Welcome Shenyang National People’s Congress Delegates!

1

Providing for the Future of China’s Economic Growth

A presentation to the Shenyang National People’s Congress

By Comrade Craig Pike

2

Overview

• Review of China’s growth since 1980

• Limitations to future growth

• Policy recommendations

3

Summary of Conclusions• High growth driven by investment and exports• Few signs of decline, but…• Limitations to Future Growth– End of rural surplus labor– Diminishing returns to capital investment– Inefficient banking sector– Dependence on exports and (slower) world GDP

4

Summary of Conclusions (cont)• Policy Recommendations– Anticipate slow-down in economic growth

(Future growth increasingly dependent on technology gains)

– Increase focus on domestic economy

– Encourage more market-oriented banking system

5

Part I

• Review of China’s growth– High growth rates– Growth driven by investment and

exports

6

7

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

2

4

6

8

10

12

14

16

China: Exceptional Growth since 1980

Real GDP Ave Annual Growth

Perc

ent

Ave. Annual Growth = 10.1%

8

19811983

19851987

19891991

19931995

19971999

20012003

20052007

2009

-10%

-5%

0%

5%

10%

15%

20%

China Growth Outpacing Local Competitors

China Average Weighted Growth Rate: Asian 5

Perc

ent

9

Consumption Investment Government Exports Imports

-10%

0%

10%

20%

30%

40%

50%

60%

28.2%

45.7%

14.0%

46.3%

34.3%

Investment Dominate Contributions to GDP Growth: 1980-2010

10

Consumption Investment Government Exports Imports

-10%

0%

10%

20%

30%

40%

50%

60%

25.4%

41.5%

12.8%

57.5%

37.2%

Exports Increase Contribution to Growth, 1993-2008

11

19811983

19851987

19891991

19931995

19971999

20012003

20052007

2009-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Export Growth: The Story since 1993

Exports GDP

Perc

ent

12

United St

ates

Canad

aBraz

il

German

y

Greece

India

Korea, R

ep.

Japan

Indonesia

Thail

and

Hong Kong

Mexico

China0%

5%

10%

15%

20%

25%

30%

35%

40%

16%17% 18% 19%

21% 22%

25% 26%

30%31% 32% 32%

34%

China’s High Level of Investment (Share of GDP), 1981

13

United St

ates

Greece

German

yBraz

ilJap

an

Mexico

Thail

and

Canad

a

Hong Kong

Russia

Indonesia

Korea, R

ep.

IndiaChina

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

16% 16%18% 19% 19%

21% 22% 22% 22% 22%24%

26%

38%

45%

China Leads in Investment Share, 2010

14

China

Hong Kong

Canad

a

German

y

Indonesia

Japan

Greece

Brazil

Thail

and

Korea, R

ep.

Mexico

United St

ates

India0%

10%

20%

30%

40%

50%

60%

70%

80%

40%

55%57% 59% 59% 59% 60%

62% 62% 64% 64% 64%69%

Low Level of Consumption as Share of GDP, 1981

15

China

Thail

and

Korea, R

ep.

India

German

y

Indonesia

Japan

Canad

a

Hong Kong

Brazil

Mexico

Russia

United St

ates

Greece

0%

10%

20%

30%

40%

50%

60%

70%

80%

29%

52% 52%56% 57% 57% 58%

61% 62%67% 69% 70% 71%

74%

Low Level of Consumption as Share of GDP, 2010

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Part II

• Limitations to previous growth model– Decline in “surplus” rural labor leading

to diminishing returns to capital investments– Inefficient banking sector– Unsustainable growth in exports

17

18

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

-2

-1

0

1

2

3

4

5

6

Rural Population Growth Declining

Population growth (annual %) Rural population growth (annual %)Urban population growth (annual %)

Perc

ent

19

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

50

55

60

65

70

75

80

85

Rural population (% of total popula-tion)

Perc

ent

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

-1.0

0.0

1.0

2.0

3.0

4.0

Managed Bank SpreadPe

rcen

t

20

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-10

-8

-6

-4

-2

0

2

4

6

8

10

Real Interest Rates

Real Lending Rate Real Deposit Rate

Perc

ent

21

Cover In-fla-tion73%

Lose Money27%

Real Lending Rate 1980-2010

(ave. 1.94%)

Cover Inflation60%

Lose Money40%

Real Deposit Rate 1980-2010

(ave. 0.05%)

22

23

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

-20

-10

0

10

20

30

40

China Trade Growth Outpaces World GDP Growth

Exports annual % growth Imports annual % growth World GDP Growth

Perc

ent

24

20102012

20142016

20182020

20222024

20262028

20302032

2034$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

China's Exports Take Over the World in 2035?

Chinese Exports World GDP

Billi

ons U

SD

Part III• Policy Recommendations– Anticipate slower future growth–Continue seeking ways to develop technology

improvements– Shift focus to developing domestic

consumption–Carefully open banking sector up to market

forces 25

Conclusions• Unparalleled period of high GDP growth driven by

investment and exports• Limitations:

– Rural population tapped out– Diminishing returns on capital investment– Inefficient banking sector– Export growth constrained by world GDP growth

• Policy Recommendations for Future Growth– Need for technological innovation– Shift focus to domestic economy– More market-oriented banking sector 26

Trade

Economic Rebalancing: Chinese Consumption

Exchange Rate

Investment

Intellectual property/ Trade Secrets

State Owned Enterprises

27

U.S.-China Economic Relations

Export Controls

Investment and “CFIUS”◦ Committee on Foreign Investment in the United

States

Infrastructure Development and Financing

Antidumping/ Countervailing Duties

28

U.S.-China Economic Relations