china economy faces slow down
DESCRIPTION
About Chinese Economy Challenges Future of China EconomyTRANSCRIPT
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ChinESE ECONOMY
The DRAGON’S TALE
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China Economy Profile
Population 1.45 Billion (est.) 0.481% (est.)
Land Area 9,671,018 sq km(second largest in the world)
Currency Renminbi (RMB)/Yuan
GDP (PPP)$11.29 trillion (2011 est.)
GDP - real growth rate 9.2% (2011)
GDP - per capita (PPP)$8,400 (2011 est.)
GDP - composition by sectoragriculture: 10.1% industry: 46.8% services: 43.1% (2011 est.)
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3 Pillars of Chinese Economy • Exports(starting with low-cost manufacturing,
moving towards higher-value added products)
• Investment(particularly in heavy industry and infrastructure)
• High Saving Rates (not only in households,but also public and corporate sectors).
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Overview• China was the world’s largest economy in 1820,
accounting for an estimated 32.9% of global GDP.• China’s share of global GDP on a PPP basis to shrink
significantly. • By 1952,it had fallen to 5.2% and by 1978 it slid to
4.9%.• The adoption of economic reforms by China in the
late 1970s led to a surge in China’s economic growth and has help restore China as major a global economic power.
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China By the Numbers
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Gross Capital Formation• The Gross fixed capital formation (% of GDP) in China was last reported at 44.43 in 2011• China Gross Fixed Capital Formation is at 44.43%, compared to 45.41% last year. This is higher than the long term average of 31.29%.
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The Video
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Major Challenges
ECONOMICAL
SOCIAL
POLITICAL
LEGAL
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IMPORT-EXPORT• High growth rate and revenues but low profit
margins from exports.• Revenues are high but profit margins are very
low.• Facing a slowdown in demand from saturated
western markets.• Factory output fell to a 3 year low in July this
year lowest after 2009 recession.• Small and mid sized firms are effected.
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Import-Export
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Real Estate – A bubble waiting to burst
• 64 Million empty apartments in China• Major price fall in the value in recent years• More people are buying it for investment purpose• Economists predict a fall in prices by 50%.• Poor investment channels.• Recent decades government has boosted GDP led
by construction projects and investing huge amounts on infrastructure.
• 70% GDP of Europe and U.S. is consumption whereas in China it accounts to 35%.
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BANKING SYSTEM• Central government is the regulating authority• Bank lending has underperformed in the recent years • Government ensures capital flows to industries and is used
for China’s economic development• State owned enterprises(SOE’s) play a major role• In the year 2009 they accounted 85% ($1.4 trillion) of all
bank loans.• Often SOE’s default their loan payments • In 2012, government expected $8.5 trillion lending which at
current average rate is $7 trillion • Biggest weakness is it lacks ability to ration and allocate
credit according to market principles like risk assessment
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The Structure of the Banking Sector
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SOCIAL & POLITICAL CHALLENGES
• Public Unrest : Every year numerous protests occur in China over a number of issues, including pollution, government corruption, and land seizures
• It is estimated that 300 million people in China (mainly in rural areas) lacked health insurance, and many that do have basic insurance must pay a significant amount of medical expenses out of their own pocket.
• Lack of the rule of law: China has led to widespread government corruption, financial speculation, and misallocation of investment funds.
• The relative lack of the rule of law and widespread government corruption in China limit competition and undermine the efficient allocation of goods and services in the economy.
• Poor government regulatory environment: China maintains a weak and relatively decentralized government structure to regulate economic activity in China.
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Aging Population• “The old gives way to the new," but in China, quite the opposite is taking
place with a fast-dwindling number of young people and an elderly population that continues to rise. Experts cite increased life expectancy and low birth rates as principal factors in the phenomenon
• Life expectancy has been rising rapidly in China Starting at 40 years soon after mid-century, life expectancy increased precipitously in the 1950s and 1960s, has now reached approximately 73, and is expected to be nearly 80 by 2050.
• Lower rate of output and lower saving.
• Filial piety values, the stigma of old age homes, and birth control laws, along with other Chinese long-held views and policies will need to shift to fight off this looming age-apocalypse.
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Aging Population
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Effect of Eurozone and US• European and US are the biggest trading partners of China. Its
a domino effect if one falls the rest will follow.
• The turmoil in Europe is expected to impact the broader slowdown in China, where growth is expected to taper off at about 8% this year compared to recent years' growth of around 10%.
• Wave of labour unrest in factories across Guangdong province, the country's manufacturing heartland, as thousands of workers protested over the loss of their jobs, pay cuts or non-payment of salaries.
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Effect of Eurozone and US
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Monetary Policy• China’s one-year lending rate now stands at 6.31%,
which still leaves room for further cuts to help soften the economic slowdown.
• China's money supply grew by 13.2%, helped by financial institutions issuing new loans of 793 billion yuan ($124 billion)
• The People's Bank of China raised the reserves requirement for local banks by 0.5pc to 15pc of their deposits.
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Monetary Policy
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Undervalued Currency• People's Bank was founded in 1948 and began
issuing Yuan• Had a fixed rate of $2.56 RMB• Government depreciated it's value to increase
competitiveness of Chinese exports• In 1994 hit a record low of 8.26 per USD• According to International Monetary Fund in
2006 1USD=2.062 Yuan according to PPP law• Such policies have come at an expense of other
such as services
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Inflation• The inflation rate in China was recorded at 2 percent
in August of 2012.• The consumer price index (CPI) in China went up by
2.0 percent year-on-year. • The prices grew by 2.1 percent in cities and 1.8
percent in rural areas. • The food prices went up by 3.4 percent, while the
non-food prices increased by 1.4 percent.• The prices of consumer goods went up by 2.1
percent and the prices of services grew by 2.0 percent.
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Industrialization
• China is the largest producer of steel in the world• China ranks third worldwide in industrial output• Industry and construction account for 46.8 % of
China's GDP• Around 8% of the total manufacturing output in the
world comes from China• Government opened it’s market for foreign
investors in the year 1993
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THE VIDEO
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IMPACT
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Future of China Economy• International Monetary Fund on China: No. 1 in
2016 • China’s future lies in:–Increased export of highly
manufactured commodities • Changing it’s economic model • Overcoming obstacle• China’s Future Growth Rates• China’s Global Ranking• Future Exchange Rates• Drivers and Barriers to Growth• Key Future Industrial Sectors
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THANK YOU
Ankita kakkarArihant JainPrerna AroraSiddhaarth AryaVanshuj Datta