China China: Macro-Economic Policy and Performance During Transition

Chinese Economy U.S.ChinaS. Korea GDP (PPP)$12,400b$8,200b$983b GDP (PPP) Per Capita $41,800 $6,200 $1,100 $20,300 Public Debt $8,800b$242b$188b Saving Rate 16.8%43.6%31.4% t=trillion b=billion Japan $3,900t $30,400 $1,154b 24.4% hdr.undp.org

Special Economic Zones Zones that offer various incentives (such as tax incentives for foreign investors, and greater independence for international trade) These incentives target export markets and production and pricing in these zones are market oriented.

Strong Economic growth throughout the 80s Responding to a spike in inflation and sluggish growth, Deng Xiaoping toured Southern China to encourage economic growth The result was an economic rebound Data for Charts from

1997: The Asian Crisis China’s currency was pegged to the US Dollar –This protected the Chinese Currency from Currency Speculators Most Foreign Investment in China was in physical capital –This prevented Capital Flight from devastating the economy

Asian Crisis in Thailand Baht un-pegged Value of Baht plummets Resulting loss of monetary value caused many debtors to be unable to pay foreign debt, leading to the collapse of many banks and businesses, including Thailand’s largest bank, Financial One IMF Bailed Thailand out by providing $20 Billion in relief funds

China’s Exports dropped as a result of the worsening Global Economy Deflation of prices experienced for the first time Government employed an Expansionary Fiscal Policy China’s currency, the RMB, was pegged at a constant 8.3 RMB to the American Dollar. As the prices of other Asian Countries’ currency fell, Chinese Exports became relatively more expensive, however China managed to endure this and maintain the constant value. Asian Crisis in China

Macro-economic Equation Y = C + I + G + NX NFI + I = (Y - C - T) + (T - G) (Y - C - T), or the Private Savings Rate last measured at 12.5% can be attributed to a strong desire to invest at the household level. High Private Savings have led to high rates of Domestic Investment in small business. Many entrepreneurs must save their own starting capital instead of relying on bank, thus the high levels of Private Savings. The Private Savings not used to invest in small business can be sent overseas to invest in foreign markets and capital.

Macro-economic Equation Y = C + I + G + NX NFI + I = (Y - C - T) + (T - G) Public Savings last year were -$32.2 Billion, or a debt of about 1.7% of GDP (vice 12.5% Private Savings) Total Savings is highly positive, allowing for both high Domestic and Foreign Investments. Growth of small business is high, but still relatively small compared to the Savings Rate

Engle Co-Efficient reflects % of income spent on food Above 40% is considered impoverished

Notice General Trends: –Engle Co-efficient drops (more income that can be spent/saved) –Trade Balance increases (More net outflows of capital For every yuan that China saves, it can use to invest in domestic capital or foreign assets

One idea for further research How can the Chinese Economy continue its explosive growth while making a more favorable trade balance, both for the Chinese people and all of China’s trading partners. –Perhaps the recent un-pegging of the Chinese Yuan will help to alleviate this problem?

Questions? Ma Yuan Walking on a Mountain Path kaladarshan.arts.ohio-state.edu Southern Song dynasty