Topic 4: China and the World Economy Flashcards Preview

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Flashcards in Topic 4: China and the World Economy Deck (12)
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a) Where growth is expected to come from to 2030

2/3rds from emerging economies, 22% from China


b) China's historical context

2000 years ago and 1820: China accounted for 33% of world output
1978: only 1%
Now: 12%


b) China's economic composition against UK's

Much more agriculture and industry (9 vs 0.5% and 40 vs 20%)


b) How china maintained inward orientation

- China’s nominal tariffs on imports averaged over 40% in 1992
- It made extensive use of non-tariff barriers (licences, quotas and state trading restrictions)
- Capital controls were pervasive


c) 5 characteristics of China's economy

- ‘Managed Capitalism’ model
- Pivotal role of State Owned Enterprises (SOEs) to deploy physical capital
- Remarkably high domestic savings ratio (50%)
(High dependency ratio; high precautionary savings; corporate savings; financial underdevelopment)
- Abundant agricultural labour
- Managed exchange rate


c) overall growth stats

Double digit growth delivered in 1990s and 2000s
Eightfold increase in GDP per capita since beginning of ‘reform and opening up’


c) sustained growth grounded in...

Robust capital accumulation
Rapid increase in labour productivity
Growth in total factor productivity
Rapid growth in exports


c) China's imports and exports

- World's largest exporter (overtook Germnay in 2010)
- World's 2nd importer of merchandise
- World's 4th importer of services


c) impact of 2008 financial crisis (6)

- Fall in exports
(especially dramatic in 2008-09)
- Slowdown in growth
(From 10%+ to 7%, so still growing rapidly by OECD standards)
- Impact of stimulus packages
(especially marked in 2009-10)
- Pressures for internal reform
(On labour markets, State Owned Enterprises, banking sector in particular)
- Global pressures for adjustment
(Savings and consumption balance
Revaluation of exchange rate)
- Fears of protectionism
(Direct trade barriers
Anti-dumping actions)


d) external challenges

1) current account surplus
2) Accummulation of FX reserves
(distorts global economy, entails OC to Chinese economy)
3) Exchange rate misalignment
(needs to be more flexible, hinders monetary policy independence)
4) Capitals controls
(hinder competition and prevent deepening of domestic financial markets)


d) domestic challenges

1) asset and real estate inflation
(have often risen above sustainable levels)
2) Fiscal sustainability
(very loose credit standards)
3) Income inequality
(Stagnant wages in rural, urban rich)
4) social safety nets


d) how to avoid 'middle income trap'

- Curtail lending which caused debt to balloon (280% GDP), instead deploy capital more efficiently to private sector
- Promote services sector to transition to hihg value-added market
- Enforce IP laws more strignently to create more entrepreneurship