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 McKissack 20 November 2015 Resource and Energy Workshop
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Transcript of The Chinese Economy in Transition – a macroeconomic perspective Adam McKissack 20 November 2015...
The Chinese Economy in Transition – a macroeconomic perspective
Adam McKissack20 November 2015
Resource and Energy Workshop
2
The China model
• One party, authoritarian political regime.
• Implicit social contract.
• Economic model means to political/social ends.
3
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
4
30 years of growth
5
Current challenges• Over-capacity and resource misallocation • High leverage (local government and SOEs)• Labour force shrinking• Income inequality• Environmental degradation
6
7
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.
8
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.
9
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
10
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)
11
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)
12
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
13
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.
14
15
16
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.
17
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
18
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
19
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.
20
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
21
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)
22
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.
23
Energy and resource?
Source: Bloomberg.
24
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
25
China iron ore import volumes
Source: Bloomberg.
