China s economy: from rapid growth to balanced development? Montreal, July 8-9,

China s economy: from rapid growth to balanced development? Montreal, July 8-9, 2008 1

L économie chinoise: d une croissance rapide à un développement équilibré? Montreal, July 8-9, 2008 2

China s economy: from rapid growth to a more balance development? 1- China : a global economic power 2-Strengths 3- and weaknesses 3-Prospects: will China succeed in rebalancing its economy? 3

China: a global economic power Rapid economic growth: 9% a year since 1980 (GDP increased tenfold) China has become a big economic power Long before getting rich (average income per capita still low) Strong presence in international trade 4

China among the largest economies in the world: Share in world GDP in 1993 and 2006 ( %) 1993 2006 United States 26.7 United States 27.5 Japan 17.3 Japan 9.0 Germany 8.1 Germany 6.0 France 5.2 China 5.4 Italy 4.1 United Kingdom 4.9 United Kingdom 3.9 France 4.7 Canada 2.3 Italy 3.8 Spain 2.1 Canada 2.6 China 1.8 Spain 2.5 Brazil 1.8 Russia 2.0 Russia 1.8 Brazil 2.0 Mexico 1.6 India 1.9 South Korea 1.5 South Korea 1.8 Netherlands 1.3 Mexico 1.7 Australia 1.3 Australia 1.6 India 1.1 Netherlands 1.4 Switzerland 1.0 Argentina 1.0 Sélection des pays qui représentent plus de 1% du Pib mondial Sources : Maddison (2001) ; CEPII, base de données CHELEM. 5

Un pays encore pauvre: le revenu par habitant est 1/10 ème de celui des Etats-Unis (2005) Revenu par habitant (dollars) Parité de pouvoir d'achat Taux de change Poids dans le PIB mondial (taux de change) WORLD 8 972 7 230 100 United States 41 674 41 674 27,9 Canada 35 078 35 133 2,6 United Kingdom 31 580 37 266 5,1 Germany 30 496 33 849 6,3 Japan 30 290 35 604 10,3 France 29 644 34 008 4,8 Italy 27 750 30 195 4,0 Spain 27 270 26 031 2,5 Korea, Rep. 21 342 16 441 1,8 Russia 11 861 5 328 1,7 Mexico 11 317 7 401 1,7 Brazil 8 606 4 791 2,0 China 4 091 1 721 5,1 India 2 126 707 1,8 Source: Banque mondiale et ONU: ICP 2005 6

Still poor: China s income per capita is one tenth of the US (2005) Income per capita in US dollars Share in world GDP, in % Purchasing power parity Exchange rate WORLD 8 972 7 230 100 United States 41 674 41 674 27,9 Canada 35 078 35 133 2,6 United Kingdom 31 580 37 266 5,1 Germany 30 496 33 849 6,3 Japan 30 290 35 604 10,3 France 29 644 34 008 4,8 Italy 27 750 30 195 4,0 Spain 27 270 26 031 2,5 Korea, Rep. 21 342 16 441 1,8 Russia 11 861 5 328 1,7 Mexico 11 317 7 401 1,7 Brazil 8 606 4 791 2,0 China 4 091 1 721 5,1 India 2 126 707 1,8 Source: Banque mondiale et ONU: ICP 2005 7

Catching-up but still far behind: China s average income per capita in 2005= France in 1950, US in 1913, Japan in 1960. PIB par tête en dollars PPA 35000 Etats-Unis 30000 Allemagne 25000 20000 France 15000 Japon 10000 GB 5000 Chine 0 1870 1890 1910 1930 1950 1970 1990 2010 Sources : Maddison (2001) ; CEPII, base de données CHELEM. 8

China: the second world exporter of manufactured products since 2005 In % of world exports/imports EXPORTS IMPORTS 1995 2005 1995 2005 Germany 11.8 Germany 11.6 United States 15.0 United States 16.2 United States 11.8 China 10.3 Germany 9.6 Germany 7.8 Japan 10.9 United States 9.1 France 5.9 China 5.3 France 6.3 Japan 7.5 Japan 5.5 France 5.2 Italy 5.4 France 5.2 United Kingdom 5.5 United Kingdom 5.0 United Kingdom 5.2 Italy 4.5 Italy 3.9 Japan 4.2 Netherlands 3.6 United Kingdom 4.1 Canada 3.6 Italy 3.7 Canada 3.6 South Korea 3.6 Netherlands 3.6 Canada 3.5 China 3.5 Netherlands 3.5 China 2.8 Netherlands 3.2 South Korea 3.0 Canada 3.2 South Korea 2.3 Spain 3.0 Spain 2.0 Spain 2.2 Spain 2.3 South Korea 2.2 Mexico 1.6 Mexico 2.2 Mexico 1.3 Mexico 2.0 Russia 0.9 Brazil 1.1 Australia 1.3 Russia 1.4 Brazil 0.8 Russia 0.9 Russia 1.1 Australia 1.3 Australia 0.6 India 0.8 Brazil 1.0 India 0.8 India 0.5 Australia 0.5 India 0.5 Brazil 0.8 Notes: Only the countries with a GDP representing more than 1% of World's GDP (measured by current US$) in 2006 are shown. Manufacturing products include food industries. The five big emerging countries are underlined. Source: CEPII, CHELEM-INT, July 2007. 9

China: first trading power in Asia (US$ millions), 2005 900 000 800 000 700 000 Exportations Importations Exportations Chine et ses provinces Importations Chine et ses provinces 600 000 500 000 400 000 300 000 200 000 100 000 0 Sources : CEPII, base de données CHELEM ; statistiques des douanes chinoises. 10

Strengths of China s economy Hudge labour force (low wages) Very competitive manufacturing industry Strong integration into the world economy: an active player in globalisation 11

Number of workers in China, in other large emerging economies and in OECD countries (2005) (millions) sectors PrimarySecondaryTertiary All China 340 181 238 758 India 228 83 123 434 Russia 8 19 41 68 Brazil 16 14 45 75 Mexico 4 14 24 42 OECD 30 129 359 518 Source :ILO 12

China s trade surplus: electronic goods have overtaken textile (US$bn) 2005 2006 Tous produits 102 177 Produits primaires -99-134 Matières premières s -63-75 Combustibles -46-71 Produits manufacturés 201 312 Electronique & informatique 140 182 Textiles et vêtements 117 147 Acier -7 11 Produits chimiques -42-43 Appareil électriques -62-73 Monde * Pour 2006, de janvier à novembre. Source : Statistiques des douanes chinoises. 13

25 20 15 10 5 0 China s largest market shares In % of world exports Textile Electrique Electronique Tous produits manufacturés 2004 2003 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1990

Globalisation: the role of foreign affiliates in China s industry and foreign trade (entre parenthèses : part des filiales entièrement étrangères) (2005) 2005 Production industrielle 32% (14%) Production manufacturière 35% - Industrie électronique 84% - Habillement 46% Exportations 58% (39%) Importations 60% (41%) Source: China Statistical Yearbook, 2006. 15

China s trade surplus stems from international assembly operations. Solde commercial (milliards US$) 175 125 Assemblage & sous-traitance Autres 75 25-25 -75 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Sources : Statistiques des douanes chinoises ; calculs du CEPII. 16

China is the leading exporter of HT products in 2005 250 200 150 100 50 Etats-Unis Chine Allemagne Japon Singapour Hong Kong Corée du Sud 0 Source: World Development Indicator, 2007. 17

Déséquilibres des échanges de la Chine : excédents sur l Amérique et l Europe, déficit sur l Asie 2005 2006* 120 70 20-30 -80 Monde * Pour 2006, de janvier à novembre. Source : Statistiques des douanes chinoises. 18

Weaknesses of China s economy (1) Costs of industry-led growth: Pollution: China has overtaken the US for greenhouse gaz emissions Increase in consumption of energy and raw materials, China s imports have contributed to raise world prices Terms of trade have deteriorated 19

1,6 1,5 1,4 1,3 1,2 1,1 1,0 0,9 0,8 0,7 0,6 Chine: le revers des succès : une détérioration des termes de l échange Prix des exportations prix des importations Termes de l'échange 93 94 95 96 97 98 99 00 01 02 03 04 Source : CEPII, base de données BACI. 20

China s terms of trade are deteriorating : 1,6 1,5 1,4 1,3 1,2 1,1 1 0,9 0,8 0,7 0,6 Exports UV Imports UV Termes of trade 93 94 95 96 97 98 99 00 01 02 03 04 Rise in import prices (intermediate goods, raw materials, energy) faster than in export prices Source : CEPII, base de données BACI. 21

-Weaknesses of China s economy (2) Inequality: Gap between rural and urban income has widened Gap between coastal and inland provinces Social inequality: unskilled /skilled labour Widening gap between rich and poor Domestic consumption: the weak link of China s growth Dependence on world markets 22

Urban areas: widening gap between rich and poor households. Niveau de revenu par rapport à la moyenne dans les villes (moyenne = 1) 3,0 Les 10% des ménages les plus pauvres 2,8 2,5 Les 10% des ménages les plus riches 2,0 1,9 1,5 1,0 1996 2005 0,5 0,0 0,5 0,3 Sources : China Statistical Yearbook, 2006 ; calculs CEPII. 23

Une croissance tirée par l investissement et l exportation: Composantes de la croissance du PIB en points de % 15,0 13,0 11,0 exportations nettes 9,0 7,0 Investissement 5,0 3,0 Consommation 1,0-1,0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Sources : China Statistical Yearbook, 2007 ; calculs CEPII. 24

Household consumption: the weak link of China s growth. Since 2001, growth has been driven by investment and 15,0 13,0 exports (Components of GDP growth, percentage points) 11,0 exportations nettes 9,0 7,0 Investissement 5,0 3,0 Consommation 1,0-1,0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Sources : China Statistical Yearbook, 2007 ; calculs CEPII. 25

L'intégration de la Chine et de l'inde dans Household consumption in GDP: China lags behind other Asian economies Final consumption of households in Asian economies 2005 (in % of the country GDP) Domestic household consumption: the weak link of China s growth 46 44 43 42 40 39 36 35 35 33 32 29 26 23 20 14 Pakistan Cambodia Bangladesh Sri Lanka Philippines Indonesia India Thailand Taiwan Viet Nam All Asian countries Hong Kong Malaysia China Singapore Brunei Darussalam Source: ADB, 2007.

35 Une ouverture croissante aux échanges internationaux de biens et services Poids en % du PIB des échanges extérieurs (moyenne des export et import) 33 biens & services, total 30 25 27 Produits manufacturés 20 15 10 5 4 3 services Primaires 0 85 87 89 91 93 95 97 99 01 03 05 27

35 China economy has opened up and become dependent on world markets in % of GDP (X+M/2) 33 biens & services, total 30 25 27 Produits manufacturés 20 15 10 5 4 3 services Primaires 0 85 87 89 91 93 95 97 99 01 03 05 28

Prospects China s economy will continue to grow faster than average, A new balance of power in world economy China s strategy: the11th five year-plan (2006-2010) sets new priorities: -Services (vs. industry) -Domestic consumption (vs. exports -Quality upgrading -Protection of environment Will take time to be implemented - 29

Projections CEPII : PIB + taux de change réel milliards de US$ La Chine devient la 2ème économie mondiale vers 2030 1 2 3 4 5 6 7 2000 États-Unis: 9 800 Japon : 4 750 Allemagne :1 870 Royaume-Uni : 1 440 France : 1 300 Chine : 1 200 Italie : 1 074 2030 taux de change variable États-Unis : 22 000 Chine : 10 400 Japon : 7 690 Allemagne : 2 780 Royaume-Uni : 2 640 Inde : 2 420 France : 1 930 Source : S. Poncet (2006). 30

A long term scenario: by 2030, China is the second largest economy US$bn 2000 2030 1 2 3 4 5 6 7 US: 9 800 Japan : 4 750 Germany:1 870 UK: 1 440 France : 1 300 China : 1 200 Italy : 1 074 US: 22 000 China : 10 400 Japan : 7 690 Germany: 2 780 UK: 2 640 Indi : 2 420 France : 1 930 Source : S. Poncet (2006). 31

La part croissante de la Chine dans la demande mondiale d énergie primaire (en millions de tonnes équivalent pétrole) 17% 2030 Source : Agence Internationale de l Energie, 2006. 32

China will increase its share in world demand of energy (million TEP) 17% 2030 Source : Agence Internationale de l Energie, 2006. 33

La Chine à la veille d'un tournant démographique : la population en âge de travailler vieillit, et elle diminue à partir de 2015 1 100 900 700 15-30 ans 30-45 ans 45-65 ans 15-65 500 300 100-100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Source : ONU, Projections démographiques. 34

China is going to lose in comparative advantages in labour intensive production: working age population is getting older and will diminish after 2010-2015 1 100 900 700 15-30 ans 30-45 ans 45-65 ans 15-65 500 300 100-100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Source : ONU, Projections démographiques. 35

Prospects A new balance of power in the world economy in 2030 or 2050: the biggest economic powers will not be the richest Changes in the patterns of world supply and demand How the developed countries will adapt to this new context? 36