Transcript China’s Economy and the U.S.-China Economic Relation Dr. Gene H Chang The Asian Studies Institute and Economics Department University of Toledo ©

China’s Economy
and the U.S.-China
Economic Relation
Dr. Gene H Chang
The Asian Studies Institute
and
Economics Department
University of Toledo
©
The U.S. and China
Basics of China
China
Population
Area (sq km)
Climate
Topography
Renewable water
U.S.
Statistics
World
Ranking
Statistics
World
Ranking
1330 million
1
305 million
3
9.6 million
4
9.8 million
3
Diverse but most temperate
Diverse but most
temperate
Mostly mountainous
Mostly flat
2829 cu km
6
3069 cu km
4
6 trillion $
3
15 trillion $
1
Life expectancy at
birth (years)
73.5
105 (of 223
entities)
78.1
50 (of 223
entities)
Human
development Index
0.902
4(of 169)
0.663
89(out of
169)
Economic size
(GDP)
US and China: Important Relationship
China becomes increasingly
important to the U.S. because of
… … its economy … …
Integration between the U.S. economy and
Chinese economy
Disputes over trade and economic issues
Disputes over other issues, from
environment, human rights to military
presence
China: truth and myth
The size of the China’s economy
China’s dynamics
China as a challenge to the U.S. in the 21st
century
China’s own problems and weakness
The U.S. strategic relationship with China
in the 21st century
Top trade partners of the U.S.
(2011)
Country
1
Canada
Total Trade
Volume
(Billion $)
597.4
2
China
503.2
3
Mexico
460.6
4
Japan
195
5
Germany
147.5
http://www.census.gov/foreign-trade/top/dst/2010/12/balance.html
US Imports from
China
Made in China
US exports to China
China buys 200 Boeing aircraft
In JANUARY 2011
THE US SIGNED A $45BN EXPORT DEAL
WITH CHINA, THE TRADE DEAL
INCLUDES A $19BN PURCHASE OF 200
BOEING AIRCRAFT.
World´s Largest McDonalds in Beijing
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GM's China sales top U.S. total,
a first for the automaker
20
18
16
14
12
10
8
6
4
2
0
Automobile sale in China
(million units)
18.06
13.79
8.89 9.34
7.28
4.7 5.1
2.34
3.3
5.7
GM sold more cars and trucks in
China than it did in the U.S. in
2010, marking the first time that a
foreign market has outpaced the
automaker's domestic sales in its
102-year history.
Top trade partners of the U.S.
(2011)
Country
1
China
Trade Deficit
(Billion $)
295.4
2
Mexico
65.6
3
Japan
62.6
4
Germany
49.3
5
Canada
35.6
6
Saudi Arabia
33.7
Why China is a big trading partner
of the U.S.?
Comparative advantage: China has cheap and
productive labor
– But why not other developing countries?
Gravity model, the size of the Chinese economy
– But China is distant away
A stable but undervalued currency peg to the
U.S. dollar
– But what about other Southern American countries
that also use dollars?
Size of the Chinese Economy
GDP by exchange rate (2011)
(billion $)
15,060
United States
6989
China
5855
Japan
3629
Germany
France
United Kingdom
Italy
Brazil
Russia
India
2808
2481
2246
2518
1885
1430
Average annual growth rate
(1980-2009)
10
China
India
6.13
South Korea
6.1
Russian Federation
2.83
1
World
United States
Japan.
EU
2.81
2.69
2.19
1.99
The quick rise of
the Chinese economy
16000
China
14000
12000
China
10000
Germany
France
8000
United Kingdom
Japan
6000
United States
4000
2000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
China’s contribution to global
growth
China now contribute more to the global
economic growth than the U.S.
– China’s GDP x growth rate = 574 billion $
– The U.S. GDP x growth rate = 393 billion $
If the trend continues …
30000
25000
China
20000
Germany
U.S.
15000
France
United Kingdom
Japan
10000
China
United States
5000
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
If the trend continues …
If the trend continues, it is estimated that
China would overtake the U.S. to become
the largest economy by the year of 2020.
The fast change in the ranking of China is
due to two reasons
– the higher economic growth rate, say, at a
sustainable of 10%
– the restoration of the true value by the
undervalued Chinese currency RMB.
True size of the Chinese Economy
GDP by Purchasing Power Parity (2010, billion $)
United States
14624
China
10084
4308
Japan
4001
India
Germany
2932
Russia
2218
Brazil
2182
U.K.
France
Mexico
2181
2146
1549
Foreign exchange reserve
(billion dollars, Dec. 2010)
2500
2000
1500
1000
500
0
Electricity production (billion kwh, 2008)
4500 U.S., 4110
4000
3500
3000
2500
2000
1500
1000
500
0
.
S
.
U
ina
h
C
China, 4140, 2010
China 3221
Canada, 614
Russia, 983
Japan, 1009
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Germany,
589
India, 787
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Electricity production is often used as a proxy for GDP at PPP for countries
Automobile production (million vehicles)
Figures include passenger cars, light commercial vehicles, minibuses, trucks, buses and coaches
20
18
16
14
12
10
8
6
4
2
0
2000
2005
2010
China
Japan
U.S.
Germany
Korea
Brazil
Automotive production is a proxy for manufacturing activities
India
World Steel Production 2009
Others, 16.57%
Korea, 3.98%
India, 4.64%
U.S., 4.76%
China,
568 million tons
46.55%
Russia, 4.91%
Japan, 7.17%
European
Union, 11.40%
Steel production is a proxy for fixed capital formation and housing construction
(investment goods)
Food production 2008 (m tons)
450
Grain, cereal
400
Meat
350
300
Fish
250
200
150
100
50
0
China
U.S.
India
Russia
Measures the agricultural output
Brazil
New Residential Building Construction
(million square meter per month 2010)
60
50
40
30
20
10
0
UN monthly bulletin. U.S. adopts the unit of “set” thus not comparable
Construction everywhere
High speed rail
How should the U.S. meet the
challenge?
China poses a challenge for the U.S. in the 21st
century.
What is important is how the U.S. should adopt a
better strategy and policy to meet this challenge.
To maintain the lead in the global economy, the
U.S. should rely on the market system, but also
understand that the government’s active role
cannot be diminished in correcting market
failures.
China is weak
China is still poor, GDP per capita is low.
Deteriorating environment may not sustain future
economic growth
China’s population is aging very quickly in the coming
years
Corruption and inefficiency are rampant
China has a widening income gap
China is unstable and economy remains inefficient
because of lack of rule of law
China lacks of an education system that truly promotes
creative research and development
China is politically unstable because of lack of
democracy and an independent legal system.
China is weak
120
100
80
60
40
20
0
U.S.
China
Renewable water and energy consumption are on the per capita basis
ESI is environmental sustainability index
Ferterlity: U.S. 2.05; China: 1.79
China’s demographic time bomb
Income gap
Country
Sweden
Gini Coefficient (the
higher the worse)
23
Taiwan
33
United Kingdom
34
U.S.
45
China
46.9
Brazil
56.7
Lack of free information flow
Scholars in China cannot even access wikipedia.org hence much of information
Needed for modernization is lost
Lack independence of judiciary and
no rule of law
Private property is still not well protected
That scares many private entrepreneurs.
They are seeking emigration to the West
after they have money, thus billions of
dollars of capital flies back to the U.S.
The party determines everything hence
impeding independent thinking,
entrepreneurship and creativity.
Rampant corruption and waste
Corruption in China
growing at least as fast
as the economy，（ John
Garnaut, Beijing）
Railway Minister Liu is arrested for corruption
Chinese politician Bo
Xilai's wife accused of
murdering UK
businessman over
business interests
Lack of transparency and
democracy to vent people’s
grievance, causing the system
fundamentally unstable
A call for political reform
from the party
China Daily has just reported Premier Wen Jiabao
reaffirming political and economic reforms. On the table
are government transparency, creating conditions allowing
people to criticize and supervise the government, and
media being a watch-dog.
But it is widely said that Wen represents only
the minority in the party and the conservatives
are dominant
Conclusion
China is a large economy with a big momentum.
China is still a poor country with many domestic problems, it will
remain substantially behind the U.S. in per capita term for many
years ahead.
China is dynamic. The norm would be surprises and uncertainties.
Do not be surprised if one day you wake up and hear that China
overtakes the U.S. in some areas, or, you hear there is a political
uprising and the system is in a crisis and breaks down.
The best hope for China by the rest of the world is that it gradually
moves forward to economic prosperity and political democracy.
The relationship of the U.S. and China is one of the most important
in the world in the 21st century. We need to enhance our
understanding of China and form a better strategy / policy to meet
this challenge.
Conclusion: the future generation
of China …