign owned, or JVs with State or private enterprises

REFORM CONT..
Private entrepreneurship legalized; could enter most (62 out of 78) sectors and compete with SOEs ( although glass ceilings exist); massive run down of SOEs, those not privatized, coporatised( arms length to the State, profitable) State industrial production down to 15% in 05, from 81% in 80 Joins WTO; one of the most open EMs, ave. tariff 8.9% vs over 30% for Brazil and India High degree of domestic competition in most goodsOutward FDI $59bn in 09 ( Energy; minerals; commodities; technology); Inward $100bn Centre oversees overall targets and controls allocation of key inputs, steel and energy Move from Central planning to indicative planning at Centre, leaving Provinces/Counties/townships to set targets

PROGRESS
Decentralisation allowed experimentation and competition between regions State support of agriculture and infrastructure through highly specialized and very large Financial Institutions; creation of National Champions (e.g., in Petroleum, Banking, Construction)

Results
17 x growth in GDP, 79 to 09, or 10% pa; Exports, 100 x; FCcy reserves of $2.6trn Overtook Japan as worlds second largest economy ( $5.8trn), but per capita (PPP) $7,500 93rd in world; Poverty down to 10% ( $1/day), up to 25%($2/day) Worlds largest producer of textiles; cement; steel; ships; and worlds largest market for autos Substantial overseas investor and developer Major role in global financial stability through influence on FX (via Reserve size) and Trade (via energy, minerals demand) markets.

III. CHINA

DOMESTIC ISSUES & CHALLENGES

China could become aging society before becoming middle class society (RP 1.5; Pop. peaks 2016;by 2020, 20% over 65)cost of social welfare safety net ( small % covered by national pensions, rudimentary health care) ; Income Inequality: regional (PPP pc ranges $22k vs. < $2k), and social ( rural vs. urban areas); Rising wages and expanding credit feeds inflation; Political reform necessity?

INTERNATIONAL CHALLENGES
Pressure to liberalise Capital controls and float RMB; China will only do so in limited way Protectionist reactions in US Sustainable competitive power needs Energy security, Technological advances: Chinas growing investment Empire

tomorrow.strategic trends
Relocation of jobs inland, for lower wage costs and to widen development spread Development of domestic Consumer market: challenges would be inflation and further inequality Replacement of State control through regulation and macro-economic policy, and setting strategic objectives