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Development of China - An Economy in Transition

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1 Development of China - An Economy in Transition

2 3 Purposes 1.To Know China –China matters 2.To Know China’s Development –Development matters 3.To Know China’s Development Impacts on ‘Us’ –Are we prepared?

3 5 Topics 1.Why China? 2.Why development? 3.What happened to China’s development? 4.What next? New challenge ahead 5.Summary

4 1. Why China? 1.1 Facts: Where? What? s/pages_contents.cfm?ID_Briefing=1 s/pages_contents.cfm?ID_Briefing=1 Country Comparisons: s/compareIE.cfm s/compareIE.cfm

5 1. Why China? (cont’d) 1.2 Nicknames: “Awaken Dragon” –History; Land; Population; Economy; see “Growth Engine” –GDP growth 7.6% (98-02); 3 times of world average “Top FDI Recipient” –US$52.7b/7% (2002), $57b (2003) “Global Factory” –Labour cost, production chain, export “Threaten to the World” –Domestic crisis (population, energy, food, economy); global integration (trade, currency); rising powerful state (economy and military)

6 2. Why Development? 2.1 Long term trend 2.2 China’s position: past & present

7 2.1 Long-run of Economic Growth - Selected Countries

8 2.2 China’s Development Position Fast growth Large scale Low level Source:

9 2.2.1 GDP and GDP Per Capita Growth Rate (PPP):

10 2.2.2 Share of GNP (PPP)

11 2.2.3 GDP Per Capita (PPP):

12 Source: MOFCOM, China, at

13 3. What Happened? Economic Reform Transition to the market Global Integration

14 3.1 History of China’s Development First Five-Year Plan ( ) –A new economic order modeled on the Soviet Union example, emphasizing the development of capital-intensive heavy industry Great Leap Forward ( ) –The break away from the Soviet model and introduction of a new program aimed at rapidly raising industrial and agricultural production Cultural Revolution ( ) –The pursuit of Mao’s own development strategy of a self-reliant economy and political struggle Economic Reforms (1978- ) –To move the economy from a planned economy to one that is more market-oriented

15 3.2 Economic Reforms: Rural reform –Increase of agricultural production and rural income Open-door policy –Turnaround from an inward-looking, self-reliant economy to one that participates in the world economy (foreign trade, FDI, and SEZs) Industrial reform –Enterprise reform and price reform Financial reform –Company’s responsible for financial performance and borrow money from banks; raise capital at the stock market

16 3.2 Economic Reforms (Cont’d): SOEs reforms –Ownership/Assets restructuring Western China development –Regional development WTO accession –Trade policy change, legal reform, structure adjustment “Go Global” strategy –Outward investment, cross-board M&As, overseas listing

17 3.3 Model of China Development #1: Socialist planned economy: –Government planning is basic means of allocating resources –Production quotas: quantity rather than quality –Suppress consumption to increase saving: invest in heavy industry –Self-reliant and uninvolved in foreign economic relation –Results: Shortage in supply: production and consumption goods Slow and unstable economy growth

18 3.3 Model of China Development (cont’d) #2: Socialist market economy: –Market is basic means of allocating resources –State controls at the macroeconomic level –Economic structural Reform –Results: Competition: establishment of the diversified ownership Efficient: profit maximization Open: involved in foreign economic relation Fast economy growth

19 Comparison of Two Development Models

20 4. New Challenges Ahead Population and environmental pressures Employment insecurity Growing inequality and poverty Macroeconomic instability stemming from incomplete reforms/transitions International player: economically and politically

21 4.1 Population and Environmental Pressures Large in # (1.3 b) Low rate (<1%) Low urbanization (30%) Migrant labour (~100 million)

22 4.2 Employment Insecurity

23 4.3 Growing Inequality Per Capita Annual Income of Urban and Rural Household and The Related Index

24 5. Summary China matters in many ways A faster developing China is better off for all China strategy is a must


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