EASC 160gm 1st Edition Lecture 13 Outline of Last Lecture I. Chinese EconomyII. UrbanizationIII. Household Registration SystemIV. CitizenshipV. Rural ConditionsVI. Township Village EnterprisesVII. Migrant Living ConditionsOutline of Current Lecture I. China’s GDPII. Where is the money coming from?III. Where is the money being made?IV. TVEsV. GlobalizationCurrent LectureWhy did China’s GDP grow at such a generally steady high rate for the last 3 decades?1. through the early 2000s China was relatively protected from external economic shocks by rules on restricting currency, trading, etc…2. Because the central government can cushion industries during downturns and SOEs had “soft budget constraints,” recessions have been avoided (Naughton page 309)3. Major development projects are easier to implement in a one-party state with nodissenting parties to argue against4. Citizens have limited property rights so the government can rather easily appropriate land for big infrastructure and construction projects5. Around 70% of the Chinese population over these decades has been of working age. Moreover, the massive rural population (80% of the population going into the 1980s) was high under-employed and cash hungry. This population also had extraordinary economic security (the land and housing safety net of rural residency) and basic elementary education. Where is the money coming from?1. Stock markets: Shanghai and Shenzhen Stock Exchanges open in 1990 Today there are 1800 plus companies at over $3. trillion Stocks are listed for almost exclusively state owned and controlled companies- lots of debate over what exactly is a state owned company stock market raises little equity in China, not seen as reliable (true to 2005) not that credible, not where equity is being built seen as nontransparent vehicles of moving money around people can easily manipulate markets2. Foreign Direct Investment main investors are part of “China circle” (Macau, HK, Taiwan) accounts for about 60% of FDI in China similar to SE Asian (not NE Asian) economies with FDI = 4-6% investment in factories, development in industry- second to that is real estate- minimal in communications, transportation- banking is entirely state controlled FDI concentrated along coast, highest in Fujian, Guandong first started in SEZ (1980-1990)- SEZso have minimal or no customs of sales taxes on imports and exportso give extended tax holidays to enterpriseso zones typically coordinated to provide streamlined administration and infrastructure for industries strongly concentrated in manufacturing (70% in 2003) not services, etc…  some companies are foreign direct investment companies (Lenovo), has separate rules and benefits that Chinese companies don’t get3. Trade Surplus4. Domestic Savings (where is this coming from?Overseas trade—exportsBy 1995 all of China’s top export commodities were labor-intensive200: about 50% of exports in electronics and machines2005: more high tech, 88% of notebook computer industry in China is FDIIn order words, China has moved up the developmental hierarchy, but many of the most successful players are foreign firmsO Taiwan’s transfer of industrial bases to China are a key exampleO Taiwan has exported models to ChinaWhat is different about globalization since the 1970s that was not the case before?Exports are very important to ChinaWhere is the big money being made? examples from 1980s-1909sAn example of state-led market development gone wrong: Hainan Island, 1988Government announced Hainan as SEZ- 20,000 real estate development companies open (one for every 80 residents- housing prices quadrupled in 3 years- when banks cracked don won on real estate loans in 1993 600 buildings left unfinished- 4 billion in bad lansWhat happened to TVES?- privatization in late 1990s- mostly insider privatizingWho finances China?- China’s banks: 4 state banks, 3 have internationally listed stocks- foreign banks are allowed in China, but account for less than 2% of the market- in 2006, the big 4 were doing well, 2008 beating their international competitors- then in 2008-2009 huge lending spree 10 trillion RMD- China has a HUGE savings rate, people save a lot of money in the bankThe problem today is, and has been on and off for the last 3 decades, a huge portfolio of non-performing loans- Stimulus program (type of bank loan): local banks, local officials can get hands on moneyto do construction projection- production Chinese infrastructure- resulted in in NPLsSo who is actually financing China’s growth? the common peopleo facing inflationary rateso loss of money in banko lack of confidence in financial systemso at most basic level, Chinese people are aware that they are financing economic successo concerned that the financial system is full of holes and facing difficultieso problems with corrupt official loansWhat is globalization?o shrinking of time and spaceo modes of transportation, communication have made the world smallero movement of people—migration, traveling, multi-cultural identities, etc…o movement of commodities and commodity prices are linked through global markets grain production shortage in China or US can push up prices throughout the world fall or obstruction in oil production can affect global economy o commodity chains are complex and segmented processes of global production outsourcing advantages- cheap labor- minimization of taxes- deregulationavoiding legal