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Current macro management and Long-term growth scenarios of Chinese economy

Current macro management and Long-term growth scenarios of Chinese economy. FAN Gang National Economic Research Institute & Peking University 06-2009. I. Global Crisis and China: Policies and Scenarios. I-1, The reasons for the slowdown. Global crisis; Domestic adjustment by itself:

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Current macro management and Long-term growth scenarios of Chinese economy

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  1. Current macro management and Long-term growth scenarios of Chinese economy FAN Gang National Economic Research Institute & Peking University 06-2009

  2. I. Global Crisis and China: Policies and Scenarios

  3. I-1, The reasons for the slowdown • Global crisis; • Domestic adjustment by itself: • It is better to have a strong macroeconomic policy during the booming time, instead of doing little to let things bubble up! • Having had that, China does not have big bubble-burst to deal with and possible to recover quicker;

  4. I-2, The good rooms for policy maneuver • Gov’t debt / GDP = 22% • Banking sector in good shape; • 2 trillion foreign reserve. -- China has been paid off for its financial prudence and patience.

  5. I-3, Stimulus policies

  6. Fiscal stimulus package and 8% growth • The net fiscal stimulus is counted for almost 3% of GDP • 8% may not be difficult if the stimulus big enough, but market may feel still cold and unemployment still high – over capacities. • It is “sustainable” for one or two more years .

  7. Monetary policy? • Quantitative management. • Interest – rate management is constrained by the exchange-rate relationships.

  8. Other policies! • Investment approval and local autonomy; • Industrial policies; • Financial policies, such as lending policies to SMEs and mortgage/real estate. • Land policies. • ……

  9. I-4. Signs of bottom-up

  10. Figure: Change in Retail Sales of Social Consumption Goods (M/M, %) Source: Chinese State Statistical Bureau

  11. 1.5 Risks of monetary expansion • The credit expansion is already over the target (RMB5 trillion); • M2 growth rate is historically rarely high at 25.5% ; • World commodity prices are increasing.

  12. Naturally, people start to worry about: • Inflation, or asset bubbles; • Bank NPL;

  13. Policy makers are watch too! • Deflation is still deepen (CPI -1.5% in April, from 1.2% in March, yoy); • Not much credit has “sneaked” into the asset market so far; • Policy may “switch” the direction, if needed.

  14. II. Structural Problems: High savings and low consumption

  15. As observed by everyone, China’s recovery or growth is still relying on either export or investment. Consumption is still a week spot. • And this is particularly a problem in long run given the possibility that US consumption-saving relationship may be changed (a bit) by the restructuring of financial market after the crisis. • So, for the medium and long run, the key question remain: how China can increase its domestic consumption?

  16. Household sector savings rate

  17. Various sectors as % of total savings

  18. Households’ disposable income / other incomes

  19. Wage as % of GDP

  20. “Corporate net revenue” as % of GDP

  21. How to increase Households’ Income • Increasing gov’t expenditures on social security/health care? • Minimum wage increase? • Fiscal / taxation reforms – transfers between different sectors; • Redistribution of wealth?

  22. III. Factors Behind 3-decades Growth and Beyond

  23. Most Factors of Growth are still working and will work for the next 10-20 years

  24. High savings; • Low labor cost; • Reform effects; • Globalization effects; • Education and Technology progress. • Urbanization.

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