China’s Economyand the U.S.-China Economic Relation
Dr. Gene H ChangThe Asian Studies Institute
andEconomics Department
University of Toledo
©
The U.S. and China
Basics of ChinaChina U.S.
Statistics World Ranking
Statistics World Ranking
Population 1330 million 1 305 million 3
Area (sq km) 9.6 million 4 9.8 million 3
Climate Diverse but most temperate Diverse but most temperate
Topography Mostly mountainous Mostly flat
Renewable water 2829 cu km 6 3069 cu km 4
Economic size (GDP)
6 trillion $ 3 15 trillion $ 1
Life expectancy at birth (years)
73.5 105 (of 223 entities)
78.1 50 (of 223 entities)
Human development Index
0.902 4(of 169) 0.663 89(out of 169)
US and China: Important Relationship
China becomes increasingly important to the U.S. because of
… … its economy … …
Integration between the U.S. economy and Chinese economyDisputes over trade and economic issuesDisputes over other issues, from environment, human rights to military presence
China: truth and mythThe size of the China’s economy
China’s dynamics
China as a challenge to the U.S. in the 21st century
China’s own problems and weakness
The U.S. strategic relationship with China in the 21st century
Top trade partners of the U.S.(2011)
Country Total Trade Volume
(Billion $)
1 Canada 597.4
2 China 503.2
3 Mexico 460.6
4 Japan 195
5 Germany 147.5
http://www.census.gov/foreign-trade/top/dst/2010/12/balance.html
US Imports from China
Made in China
Flying into the future: Boeing's next-generation 737-700 is China-bound.Picture: AFP
China buys 200 Boeing aircraftIn JANUARY 2011 THE US SIGNED A $45BN EXPORT DEAL WITH CHINA, THE TRADE DEAL INCLUDES A $19BN PURCHASE OF 200 BOEING AIRCRAFT.
World´s Largest McDonalds in Beijing
US exports to China
GM's China sales top U.S. total,a first for the automaker
2001
2003
2005
2007
2009
02468
101214161820
2.343.3
4.7 5.1 5.77.28
8.899.34
13.79
18.06
Automobile sale in China(million units)
GM sold more cars and trucks in China than it did in the U.S. in
2010, marking the first time that a foreign market has outpaced the automaker's domestic sales in its
102-year history.
Top trade partners of the U.S.(2011)
Country Trade Deficit(Billion $)
1 China 295.4
2 Mexico 65.6
3 Japan 62.6
4 Germany 49.3
5 Canada 35.6
6 Saudi Arabia 33.7
Why China is a big trading partner of the U.S.?
Comparative advantage: China has cheap and productive labor– But why not other developing countries?
Gravity model, the size of the Chinese economy– But China is distant away
A stable but undervalued currency peg to the U.S. dollar– But what about other Southern American countries
that also use dollars?
Size of the Chinese EconomyGDP by exchange rate (2011)
(billion $)
Series1
1430
1885
2518
2246
2481
2808
3629
5855
6989
15,060United States
China
Japan
Germany
France
United Kingdom
Italy
Brazil
Russia
India
Average annual growth rate (1980-2009)
1
1.99
2.19
2.69
2.81
2.83
6.1
6.13
10China
India
South Korea
Russian Federation
World
United States
Japan.
EU
The quick rise of the Chinese economy
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
2000
4000
6000
8000
10000
12000
14000
16000
China
Germany
France
United Kingdom
Japan
United States
China
China’s contribution to global growth
China now contribute more to the global economic growth than the U.S.– China’s GDP x growth rate = 574 billion $– The U.S. GDP x growth rate = 393 billion $
If the trend continues …
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200
5000
10000
15000
20000
25000
30000
China
Germany
France
United Kingdom
Japan
United States
U.S.
China
If the trend continues …
If the trend continues, it is estimated that China would overtake the U.S. to become the largest economy by the year of 2020.
The fast change in the ranking of China is due to two reasons– the higher economic growth rate, say, at a
sustainable of 10%– the restoration of the true value by the
undervalued Chinese currency RMB.
True size of the Chinese Economy
GDP by Purchasing Power Parity (2010, billion $)
Series1
1549
2146
2181
2182
2218
2932
4001
4308
10084
14624
United States China
Japan India
Germany Russia
Brazil U.K.
France Mexico
Foreign exchange reserve(billion dollars, Dec. 2010)Chi
na
Japa
nEur
o Zo
neRus
sia
Saudi
Ara
bia
Taiw
an
Indi
a
U.S.
0
500
1000
1500
2000
2500
Germany, 589
India, 787
Russia, 983
Japan, 1009
China 3221
U.S., 4110
Canada, 614
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Electricity production (billion kwh, 2008)
China, 4140, 2010
Electricity production is often used as a proxy for GDP at PPP for countries
Automobile production (million vehicles)
China Japan U.S. Germany Korea Brazil India0
2
4
6
8
10
12
14
16
18
20
2000
2005
2010
Figures include passenger cars, light commercial vehicles, minibuses, trucks, buses and coaches
Automotive production is a proxy for manufacturing activities
China, 568 million tons
46.55%
European Union; 11.40%
Japan; 7.17%
Russia; 4.91%
U.S.; 4.76%
India; 4.64%
Korea; 3.98%
Others; 16.57%
World Steel Production 2009
Steel production is a proxy for fixed capital formation and housing construction (investment goods)
Food production 2008 (m tons)
China U.S. India Russia Brazil0
50
100
150
200
250
300
350
400
450
Grain, cereal Meat
Fish
Measures the agricultural output
New Residential Building Construction (million square meter per month 2010)
China
Russia
Japan
South K
orea
Germ
any
0
10
20
30
40
50
60
UN monthly bulletin. U.S. adopts the unit of “set” thus not comparable
Construction everywhere
High speed rail
How should the U.S. meet the challenge?
China poses a challenge for the U.S. in the 21st century.
What is important is how the U.S. should adopt a better strategy and policy to meet this challenge.
To maintain the lead in the global economy, the U.S. should rely on the market system, but also understand that the government’s active role cannot be diminished in correcting market failures.
China is weak
China is still poor, GDP per capita is low.Deteriorating environment may not sustain future economic growthChina’s population is aging very quickly in the coming yearsCorruption and inefficiency are rampantChina has a widening income gapChina is unstable and economy remains inefficient because of lack of rule of lawChina lacks of an education system that truly promotes creative research and developmentChina is politically unstable because of lack of democracy and an independent legal system.
China is weak
GDP p.c.
Renewable wate
r
Energy consum
ption
ESI index
Ferterli
ty0
20406080
100120
U.S.
China
Renewable water and energy consumption are on the per capita basisESI is environmental sustainability indexFerterlity: U.S. 2.05; China: 1.79
China’s demographic time bomb
Income gap
Country Gini Coefficient (the higher the worse)
Sweden 23
Taiwan 33
United Kingdom 34
U.S. 45
China 46.9
Brazil 56.7
Lack of free information flow
Scholars in China cannot even access wikipedia.org hence much of information Needed for modernization is lost
Lack independence of judiciary and no rule of law
Private property is still not well protected
That scares many private entrepreneurs. They are seeking emigration to the West after they have money, thus billions of dollars of capital flies back to the U.S.
The party determines everything hence impeding independent thinking, entrepreneurship and creativity.
Rampant corruption and waste
Corruption in China growing at least as fast as the economy ,( John Garnaut, Beijing )Railway Minister Liu is arrested for corruption
Chinese politician Bo Xilai's wife accused of murdering UK businessman over business interests
Lack of transparency and democracy to vent people’s
grievance, causing the system fundamentally unstable
A call for political reform from the party
China Daily has just reported Premier Wen Jiabao reaffirming political and economic reforms. On the table are government transparency, creating conditions allowing people to criticize and supervise the government, and media being a watch-dog.
But it is widely said that Wen represents only the minority in the party and the conservatives are dominant
ConclusionChina is a large economy with a big momentum. China is still a poor country with many domestic problems, it will remain substantially behind the U.S. in per capita term for many years ahead.China is dynamic. The norm would be surprises and uncertainties. Do not be surprised if one day you wake up and hear that China overtakes the U.S. in some areas, or, you hear there is a political uprising and the system is in a crisis and breaks down.The best hope for China by the rest of the world is that it gradually moves forward to economic prosperity and political democracy.The relationship of the U.S. and China is one of the most important in the world in the 21st century. We need to enhance our understanding of China and form a better strategy / policy to meet this challenge.
Conclusion: the future generation of China …