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Lecture 3: Country in Focus: China and East Asian Crisis

Lecture 3: Country in Focus: China and East Asian Crisis. Topics today Why China, India and Russia have had different experience? Brief history of China’s reforms and capital market Is China going to follow the “Tigers” experience next? What caused the East Asian Financial Crisis?.

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Lecture 3: Country in Focus: China and East Asian Crisis

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  1. Lecture 3: Country in Focus:China and East Asian Crisis Topics today Why China, India and Russia have had different experience? Brief history of China’s reforms and capital market Is China going to follow the “Tigers” experience next? What caused the East Asian Financial Crisis?

  2. From a historical perspective

  3. China, India and Russia(PPP-adjusted per-capita GDP)

  4. China, India and Russia: (growth in PPP-adjusted GDP)

  5. China vs India: Why? • In “China is outperforming India” (IHT, Jan. 7), Ramesh Thakurstates: • A decade ago, China's per capita GDP was about the same as India's. Today it is double. • China is outperforming India in almost every facet of national competitiveness, attracting more than 10 times as much foreign capital, increasing its share of world markets and being courted as a responsible manager of global order.

  6. Ramesh Thakur continues: • While keeping costs as low as India's and offering the allure of an even bigger domestic market, China has built much better highways, telecommunications, power supply, seaports, airfields and other infrastructure than India. • Meanwhile, some of India's long-standing advantages over China are eroding or becoming less relevant, including English language competency, democracy and the rule of law.

  7. EDITORIAL DESK | August 29, 2003, Friday, New York Times Freedom's In 2nd Place? By NICHOLAS D. KRISTOF (NYT) • ABSTRACT - Nicholas D Kristof Op-Ed column contrasts economic conditions in Ukraine and China, which took diametrically opposite political paths in late 1980's and early 1990's; says Ukraine held presidential election and pronounced itself a democracy, while China massacred protesters demanding more freedom and democracy; says that since then, China's economy has tripled in size and Ukraine's has shrunk by half; says authoritarian orderliness is sometimes more conducive to economic growth than democratic chaos; says perhaps best explanation for different paths of Ukraine and China is not policy but culture (M)

  8. A Gradual Privatization Process: Trial-and-Error

  9. The Private Sector’s Share Today

  10. How has China grown so much? • Besides a focus on manufacturing and other “hard” industries, capitalization and financialization has played a crucial role in energizing the economy for growth

  11. Government debt issuance has generated supply of “capital” RMB 100 millions New government debt issues Fiscal deficit

  12. China’s Fiscal Deficit as Percentage of GDP:issuing debt against future government income Data source: China Data Center at University of Michigan

  13. Government Expenditure as Percentage of GDP

  14. China’s main highway network: Every year constructing around 4,000 km of expressways, towards its target of connecting every city to an 85,000 km network.

  15. Capitalization of corporate assets & future cashflows has generated much capital supply A-Share mkt capitalization in RMB trillions Total bond mkt value = RMB 6 trillion Sources: Federal Reserve Flow-of-Funds

  16. Typical Ownership Pie for Listed Companies

  17. China’s Stock Market Today • 1,400+ publicly traded stocks • Total market cap: RMB 20 trillion • 120+ securities firms, with 100,000+ professionals • 110+ million investor accounts

  18. Chinese companies listed overseas • First overseas listing in 1993 • Now, overseas listed companies have a market cap of RMB ~15 trillion

  19. China’s Capitalization of Land & future labor income Total home mortgage loans in RMB billions Sources: State Statistical Bureau

  20. Emerging consumer credit market in China • Consumer credit started in 1995: auto loans • Credit cards emerged in 1999. Now, 30 million card holders • Student loans, other loans

  21. China today vs the U.S. of 1945 U.S. in 2006 156% 77% 18%

  22. What is going to happen next in China? • Political risk & corruption • Institutional reform (e.g., legal reform, free press) • Non-performing loans (NPL) and assets: too much growth is financed by government borrowing & spending

  23. Too much wealth invested in real estate

  24. Some of the problems caused by financial under-development

  25. Too much money in bank savings: is there any problem?

  26. Financial Market Development and Income Inequality: any effect? All as % of Financial Assets: household portfolios

  27. Risk Factor: Income Inequality

  28. In comparison with other countries

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