the chinese economy in transition – a macroeconomic perspective adam mckissack 20 november 2015...
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The Chinese Economy in Transition – a macroeconomic perspective
Adam McKissack20 November 2015
Resource and Energy Workshop
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The China model
• One party, authoritarian political regime.
• Implicit social contract.
• Economic model means to political/social ends.
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Economic model• Heavy reliance on investment
– large pool of low cost, surplus labour– low cost of capital– mobilised other resources (eg land)– closing of rural/urban divide
• Leverage off globalisation of markets
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30 years of growth
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Current challenges• Over-capacity and resource misallocation • High leverage (local government and SOEs)• Labour force shrinking• Income inequality• Environmental degradation
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Overcapacity in crude steel production
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
50,000
100,000
150,000
200,000
250,000
300,000
0
50,000
100,000
150,000
200,000
250,000
300,000Ton, millions Ton, millions
Excess capacity in crude steel production
Source: CEIC China database.
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Credit to GDP ratio
100
120
140
160
180
200
100
120
140
160
180
200
Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13
Per cent of GDPPer cent of GDP
Source: CEIC China database and Treasury.
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Dependency ratio
1950 1970 1990 2010 2030 2050 2070 20900
20
40
60
80
100
0
20
40
60
80
100Ratio Ratio
Elderly
Total
Child
Source: UN
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Real deposit rate
Source: CEIC China database.
Sep-88 Sep-91 Sep-94 Sep-97 Sep-00 Sep-03 Sep-06 Sep-09 Sep-12 Sep-15-20
-15
-10
-5
0
5
10
15
-20
-15
-10
-5
0
5
10
15Per cent Per cent
Real Deposit Rate (deflated by CPI)
Nominal Deposit Rate (One year benchmark)
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Gini Coefficient – Income inequality
Source: CEIC China database; World Bank World Development Indicators; Ravallion and Chen (2007).
1981 1985 1989 1993 1997 2001 2005 2009 20130
0.1
0.2
0.3
0.4
0.5
0.6
0
0.1
0.2
0.3
0.4
0.5
0.6Index Index
NBS
World Bank
Ravallion and Chen (2007)
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China’s quasi-urbanisation
Source: CEIC China database.
0
10
20
30
40
50
60
0
10
20
30
40
50
60
1949 1956 1963 1970 1977 1984 1991 1998 2005 2012
Per centPer cent
Urbanisation rate
Proportion of registered non-ag population
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Low migrant wages
10
20
30
40
50
10
20
30
40
50
2008 2009 2010 2011 2012
'000 RMB'000 RMB
Urban average wage
Migrant wage
Source: CEIC China database.
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China’s reform agenda
• To achieve sustainable growth, China is transitioning– Lower investment share, more consumption– Less low value manufacturing, more high value
manufacturing and services– Less income inequality, strengthened social safety
nets– Environmental policies.
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Reforms in progress
• Streamlining investment approvals• Partial Hukou reform• Central and local government fiscal relations• Anti-corruption campaign• Liberalising interest rates• Gradual SOE reform• Moving towards more market based exchange rate
regime
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From investment to consumption
Source: CEIC China database.
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012-10
0
10
20
30
40
50
60
70
80
-10
0
10
20
30
40
50
60
70
80Per cent of GDP Per cent of GDP
Household Con-sumption
Investment
Government Consumption
Net Exports
1978 Economic Reform
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From manufacturing to services
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 20120
10
20
30
40
50
60
0
10
20
30
40
50
60Per cent of GDP Per cent of GDP
Secondary
Primary
Tertiary
Source: CEIC China database.
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Risks
• Managing markets to allow an orderly gradual economic transition
• Pursuing structural reform in the face of political resistance– Power fragmented– Vested interests
• Maintaining social stability with economic adjustment
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The Chinese yuan - onshore CNY and offshore CNH)rates (inverted scales)
Source: Bloomberg.
Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
5.9
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
CNY CNY
USD/CNY (RHS)
USD/CNH (RHS)
Spread between CNY and CNH (LHS)
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China estimated capital flow
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15-150
-100
-50
0
50
100
-200
-150
-100
-50
0
50
100USD billion USD billion
Source: Bloomberg.
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Energy and resource?
Source: Bloomberg.
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Opportunities?
• Investment is still a significant component of a bigger base– There remain significant needs for infrastructure
investment with on-going urbanisation• Import volumes remain relatively resilient
– Particularly for iron ore• Australia continues to gain market share
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China iron ore import volumes
Source: Bloomberg.