Introduction: Chinese economic growthThe Emergence of China in the 21st Century — Session one Luis Torras (@TorrasLuis)

– John Thornton former Chairman of Goldman Sachs, professor at Tsinghua University

“The single most important to happen in our lifetime will be the emergence of China.”

2

Intro by prof. Niall Ferguson (Harvard): “China: Triumph and Turmoil”, BBC.h"ps://www.youtube.com/watch?v=jKyY0u8AJL4&list=PLy1NmHonG-­‐A42trP17ZRKqkvW3hvY_mJH  

3

Perspective is essential in order to address any issue regarding China: we need to know the details…

4

…but at the same time we have to keep always in mind the global picture.

5

And also is important to evaluate things with an historical perspective: not only the present…

6

… but to understand the starting point. Trend is more relevant that absolute figures.

7

October 1, 1949: Mao Zedong proclaims the People’s Republic of China

8

China has experienced one of the most remarkable economic growth in economic history

Real%GDP%by%output%(in%RMB%billions)%

•  Today,'China'has'more'than'300m'Chinese'with'a'per'capita'income'of'over'€'20,000

•  China'is'the'first'market'in'the'world'as'an'issuer'of'spending:'78,000'm'€'in'2012'with'doubleEdigit'annual'increases

•  In'2014,'China'issued'the'world'100'million'tourists'(c.180,000'visited'Spain)

Today, China is the biggest potential market in the world

9

Real GDP (RMB billions)

China’s growth has lead to a major swift in the global stage of historical proportions

The “great divergence” The “great convergence”

GDP$per$capita$evolu0on$ra0o$selected$countries,$150082008$ World$GDP$percentage$on$total$principal$economies$(198082018)$

Source: Maddison; IMF. PPP data. Adapted form Prof. Niall Ferguson.10

Since the 1978, China has experienced three decades of economic expansion

1978%Reformist%leader%Deng%Xiaoping%announces%open%door%policy%

1984%China%opens%up%14%ci=es%and%3%regions%to%foreign%

investment%

1989%Tiananmen%Square%massacre%

1990%Stocks%markets%

open%in%Shanghai%and%Shenzhen%

2005%600%million%liIed%out%of%poverty%since%1980%according%to%the%World%

Bank%

2010%China%

overtakes%Japan%as%

second%largest%economy%

11

China’s economic growth has no precedents in history

12Source: World Bank.

GDP in current US$ prices (1970 - 2014)

US$ billion

China has experienced the greatest economic transformation in history; the shortest Industrial Revolution

Number'of'years'required'to'double'the'real'GDP'per'capita'

RPC (1990-1998)

Japan (1885-1919)

US (1839-1886)

RPC (1981-1990)

Corea (1966-1977)

United Kingdom (1780-1835)

8'

9'

11'

34'

47'

55'

Source: IMF.13

Chinese economic growth has had an important impact in the rest of the world

14

Business'world' Labour'markets'

Macroeconomic' Geopoli7cs'

!  Offshoring*!  Big$poten*al$market$!  Investment$opportuni*es$!  Cost$reduc*ons$

!  Low$value9add$jobs$are$moving$to$China$!  Low$labour$cost$!  Rela*vely$high$produc*vity$!  Rela*vely$skilled$workers$

!  Defla*onary$trends$in$the$manufacturing$products$!  Infla*onary$trends$in$raw$materials$and$components$!  Increase$of$interna*onal$trade$flows$!  Increase$of$the$interna*onal$reserves$of$China$

!  China$emergen$can$not$be$compared$with$other$Asian$*gers$

!  China$would$like$to$increase$its$influence$in$the$suprana*onal$ins*tu*ons$

!  China‘s$emerge$is$more$similar$to$the$rise$of$the$US$in$the$XIX$century$

Chinese'impact'in'the'world'economy'

Today, China consumes 40-50% of the world's commodities excluding oil

Recently we’ve seen prices fall due to slowdown of Chinese infrastructure spending

China consumes mind-boggling amount of raw materials

Source: visualcapitalist.com

China (Asia’s) re-emergence is (mainly) driven by demographics

16

By 2040, 3/4 of world’s population will live in Asia-Pacific region

Source: Population Prospects, United Nations.17

Chinese economic emergence has has a major impact in the world changing the global stage

Source: McKinsey Global Institute.

Developments+in+the+economic+center+of+gravity+(162025)+

•  Never%before%has%the%world%had%changed%structurally%so%quickly%

•  This%rapid%convergence%is%compensated%marked%three%centuries%of%Western%superiority%resul<ng%in%a%mul<polar%scenario%

•  This%gradual%shi=%eastward%is%supported%by%a%strong%demographic%logic%

18

Developments in the economic center of gravity (1-2025)

Global growth is widely held; today concentrated in emerging countries

Source: The Economist.19

Economic growth estimated for 2015

Global growth relies on new engines, mainly China, US and India

Source: The Economist.20

World GDP contribution per major economies

Debt swells most since 2012 China Inc. resists Li reform push as debt swells most since 2012

Source: Bloomberg.21

Shanghai-listed non-bank corporate debt in 2015 rises at fastest pace in 3 years.

(¥ billion)

Total Chinese corporate debt

After +150% of revaluation in the 12 month before June; SCI drop 40% in only two months

Shanghai Composite Index

20152014

Source: Bloomberg.

China has been like its foreign-exchange reserves have been falling in the last two years

Source: The Economist.

China’s Trade and Investment balance ($bn)

China could overtake the US in terms of GDP PPA in 2018 when both economies could have similar approx. size of $20 Bn

Source: The Economist.

Steel consumption

Cell phone

Export

Investment

Industrial production

Energy consumption

Car sales

Retail sales

Imports

GDP PPA

GDP nominal

Market cap.

Private consumption

Defense expenditure

1999 23 2011

China&/&US&ra+o&

21 19 17 15 13 25 09 07 05 03 01

6,6

3,3

1,3

1,4

6,6

6,6

1,2

0,7

0,8

0,8

0,5

0,3

0,2

0,2

Year in which China overtook the US Forecast overtake

24

The overtaking game

US/China per capita GDP ratio is expected to continue its convergence in a similar path (more likely scenario)

Source: Prof. Ferguson; Author.

US/ China per capita GDP ratio, 2012-2060!

Today&the&average&American&is&c.&5&5mes&richer&than&the&average&

Chinese&richest.&This&is&ra5o&may&will&be&reduce&to&less&than&2&in&the&following&

decades.

25

US / China per capita GDP ratio (2012-2060)

26