Reform,Opening up & China s Economic Growth

Transcription

1 Reform,Opening up & China s Economic Growth November 16, 2009

2 1 Overview of China s Economic Growth 2 Land reform and China s Agriculture Industry 3 Monopoly and Anti-trust: Case in China Telecom Market 4 Cluster and Competition between Foreign companies and Local Companies 5 Evolution of the Institutional Structure of Banking

3 Today s China Shanghai Pudong

4 Today s China PeiJing Olympic

5 Today s China PeiJing Olympic

6 China s GDP Growth China have made a rapid economic progress in past 60, especially 30 years.

7 China s GDP Growth in Recent Years

8 The Change of China s World GDP Rank World GDP Rank in Recent Years No USA USA USA USA 2 Japan Japan Japan Japan 3 Germany Germany Germany China 4 UK China China Germany 5 France UK UK France 6 China France France UK 7 Italy Italy Italy Italy 8 Canada Canada Brazil Russia 9 Spain Spain Russia Spain 10 Korea Brazil Spain Brazil

9 general situation of China s Industry First of all, let us take an overview of china s industry.

10 Industry Classification Primary sector of industry (Agriculture Sector) Secondary sector of industry (Manufacture Sector) Tertiary sector of industry (Service Sector)

11 Question Which Industrial sector contributes most to China s GDP growth?

12 The Proportion of Industry Sectors against GDP

13 Question Which Industrial sector adopts the most proportion of China s labor?

14 The proportion of industry sectors adopting Labor

15 Data in 2008 The proportion of industrial sectors against GDP Agriculture Sector: 11% Manufacture Sector: 49% Service Sector: 40%

16 Data in 2008 The proportion of industrial sectors against GDP Agriculture Sector: 11% Manufacture Sector: 49% Service Sector: 40% The proportion of industrial sectors adopting labors Agriculture Sector: 40% Manufacture Sector: 27% Service Sector: 33%

17 The Industrialization Process Definition Standard of Industrialization: Middle: stage agriculture < 20% Ending: stage agriculture < 10% The process of China s industrialization is not far away from the ending stage.(agriculture Sector 11%in 2008)

18 manufacture growth is the major drive for GDP growth

19 manufacture growth is the major drive for GDP growth Set annual GDP growth rate as dependent variable and annual agriculture growth rate,annual manufacture growth rate,annual service growth rate as independent variable to do a regression. Example Value Std.Error t Pr(> t ) Intercept Agriculture Manufacture Service Multiple R-Squared:

20 proposition Process of China s development is the process of China s industrialization. Industry, especially the manufacturing sector, has been one of the driving forces of China s rapid economic growth.

21 Agriculture Sector Land reform and China s Agriculture Industry

22 Agriculture and Farmer Although China turns to be an Industrial country, The core challenge for China s development is still farmer s problem because major part of China s population is farmer.

23 Cultivated Land in China

24 Rural Area in China

25 Rural Area in China

26 Rural Area in China It is just parts of china s rural area, we can see anther aweful situation as well.

27 Rural Area in China

28 Rural Area in China

29 Simple Social Structure in planned economy Rural Area:People s Commune Urban Area:State Owned Enterprises Definition People s commune, the largest collective units, were divided in turns into production teams. The communes had governmental, political, and economic functions. Definition State Owned Enterprises is a legal entity created by government in urban areas to undertake commercial activities on behalf of an owner government, and are usually considered to be an element or part of the state.

30 People Commune

31 Problems of planned economy Inefficient resource allocation: shortage& surplus. Highly risky decision making system: Great Leap Forward movement. Suppressing people s incentive: equalitarianism.

32 Reform in Rural Area Reform in XiaoGang Village.The farmers contracted with government through obtaining the use right of the land.

33 Pricing System Reform and Increase of Farmer s Income In October 1984, a dual price system was introduced as a measure to promote market economy. An official price coexisted with the emergence of a market price in non-official markets, typically in agriculture produce.

34 Problem of Rural Area bad geographic condition

35 Problem of Rural Area bad geographic condition backwater infrastructure

36 Problem of Rural Area bad geographic condition backwater infrastructure small plain area against huge population Uniform income and low

37 Problem of Rural Area bad geographic condition backwater infrastructure small plain area against huge population Uniform income and low income Poor public goods provision (Education, Medical service, Pension )

38 Gene coefficient

39 Surplus of Agriculture Products

40 Gap between Rural area and Urban area

41 Migrant Worker Example Fu Ansi has been on the road for nine years looking for work to support his family. My current job is to watch a warehouse at a garden furniture factory, 24 hours a day, seven days a week no weekends and no holidays. He earns Yuan per month (US$49-61).

42 Migrant Worker Example Fu Ansi has been on the road for nine years looking for work to support his family. My current job is to watch a warehouse at a garden furniture factory, 24 hours a day, seven days a week no weekends and no holidays. He earns Yuan per month (US$49-61). I don t know much about politics, but I feel that over recent years, there have been more work opportunities around. All I know is that I am earning more than I used to, and my family s life has improved. But there are no social benefits all I get is my salary. Hands stop, mouth stops. If I get sick I just have to keep my eyes open and sit here.

43 National Economic Policies on Agriculture Relief Farmer s burden Subsidize Farmers in varied ways Compulsory Education( Hope schools )

44 National Economic Policies on Agriculture Relief Farmer s burden Subsidize Farmers in varied ways Compulsory Education( Hope schools ) Guidance Purchase Price for crops West development Plan

45 National Economic Policies on Agriculture Relief Farmer s burden Subsidize Farmers in varied ways Compulsory Education( Hope schools ) Guidance Purchase Price for crops West development Plan Plan to set up pension fund for farmers

46 manufacture Sector manufacture: the major force of China s Growth

47 Problems of SOEs With the release of constrains on private and foreign economy, more economic body entered the market, challenging the entrant SOEs.

48 Problems of SOEs

49 Problems of SOEs

50 The Strategy of SOEs Reform Market oriented Reform grasp Big and release small corporatizing the State big SOEs. privatizing the small and medium sized SOEs.

51 corporate governance The purpose of reform is to set up a triangle governance system.

52 The Result of Reform SOE profits have rebounded strongly since their low point in , most recently growing +43% in 2003; +40% in 2004.

53 SOEs Average Profit

54 Case Study: China Oil Industry

55 Three Giants in China the China National Petroleum Corporation the China Petrochemical Corporation the China National Offshore Oil Corporation

56 Three Giants in China the China National Petroleum Corporation (CNPC) engaged mainly in oil and gas exploration and production. the China Petrochemical Corporation (Sinopec). engaged in refining and distribution. the China National Offshore Oil Corporation (CNOOC) handles offshore exploration and production and accounts for more than 10% of China s domestic crude oil production.

57 Reform in three Giants corporatize the company Issue Stocks Introduce foreign investor

58 Monopoly and Anti-trust: Case in China Telecom Market Monopoly and Anti-trust: Case in China Telecom Market

59 Character of Natural Monopoly

60 Sample to Explain Natural Monopoly Example the beginning invest to set up a telecom network costs 100,000,000 USD the maintain fee costs 1,000,000 USD suppose the scale of customer is 100,000,000 AC = { 100,000,000+1,000, ,000,000 = 1.01investment not return = 0.01investment return 1,000, ,000,000

61 Telecom Market in China

62 Product Life Cycle

63 The Major Players in Market China Mobile China Telecom China Unicom

64 The Major Players in Market China Mobile not only operates basic GSM services but also value-added services such as GPRS. It ranks the first in the world in terms of network scale and customer base.

65 The Major Players in Market China Mobile not only operates basic GSM services but also value-added services such as GPRS. It ranks the first in the world in terms of network scale and customer base. China Telecom One of the largest telecommunication SOE in China, including 31 enterprises in different provinces. It runs fix-line business. In 2008, the company acquired CDMA network from China Unicom.

66 The Major Players in Market China Mobile not only operates basic GSM services but also value-added services such as GPRS. It ranks the first in the world in terms of network scale and customer base. China Telecom One of the largest telecommunication SOE in China, including 31 enterprises in different provinces. It runs fix-line business. In 2008, the company acquired CDMA network from China Unicom. China Unicom China Unicom merged with China Netcom in Oct 2008 and obtained WCDMA license in Jan The company offers mainly mobile phone services.

67 problem of monopoly in telecom market 1 monopoly leads to serious duplicative construction and waste of resources.

68 problem of monopoly in telecom market 1 monopoly leads to serious duplicative construction and waste of resources. 2 monopoly blocks interconnection.

69 problem of monopoly in telecom market 1 monopoly leads to serious duplicative construction and waste of resources. 2 monopoly blocks interconnection. 3 monopoly affects the fair allocation of telecom public resources.

70 problem of monopoly in telecom market 1 monopoly leads to serious duplicative construction and waste of resources. 2 monopoly blocks interconnection. 3 monopoly affects the fair allocation of telecom public resources. 4 monopoly results in telecom enterprises lacking motivation for technological advances.

71 3 steps reform horizontal cut vertical cut Introduce foreign competition

72 horizontal cut horizontal cut separate enterprise from government administration.

73 vertical cut split the former China Telecom into four independent groups in mid-1999according to specific services. China Mobile is specifically dedicated to mobile phone services; China Satellite is specific in satellite communications Guo Xin Paging Company focuses on radio paging services only. (Guo Xin Paging Company was subsequently merged with China Unicom as a measure to enhance China Unicom s financial strengths) China Telecom focuses on fixed line service.

74 Introduce of Foreign Investor In 2005 foreign investors will be allowed for form joint ventures. investing up to 50% in Internet services in the whole country up to 49% in the mobile sector in 17 major Chinese cities up to 25% in fixed-line basic services in Beijing, Shanghai and Guangzhou.

75 Leapfrog Strategy

76 principles in the reform process Combine industry re-organization and strengthening oversight. Combine the adjustment of telecom enterprise group structure and the establishment of modern enterprise system. Combine breaking apart of monopoly and raising international competitiveness. Combine society s interests and enterprise s interests.

77 Competition between Foreign Companies and Local Companies Cluster and Competition between Foreign Companies and Local Companies

78 China s Saving Rate Capital is key element for GDP growth

79 China s Saving Rate China as a developing country has a high saving rate.

80 China s FDI inflows FDI is the external source of capital.

81 China s FDI inflows FDI inflows is in lines with the gradual opening up. beginning period (from 1978 to 1986) stable growth period (from 1987 to 1991) rapid growth period (from 1992 to 2001) fully opening period (since 2002)

82 beginning period Foreign debt is the major way for China to introduce foreign investment and we make some experiment in special zone to attract foreign investment. type Joint Venture 37.2% 10.9% 40.2% 34.2% 48.5% Solo Funded 9.4% 2.3% 3.8% 0.8% 0.7% Cooperative 44.2% 29.0% 56.0% 59.0% 47.9%

83 stable growth period most of foreign investor chose joint adventure style instead of cooperative style because it is not convenient to evaluate the various investment ways such as technology,land, brand, etc in cooperative style. type Joint Venture 52.6% 59.2% 47.5% 41.0% 50.8% Solo Funded 12.7% 9.1% 29.5% 37.1% 30.6% Cooperative 34.6% 30.7% 19.3% 19.0% 17.9%

84 rapid growth period Government release the policy constraint and allow foreign investor to set up solo-funded companies in China. Therefore,solo-funded companies became the major style for Foreign investment. type Joint Venture 47.0% 40.6% 29.3% 27.4% 32.0% 25.3% Solo Funded 30.9% 34.6% 36.8% 41.9% 54.3% 62.1% Cooperative 21.9% 23.7% 19.7% 13.8% 12.8% 12.0%

85 fully opening period By the end of 2001, China entered the WTO and commit the world to open its market thoroughly. type Joint Venture 22.4% 21.8% 21.6% 24.2% 20.7% 20.3% Solo Funded 69.2% 69.8% 71.5% 71.2% 76.5% 77.4% Cooperative 7.5% 6.4% 5.9% 3% 2.8% 1.9%

86 major FDI attractions Low cost labor sound policy emerging market

87 reason s for multinational companies cluster sound policy by special zone market nearness Closeness to supporting industries

88 Major Manufacture Straps in China

89 Competition between foreign companies and local companies Competition between foreign companies and local companies is intensive in an opening market. So what market behavior two type s companies will take?

90 Segment Market Low End Market Definition consists of lower-priced products for customers who are not willing and able to spend lots of money.

91 Segment Market Low End Market Definition consists of lower-priced products for customers who are not willing and able to spend lots of money. High End Market Definition consists of higher-priced products for customers who are willing and able to spend lots of money.

92 Characters of Segment Market Figure: BMW:150,000USD Figure: Nano:1,500USD

93 Characters of Segment Market Characters of Low End Market Definition Low price products with low added value Low profit market with lower entry barrier amounts of consumers sensitive to price

94 Characters of Segment Market Characters of Low End Market Definition Low price products with low added value Low profit market with lower entry barrier amounts of consumers sensitive to price Characters of High End Market Definition High price products with high added value High profit market with higher entry barrier small group of consumers insensitive to price

95 Segment Market

96 Segment Market

97 Strategies Low Cost Strategy Definition use a relatively low price to stimulate demand and gain market share.

98 Strategies Low Cost Strategy Definition use a relatively low price to stimulate demand and gain market share. Differentiation Strategy Definition use competitive adventages to market unique products for different customer segments share.

99 Sale structure of TV Makers in Chinese Market

100 Sale structure of TV Makers in Chinese Market

101 Sale structure of TV Makers in Chinese Market

102 Targeting Market of Different Companies Chinese Company focuses on bottom market

103 Targeting Market of Different Companies Chinese Company focuses on bottom market korean Company focuses on both market

104 Targeting Market of Different Companies Chinese Company focuses on bottom market korean Company focuses on both market Japan&US company focuses on up market

105 Sale structure of TV Makers in Chinese Market

106 Sale structure of TV Makers in Chinese Market

107 Targeting Market of Different Companies Local Company focuses on bottom market

108 Targeting Market of Different Companies Local Company focuses on bottom market Foreign company focuses on up market

109 Change of Sales Structure for Multinational Companies

110 Change of Sales Structure for Domestic Companies

111 Change of Sales Structure for Domestic Companies

112 Evolution of the Institutional Structure of Banking Evolution of the Institutional Structure of Banking

113 Time Axis of Financial Reform

114 Independence of Financial Institution

115 problem of Banking system

116 All in All Structure

117 Split of Business Function

118 Split of Business Function Bank of China(ADBC)

119 Split of Business Function Bank of China(ADBC) Agricultural Bank of China (ABC)

120 Split of Business Function Bank of China(ADBC) Agricultural Bank of China (ABC) Industrial and Commercial Bank of China (ICBC)

121 Split of Business Function Bank of China(ADBC) Agricultural Bank of China (ABC) Industrial and Commercial Bank of China (ICBC) China Construction Bank (CCB)

122 Split of Policy Function

123 Split of Policy Function Agricultural Development Bank of China (ADBC)

124 Split of Policy Function Agricultural Development Bank of China (ADBC) China Development Bank (CDB)

125 Split of Policy Function Agricultural Development Bank of China (ADBC) China Development Bank (CDB) Export-Import Bank of China (EXIM)

126 Split of Supervision

127 Split of Supervision China Banking Regulatory Commission (CBRC)

128 Thanks for listening!