china economy faces slow down

ChinESE ECONOMY

The DRAGON’S TALE

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.)

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).

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.

China By the Numbers

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%.

The Video

Major Challenges

ECONOMICAL

SOCIAL

POLITICAL

LEGAL

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.

Import-Export

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%.

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

The Structure of the Banking Sector

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.

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.

Aging Population

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.

Effect of Eurozone and US

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.

Monetary Policy

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

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.

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

THE VIDEO

IMPACT

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

THANK YOU

Ankita kakkarArihant JainPrerna AroraSiddhaarth AryaVanshuj Datta