The Re-Emergence of China and Implications for New Zealand · PDF fileThe Re-Emergence of...

The Re-Emergence of China and

Implications for New Zealand

Professor Bob Buckle

Pro Vice-Chancellor & Dean of Commerce

Victoria Business School

Victoria University of Wellington

Wellington Commerce Teachers, 30 November, 2012

China and its regions

Presentation

• China‟s remarkable economic transformation.

• China‟s pre-modernisation history.

• China‟s economic transformation process.

• Welcoming the forces of globalisation.

• Implications for New Zealand.

• Case study: Impact on NZ dairy and manufacturing industries.

• How is VUW preparing students and business?

China’s Remarkable Economic

Transformation

• 1978: China one of world‟s poorest countries

- real per capita GDP 1/40th USA level

- " " " " 1/10th Brazil level.

• Since then: real per capita GDP grown at an

average rate of 8% per year.

• Now: Real per capita GDP is 1/5th USA

" " " " " same as Brazil.

China’s Remarkable Economic

Transformation

• In 1978 China produced 2% of world GDP.

• Today China produces 13% of world GDP.

• Today China is the world‟s 2nd largest economy.

• China‟s economic transformation has no historical

precedent. From 1978 to 1988, poverty headcount

fell by 154 million (Huang, 2012): “The greatest

poverty reduction of all time”. (Jacques, 2009)

• How did it happen? How has it impacted on NZ?

China and USA Shares of World GDP

0

5

10

15

20

25

30

1980 1985 1990 1995 2000 2005 2010 2015

(%)

China GDP (PPP Basis)

US GDP (PPP Basis)

China Forecasted

US Forecasted

Presentation








China’s pre-modernisation history

• China was a world economic and technological leader in the “pre-modern” era which peaked in Song Dynasty (circa 1200).

• Sometime between 1500 and 1800 it lost its leadership to Western Europe. Explanations vary:

– China fell behind before the Industrial Revolution when it became more centralised and inward looking

during Ming (1368-1644) and Qing (1644-1911) dynasties which stifled innovation and commerce;

– Others argue parts of China (e.g. lower Yangzi Valley) were still as advanced as Europe until Industrial

Revolution and fell beyond thereafter due to

– Western Europe‟s good fortune in having large deposits of coal, a seafaring and exploration culture, and

colonies,

– While the Qing Dynasty, with its imperial political-institutional system and bureaucracy, stifled commerce

and adaptation, and

– China was easily exploited by European powers (Opium wars with UK in 1840s and 50s, Sino-Japanese

war 1894-95), and disrupted by continuous civil wars and the Japanese invasion during WWII, and was

therefore unable to benefit from the exposure to European technologies and trade.

– China‟s per capita GDP actually declined between 1800 and 1950 (Zhu, 2012).

• But from 1950s growth started to recover, sporadically, then rapidly after 1978.

China and Western Europe GDP

per capita: 1500-2000

Zhu (2012)

China and USA GDP per capita: 1952-2009

Zhu (2012)

Mao’s industrialization attempt

• After establishment of PRC in October 1949, China started to

industrialize: real per capita GDP growth averaged 3% pa, 1950-

1978.

• Development was based on forced capital investment in „heavy‟

industry, setting low prices for agriculture, and limiting household

spending - The USSR model.

• Big push of the „Great Leap Forward‟ failed, led to a collapse in

agriculture and the „Great Famine‟ of 1958-1960 and massive

foreign debt (Dikotter, 2010).

• Mao‟s attempt to restore his political power (in 1960s) via the

„Cultural Revolution‟ caused further disruption.

Presentation








China’s Economic Transformation

Process

• Deng Xiaoping fostered a policy of Gaige Kaifang (“reform

and opening up”).

• Influenced by success of „Asian Tigers‟ (Hong Kong, Singapore, South Korea and Taiwan).

• No grand design: gradual, experimental, decentralised.

“Groping the stones while crossing the river” (Xiaoping).

• „Socialist market economy with Chinese characteristics‟

(or „privatisation with ……….‟)

The role of rural reforms

• Reforms started in the rural China.

• Dual-track pricing - farmers could sell crops at market

prices after satisfying state obligations. Rural

capitalism acted as a multiplier amplifying the effects

of policy reforms.

• Township and village (private) enterprises emerged,

undermining the monopoly of state-enterprises (value-

added by these rural businesses increased from 6% of

GDP in 1978 to 26% in 1996).

• Rural financial reforms enabled rural credit co-ops,

private financial intermediation. Reversed in 1990s

(post-Tiananmen) to fund coastal urban

development.

Opening up to the world

• Liberalisation of trade and foreign investment via

creation of Export Processing Zones (EPZ), starting

with Guangdong. Hong Kong investment was key.

• Massive internal migration of low wage rural labour.

• Tax and tariff concessions in EPZs, surge in foreign

investment, new technologies and large scale

production acted to generate high productivity growth.

• Low unit labour cost (ulc) industries source of export

growth (average ulc 70% US level in 1980, fell to 30%

by mid-1990s).

• Facilitated by liberalisation of western economies

during this period.

Creation of special economic zones

Harvey (2005)

Shares of Agricultural Employment %

Transformation of coastal cities:

Shenzhen 1970 and 2010

Features of Chinese manufacturing

Li, Li, Wu, and Xiong (2012)

Presentation








Welcoming the Forces of Globalisation

• China‟s export growth was facilitated by liberalisation

of western economies during this period, and support

from some key economies.

• Most Favoured Nation status with USA (1979).

• Member of APEC (since inception in 1989).

• Member of WTO in 2001.

• FTA with New Zealand in 2008.

• China‟s share of world trade has grown from around

1% in 1980 to about 10% today.

MFN Agreement 1979 with USA

China and U.S. Shares of World Exports

0

2

4

6

8

10

12

14

16

18

20

(%)

Year

China

US

China and U.S. Shares of World Imports

0

2

4

6

8

10

12

14

16

18

20

(%)

Year

China

US

Implications for the Global Economy

• China part of an integrated Asian supply network.

• Developed economies are a source of demand.

• Resource based and primary commodity countries are sources of raw materials, energy, food (e.g. minerals from Australia, dairy from NZ).

• Wealth transfer to rest of world, supplying lower priced manufactured goods and pushing up commodity prices.

China’s Terms of Trade (Px/Pm)

40

50

60

70

80

90

100

110

120

130

1980 1984 1988 1992 1996 2000 2004 2008

Index

Presentation








Implications for New Zealand

• China‟s share of NZ trade risen dramatically.

• Now NZ‟s second largest trading partner after

Australia.

• Raised NZ‟s terms of trade and net national

income.

• China‟s investment in NZ industries is still

relatively small.

• Is China the 21st century version of what

Great Britain was for NZ (and Australia)?

Terms of trade

60

70

80

90

100

110

120

130

140

1980 1985 1990 1995 2000 2005 2010

China's Terms of Trade

NZ's Terms of Trade with China

China’s Share of NZ’s Exports

and Imports

0

2

4

6

8

10

12

14

16

18

20

(%)

Year

Imports

Exports

Presentation








SDairy

a

a

Quantity of Dairy

Price of

Dairy

DDairy

Case Study: NZ Market for Dairy Products

b

a

c

c

b

SDairy

a Quantity of Dairy

Price of

Dairy

DDairy

NZ Market for Dairy Products

after Emergence of China

NZ Market for Manufacturing


b

a

c

c

b

SManufacturing

a Quantity of Manufacturing

Price of

Manufacturing

DManufacturing

Future Implications for New Zealand

• Bringing global economic activity closer to NZ.

• NZ economy more sensitive to China and other emerging Asian economies (Vietnam, Indonesia).

• Example is impact on NZ dairy and manufacturing industries.

• Impact also on service sector: tourism and education.

• Changing NZ‟s economic relationship with Australia.

Manufactured Products

Dairy Products

Relative Price Line

a

Production Possibility Frontier

PPFNZ

Dairy Products

a

b

New Relative Price Line

(rise in price of dairy products relative to

manufactured products)

Terms of Trade and Production


Relative Price Line

PPFNZ


a

Dairy Products

b

New Relative Price Line

(rise in price of dairy products relative to

manufactured products)

Terms of Trade, Production and Trade


Relative Price Line

PPFNZ


Consumption

indifference curve

Imported

Expo

rted

Presentation








How is Victoria University preparing

students and business for this future?

• Global perspective.

• Victoria International Leadership programme VILP).

• Marketing and International Business programmes and research have an Asia focus.

• New BNZ Professor in Business in Asia.

• School of Languages and Cultures.

• Confucius Institute.

• NZ Contemporary China Research Centre.

Further reading

• Dikotter, Frank (2010), Mao’s Great Famine, London, Bloomsbury, 420.

• Harvey, Martin (2005), “Neoliberalism „with Chinese characteristics‟”, Chapter 5 in A Brief History of Neoliberalism, New York, Oxford University Press, 120 – 151.

• Li, Hongbin, Lei Li, Binzhen Wu and Yanyan Xiong (2012), “The end of Cheap Chinese Labor”, Journal of Economic Perspectives, 20 (4), 57-74.

• Jacques, Martin (2009), When China Rules the World, London, Penguin Books, 812.

• Mitter, Rana (2008), Modern China: A very short introduction, New York, Oxford University Press, 153.

• Wasserstrom, Jeffrey, N (2010), China in the 21st Century: What everyone needs to know, London, Oxford University Press, 164.

• Zhu, Xiaodong (2012) “Understanding China‟s Growth: Past, Present, and Future, Journal of Economic Perspectives, 20 (4), 103-124.

The Re-Emergence of China and Implications for New Zealand · PDF fileThe Re-Emergence of...

Documents

Transcript of The Re-Emergence of China and Implications for New Zealand · PDF fileThe Re-Emergence of...