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Lu Feng China's outlook and CCER CEO

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Lu Feng China's outlook and CCER CEO Powered By Docstoc
					       Outlook of China’s Economy
--- An Introduction to CCER China Economic Observer


                       Feng Lu
             China Center for Economic Research
                     Peking University


                  January 2010, New York
                   CCER
        China Economic Observer (CEO)
• Quarterly symposium started
  in 2005 under the leadership:
• Prof. Justin Lin, the founding
  director of CCER,
• Prof. Guoqing Song, the best
  macro-economist in China,
• Prof. Qiren Zhou, the current
  director of CCER.
• 19 symposium have been
  held so far.
            Langrun Forecast
• Cutting-edge issues on China’s economic growth and
  reform policies are regularly discussed in the event.
• Langrun Forecast, quarterly projection on China’s macro
  economy is released in the event.

• Langrun Forecast is
  named after the
  beautiful Langrun
  Garden in the Peking
  university campus,
  now used as office
  space by CCER.
     24 participating institutions now
Bank of China International Securities    Essences Securities
Bank of Communications                    Guotai Junan Securities
Blue Oak Capital                          HSBC
BNP Paribas                               Industrial and Commercial Bank of China
China Center for Economic Research,       Institute of Quantitative & Technical Economics,
   Peking University                          Chinese Academy of Social Scieneces
China Galaxy Securities                   Merrill Lynch
China International Capital Corporation
   Limited                                Morgan Stanley
China Merchants Securities                Nomura Securities
China Securities Co., Ltd                 Shenyin Wanguo Securities
Citibank                                  Standard Chartered Bank
CITIC Securities                          UBS
Department of Economic Forecasting,
   the State Information Center           Unirule Institute of Economics

• New participating institutions are welcomed!
        9 Macro-economic indicators
           are projected regularly
Institutions                 GDP    CPI    IVA    FAI    Resale   Export   Import   Interest rate   X rate
BNP                          10.6    1.4   16.0   30.7    15.4     -8.3     12.5        2.25         6.83
ICBC                         10.2    0.4   15.2   35.0    15.8     0.0      30.0        2.25         6.83
SIC                          10.0   -0.1   16.0   30.0    15.5    -10.0     -8.0        2.25         6.82
Guotai Junan                 10.8    0.7   14.0   35.5    15.6     0.0      18.5        2.25         6.82
Citibank                     10.4    0.8   15.1   30.0    15.5     -7.5     10.0        2.25         6.80
HSBC                          9.9    0.1   13.0   30.0    15.0     6.0       8.0        2.25         6.80
BOC                          10.0    0.5   13.5   34.0    15.5     -3.1      2.3        2.25         6.82
Blue Ork                     11.1    0.3   16.1   42.1     ..     -13.8      5.9        2.25         6.84
Merrill Lynch                11.3    0.5   17.6   33.5    16.3     -7.4     13.2        2.25         6.83
Morgan Stanley               11.6    0.6   15.5   30.0    16.2     -4.3      9.6        2.25         6.80
UBS                          10.0    0.4   14.0   31.0    15.0     -1.4      6.7        2.25         6.80
CASS                          9.9    0.2   15.3   32.0    15.5    -11.0     -7.0        2.25         6.80
Shenyin Wanguo               10.5    0.3   14.3   37.0    16.8     -5.2     17.8        2.25         6.82
Nomura                       11.0    1.2   18.0   35.0    15.3     -8.1     11.3        2.25         6.70
China Galaxy Securities      10.2   -0.2   16.0   35.0    16.0    -10.0     -0.1        2.25         6.77
China Merchants Securities   11.2    0.0   18.0   36.0    17.0     -4.0     15.0        2.25         6.75
CICC                         10.1   -0.1   15.0   32.0    15.7     0.0       0.0        2.25         6.83
CSC                          10.6    0.7   15.9   34.7    15.6     6.2      25.5        2.25         6.81
CITIC                        11.1    0.6   18.5   32.8    16.5     1.3      21.5        2.25         6.82
BOC Internatioanl            11.0    0.9   14.2   31.0    15.5     5.9      21.0        2.25         6.83
CCER                         10.9    0.0   17.2   30.0    15.5     -9.0     12.0        2.25         6.82
Average                      10.6    0.4   15.6   33.2    15.8     -4.0     10.8        2.25         6.81
According to 11 participating institutions,
China’s economy will grow nearly 10% in 2010
 Institutions                         2010 GDP   Releasing date
 Chinese Academy of Social Sciences   9.1        Dec 2009
 CICC                                 8.8        Dec 2009
 Essences Securities                  10.1       Dec 2009
 CCER (GSGH, Goldman Sachs)           11.4       Dec 2009
 Bank of Communications               10.0       Nov 2009
 J.P. Morgan Chase                    9.5        Oct 2009
 Merrill Lynch                        10.1       Nov 2009
 Morgan Stanley                       10         Dec 2009
 Standard Chartered Bank              10         Dec 2009
 State Information Center             8.5        Dec 2009
 CITIC                                10.1       Dec 2009


 Average                              9.78
   Review on the BRICs projection
• The BRICs Report projected that China’s economy size
  will surpass USA in 2041. It may be reviewed in light of
  actual situation since 2003 when the report released.

                            Time table for BRICs taking over G6

      6                                                                                                     Surpassing in 2041:
                 UK     Germany         Japan                                           USA                 China: $ 28.003 trillion.
     5
                                                                                                            USA: $27.929 trillion.
   China
                                Italy      France      Germany          Japan
    India
      4
                                        Italy     France       Germmany
     3
  Russia
                                                       Italy     France         Germany
  Brasil
      2

                                                                                   G6
  BRICs
     1


      0
          2000   2005    2010      2015         2020    2025     2030      2035     2040      2045   2050
    Factual evidence: Relative growth of
        China vs. USA (2003-2008)
• China annual GDP growth was higher than USA by 8.7%
  and 12.2% in real and nominal terms in domestic currency.
• Allowing changes of RMB exchange rate, China’s annual
  growth in USD was higher by 16.3%, ie., “China’s
  converging rate vs. US ” was 16%.

                           China                  USA               China/USA
                    Cumulative Per annum Cumulative Per annum Cumulative Per annum
 Real GDP growth       171        11.3      112        2.4       152         8.7
 GDP deflator          135         6.3      116        3.0       117         3.2
 Nominal GDP growth    231        18.3      130        5.4       177        12.2
 Exchange rate         119         3.6      100        0.0       119         3.6
 GDP growth in USD     276        22.5      130        5.4       211        16.2
   What will happen if China continues
      “the 16% converging rate”?
• China’s GDP of 34 trillion yuan in 2009 converts
  into $ 4.98 trillion, about 35.6% of US economy.
  Now US economy is 2.8 times as large as China.

• If China continues “the 16% annual converging
  rate” in next 10 years, the current ratio of China’s
  economy to US will be more than quadrupled
  (1.16^10 = 4.4).

• In the assumed case, China’s economic scale
  will surpass US in 7 years (1.16^7 = 2.82).
     More realistic scenarios!
• China is unlikely to continue “the 16% annual
  converging rate”.

• Assuming “a much lower annual converging
  rate of 10%”, the extend of accumulative
  change will be 285% and 314% in the coming
  11 and 12 years.

• With the assumptions, China’s total economic
  size will surpass US by 2021-2022.
                       The undated projection!
• In view of the recent actual situation, China
  will probably surpass USA in the early next
  decade, and almost certainly before 2025.
• The surpassing point will come 15-20 years
  earlier than the BRICs Report’s projection
  released 7 years ago.
             China economic size surpasses US: Revised projection
                                          New projection:         Old projection:
   6                                      bofore 2025             by 2041
               UK      Germany   Japan          USA                   USA

China
   5


   0
   4      2
        2000    2005     2010    2015    2020    2025   2030   2035   2040   2045   2050

         1
   3
        It should be noted:
• With the projected Chinese per capita
  GDP equivalent to about 20%-25% of
  Americans, China will still be a poor
  country relative to US in the next decade,
  even the revised projection turns out to
  be true!
    Many challenges faced by China!
• 1) Reform in land system, household registration
  system,

• 2) Reduce income inequality and increase
  consumption;

• 3) Environmental protection and emission controls;

• 4) Population aging problems and continued poverty
  alleviation agenda;

• 5) Reform in RMB exchange rate and interest rate
  policies to improve macro-management system;
• ……
        A few final remarks on
China’s macro-economic policy reforms!
• One reason for China not continuing
  “the 16% converging rate” is that the
  annual nominal growth rate of 18.3% is
  sustainable.

• It implies that China may not badly lack
  domestic demand, neither necessarily
  need fast growth of trade surplus to
  assure the desirable aggregate demand.
         China needs to improve
   open macro-economic policy system!
• China may need a more flexible exchange rate
  regime to adjust external demand and imbalance.

• China also needs a deregulated interest rate
  regime to adjust domestic demand and monetary
  shocks to assure more stable growth.

• To improve demand management regime better
  serving the rapidly evolving open macro-
  environment is an urgent task for China.

				
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Description: China's economy during the past 40 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy, in 2010 China became the world's largest exporter. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2010 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001.