Download Macro-economic key points for today

北京大学工学院
PKU College of Engineering
Globex
China’s Economy:
Growth and Global Connections
Macro-economy and Challenges
Susan Mays, Ph.D., contact [email protected]
Globex Faculty Fellow, Peking University; Faculty, The University of Texas at Austin
Macro-economic key points for today
1. “China is ‘slowing’ “: ongoing GDP growth, yet rate of growth is slowing
• Expected, yet definitely questions about the GDP components
2. “Over investment”
•
Investment is too large as a portion of GDP
•
Corp (SOE) and gov loans (debt) are growing faster than GDP
•
Normal w rapid development, but it’s time to make more efficient
investments (that is, make better loans) or do less investment
•
Chinese leaders well aware…policies for more consumer-led econ
3. “Not consumer driven”
•
Consumer spending growing slower than GDP…lower than any major
nation in history
•
Yet, income and spending up 10% annually since 2005
•
But consumers save due to lack of social safety nets (like health)
•
Consumers save because also few options for “financial returns” (like
in stock market equity); must save in banks, earn very low interest
2
With slower growth, growth is still nominally much larger
than in previous years when C’s econ was smaller
Year
GDP China in
US$trillion
Growth
Growth
Value
2000
US$1.19t
10%
119b
2005
US$2.25t
10%
225b
2010
US$6.01t
10%
601b
2015
US$11.38t
5%
569b
(1) Date sources: tradingeconomics.com; China’s General Administration of Customs; World Bank.
3
The components of GDP, which is the national “output” or
“income”
GDP = Consump + Gross Investment + Gov Spending + (Exports – Imports)
GDI = Private Consump + Investment + Gov Spending + (Net Exports)
GNI = Consump + Gross Capital Formation + Gov Spending + (Net Exports)
Note:
Greens terms are both “Consumption”:
We split private consumption (also called “consumer consumption”) and
government spending (also called “government consumption”)
Red represents total national “Savings” (now at ~50% for China)
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4.
5.
6.
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“Limited financial system”:
•
Financial system not totally open to global capital: not free flows of
capital in-out of China…saw problems in other developing countries
•
State-owned bank centered: give low returns to depositors; favor
loaning to state-affiliated companies or projects; don’t really loan to
private nor foreign companies
•
Leads to “shadow banking”
“Increasing debt level”: up 2x 2007 to 2014; debt = consumer + gov + corp
•
~260% of GDP; highest ever; interest payments add up!
•
Almost all from domestic sources; won’t default on foreign debt like
LA in 1980s and Asia in 1997
•
high corp debt, 52% of total debt (loans & investment we discussed)
•
Different than US debt story: usually covers just government debt
owed in part to foreign countries
“Incomes not increasing (…enough)”: pay is somewhat supressed; this
inhibits the consumer spending portion of GDP; corps/gov spend on
capital investments not labor; little union support; ag>Ind>serv…takes
time; big labor supply
Macro-economic key points for today
7. Fiscal policy: = gov tax and spending
8. “Local gov debt and land transfer issues”: related to fiscal policy
9.
“Shadow banking”: due to financial sector limitations and fiscal policy
10. Increases in gov spending can lead to increased consumption part of GDP
6
Taxation and government revenues
(taxes, SOEs, fees, etc.)
IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012
7
The central government’s 2014 commitment to fiscal and
tax reform in order to reduce risks from local debt
“Public finance is the foundation and a critical pillar for
state governance. A scientifically designed fiscal and tax
regime is the institution that guarantees resource allocation
optimization, market unification, social equality, and longlasting security and peace for a nation.”
XI Jinping’s Team, 2014
Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014.
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Macroeconomic levers 1) fiscal policy and 2) monetary
policy ( < amount of $ circulating in the economy)
Fiscal Policy, primary levers:
1. Taxation……………~25% of GDP
2. Gov spending
(In U.S. there’s an annual “budget deficit”, which is “Gov Spending –
Taxation”, we spend more than we tax, which then accumulates to be
“national debt”)
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The “Two Ratios” were brought under control in 1994;
another big reform enacted by end of 2016
Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014.
10
China’s central government has more tax revenue than
expenditure commitments
Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014.
11
Local governments have been increasingly funded by land
transfers (“off-budget” revenues and ^ “shadow banking”)
IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012
Daniel H. Rosen and Beibei Bao, Rhodium Group, “China's Fiscal and Tax Reforms: A Critical Move on the Chessboard,” July 11, 2014.
12
New tax reforms: hard deadline in 2016
7. Fiscal policy: = gov tax and spending
8. “Local gov debt and land transfer issues”: related to fiscal policy
9.
“Shadow banking”: due to financial sector limitations and fiscal policy
10. Increases in gov spending can lead to increased consumption part of GDP
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2016 fiscal and tax reforms…
• When Beijing cut fiscal and monetary stimulus in 2010, LGFVs were forced
into the arms of shadow banks
• Abuse of farmers in land transactions is well known; fiscal/tax reform to
stop it
• Talk of how to improve rights and social justice around land, but growth
trumped the rights of rural citizen almost every time
• Central attention is more on local debt burdens than farmer rights
• China’s reforms are moving ahead despite bureaucratic inertia, institutional
resistance, and widespread skepticism
• New reforms limit local special activity
• No laws or regulations can stipulate tax policies that are more
preferential than national
• Try to reduce local government’s addiction to land financing and
inefficient investment
• Create a market-driven economy for businesses
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Macro-economic fundamentals
Focus: structure, performance and output (GDP) of a whole economy
Main Levers: 1) fiscal policy & 2) monetary policy
Goals: Influence interest rates and money supply in order to stabilize
business cycles and affect employment and inflation…to foster the GDP
Primary Indicators:
• GDP = the output (or “income”) of the whole economy
• Inflation: Price Indices (consumer and producer) = price of a basket of goods
• (Un)Employment rate
• Trade Balance = exports – imports (surplus or deficit)
• Balance of (Intern.) Payments (BOP) = (foreign $ in) – (domestic $ out)
= Current Acct + Capital Acct
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Banks turn households savings into loans (investments) for
SOEs, infrastructure, local governments, (…and real
estate?)
LARGE STATE OWNED
LARGE STATE OWNED
ENTERPRISES
LARGE
STATE OWNED
ENTERPRISES
ENTERPRISES
FAMILY
FAMILY
FAMILY
IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012
16
STATE
OWNED
BANK
GOV. PROJECTS
(INFRASTRUCTURE)
2014 still at ~50%: China’s gross national savings (investment)
of GDP…..vs. U.S. 18%, Germany 26%, Korea 32%
r,as
in%China
What
nce on the
e to its high
dicate that
g controls
idy transfer
Whereas
estment has
gn
be captured
this
IMF Working Paper, “Is China Over-investing and Does it Matter?,” 2012
17
Rapidly rising private per capita consumption; yet private
consumption declining as a share of gdp
Annual Disposable Income Per Capita1
25,000
Chinese Yuan
20,000
15,000
Urban Income ~ 3x Rural
Latest Data 2013:
Urban: Y29,945 = ~US$4,325
Rural: Y8,896 = ~US$1,428
10,000
5,000
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 9 10 11 12 13
(1)
(2)
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National Bureau of Statistics China; People’s Daily; tradingeconomics.com; data trend combines rural and urban averages.
IMF; World Bank; CIA; over 600 million internet users; RMB up 30% since 2005; over 270mm rural migrant workers in cities; migrant worker income tends be between rural and urban averages.
Currently savings are up 7% in last 10 years to 30% of income
ARTHUR KROEBER
(5-6% in U.S.) and consumption
is 35% of GDP (75% in U.S.) 331
Fig. 1. Consumption share of GDP, household saving, and per capita consumption
a growth, 1995–
ha on and Pr asa (2008) and N
B (20 0 ) .
19 2010. Sources: Author cl cul at ions frm C
Aurthur Kroeber, “China’s Consumption Paradox,” Eurasian Geography and Economics, 2011, data from Chamon and Prasad (2008) and NBS (2010.)
Decline in consumption as a percent of GDP under rapid
industrialization
China
1995-2011
12%
Japan
1955-1970
14%
Korea
1975-1988
21%
Korea
1956-1988
44%
Malaysia
1982-1997
12%
Thailand
1982-1997
12%
India
1960-2006
26%
U.S.
1900-1950
25%
Aurthur Kroeber, “China’s Consumption Paradox,” Eurasian Geography and Economics, 2011, data from IMF in 2011.
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Why was China’s
consumption percentage so low to
EURASIAN GEOGRAPHY AND ECONOMICS
begin with?
332
Fig. 2. Consumption ratios in the major Asian economies of China, India, Taiwan, South Korea,
and Japan
(private consumption percentage share of GDP), 1955–2010 (data for Japan and South Korea
Aurthur Kroeber, “China’s Consumption Paradox,” Eurasian Geography and Economics, 2011, data from IMF in 2011.
are througha 2009). Sources: Author cl cul at ions frm IM
F data in CI C 2 01
1).
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The share of working-age people will now decline, likely
leading to less savings
Carl Bonham and Calla Weimer, “Chinese Savings Dynamics,” Oxford Economic Papers 65, 2013, page 183.
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