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					    The impact on Chinese Export and Import by
                Financial Tsunami




                                        Lucia Wong
                              Econ 6031: The Chinese Economy
                                      March 18, 2009

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                                 Reference
•   Nanfang Daily Newspaper
•   Li Yizhong, Minister for industry and information technology.
•   Li YanPing, March 11, Bloomberg.
•   Consumer Focus – RBS equity - Mixed worry and hope, February 16, 09. Author: Lei Yang,
    CFA
•   RBS Retailing – Growth slowing after golden week, December 1, 09. Author: Katherine
    Chan
•   Kevin Hamlin, February 11, Bloomberg.
•   March 9, 2009, Reuters
•   March 16, 2009, Mail& Guardian
•   February 17, 2009, The Wall Street Journal
•   http://www.cia.gov/library/publications/the-world-factbook/goes.ch.html#econ
•   http://www.chinabusinesreview.com/public/0807/sands.html
•   http://www.mg.co.za/article/2009-03-07-china-g20-summit-success-a-priority
•   http://www.chinadaily.com.cn/china/2008-04/16/content_6622504.htm
•   http://internationaltrade.suite101.com/article.cfm/top_chinese_exports_imports#ixzz09vgUruJ
    b
•   China Lookout – RBS Strategy “Consumption growth set to slow” February 20, 09 author:
    Wendy Liu, Vicky Fung




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• Content

• Rosy Kingdom after Economic Reform

• Deep impact of Financial Tsunami in 2008

• Rottenness of Export and Import

• Remedy Action to strengthen Chinese economy

• Conclusion

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                         Rosy Period
• Since the late 1970s, the Chinese government has reformed
  the economy from a Soviet-type centrally planned economy
  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.
• Second largest in the world after that of the United States with
  a GDP of $7.8 trillion (2008) when measured on a purchasing
  power parity (PPP) basis.
• Third largest in the world after the US and Japan with a
  nominal GDP of US$3.5 trillion (2007) when measured in
  exchange-rate terms.
• China has been the fastest-growing major nation for the past
  quarter of a century with an average annual GDP growth rate
  above 10%.
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                Rosy Period (continued.)
• China’s per capita income has grown at an average annual
  rate of more than 8% over the last three decades drastically
  reducing poverty, however, this rapid growth has been
  accompanied by rising income inequalities.
• The poverty rate was down from 53% in 1981 to 8% in
  Year 2001.
• Government’s decision to permit China to be used by
  multinational corporation as an export platform has made
  the country a major competitor to other Asian export-led
  economies, such as South Korea, Singapore, and
  Malaysia.
• More than 30 percent of goods produced in Chinese factories
  are sold overseas.

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                                           Statistics Table
GDP Growth Rate (2008)                                           9.0% (Official Data)
GDP by Sector (2008)
Agriculture (Primary)                                            (11.3%)
Industry (Secondary)                                             (48.6%)
Services (Tertiary)                                              (40.1%)
Interest rates (2007-12-20)                                                                  4.14%
One-year benchmark deposit rate                                  7.47%
One-year lending rate
Main destinations of exports 2007                                US 19.1%, HK 15.1%, Japan 8.4%,
                                                                 South Korea 4.6%
Exports (2008)                                                   $1.40 trillion

Imports (2008)                                                   $1.13 trillion

Foreign exchange reserves (2008)                                 $1.95 trillion




                   Source: http://www.cia.gov/library/publications/the-world-factbook/goes.ch.html#econ
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       Ten main products exports to US from
                     China
•   Of the $287.8 billion in American imports from China in 2006, the following
    product categories had the highest values.

•   Computer accessories, peripherals and parts …US$28.9 billion (10.1% of China to
    U.S. exports, up 12.4% from 2005)
•   Miscellaneous household goods (e.g. clocks) … $26.5 billion (9.2%, up 17.2%)
•   Toys & sporting goods (e.g. bicycles) … $22.2 billion (7.7%, up 10.2%)
•   Computers … $17.4 billion (6%, up 20.2%)
•   Non-cotton household furnishings & clothing … $14.6 billion (5.1%, up 11.3%)
•   Video equipment (e.g. DVD players) … $14.5 billion (5.0%, up 34.9%)
•   Household furniture … $13.2 billion (4.6%, up 14.3%)
•   Footwear ... $10.7 billion (3.7%, up 11.1%)
•   Cotton household furnishings & clothing … $9.9 billion (3.4%, up 29.6%)
•   Telecommunications equipment … $8.3 billion (3.0%, up 23.7%)
•   Source: "Top Chinese Exports & Imports: Most Popular Products Traded Between China & America" - http://internationaltrade.suite101.com/article.cfm/top_chinese_exports_imports#ixzz09vgUruJb




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   Ten major products imported to China from US
        Of the $55.2 billion in American exports to China in 2006,
         the following product categories had the highest values.
 1) Semi-conductors …US$5.9 billion (10.6% of China from U.S. imports)
                   2) Civilian aircraft … $5.3 billion (9.6%)
                      3) Soybeans … $2.5 billion (4.6%)
                       4) Plastics …. $2.2 billion (3.9%)
                     5) Raw cotton … $2.1 billion (3.7%)
               6) Industrial machines … $1.97 billion (3.6%)
                       7) Copper … $1.86 billion (3.4%)
             8) Computer accessories … $1.82 billion (3.3%)
                     9) Aluminium … $1.7 billion (3.1%)
             10) Steelmaking material … $1.69 billion (3.1%)




            Source: http://internationaltrade.suite101.com/article.cfm/top_chinese_exports_imports#ixzz09vhWDKEE
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            The blast of US Economy
•   Washington Mutual is no longer exist. Collapse of Lehman Brothers. A few
    assets were acquired by Barclays.

•   Bank of America agreed to acquire Merrill Lynch for $ 50 Billion.

•   US government took stakes and provided capital injection to nine nation’s
    top financial institutions including Goldman Sachs Group Inc, Morgan
    Stanley, J.P Morgan Chase & Co, Bank of American Corp., Citigroup Inc.,
    Merrill Lynch, Wells Fargo & Co., Bank of New York Mellon & State Street
    Corp.

•   Oct 2, 08, US Senate passed a bill and enacted $700 billions to rescue US
    and global financial systems


•   Other countries have also launched in line policy to rescue their economies.
    UK, Germany, France, Spain and Italy provided details of measures to buy
    stakes in struggling banks and offer lending guarantees. The U.K., which
    first formulated a plan to issue £37 billion ($63.1 billion) in new government debt
    to pay for purchases of the common and preferred shares of three big banks.


7/12/2010                                                                             9
            Victims of Slowdown - China
• Economy grew only 6.8% in the fourth quarter.
• Exports tumbled 25.7% compared with Year 2007. This fell is
  the most in almost 13 years as demand dried up in US and
  Europe.
• Imports fell 24.% compared with Year 2007.
• Is the weakest growth in seven years, since Year 2001.
• The median estimates of 16 economists for a $28.3 billion
  trade surplus, a 1% percent decline in exports and 22.5%
  drop in imports.
• Plunging exports and imports forced 20,000 small- and
  medium-sized companies in China’s Guangdong province to
  close since October 2008, shedding 2 million jobs
• Unemployment reached 4.2% at the end of Year 2008.

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    Contraction in Export and Import
• Smaller Surplus
• - Exports fell 17.5% in January and imports declined a
  record 43.1% , cited from Bloomberg, sourced from
  customs bureau on its website.
• “After hitting a record $40 billion in November, China’s
  trade surpluses may stay below $20 billion for next six
  months because of weaker demand” sourced from Xing
  Zqiang, an economist at China International Capital
  Corp., in Beijing,
• Exports toys to European Union, China’s biggest market,
  fell 17.4%.
• Shipments of machinery and electronics dropped 21%.
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Weaker Export and Import makes Chinese economy even more
                  fragile in February 2009
• Export in February was down 25.7% from a year earlier to US$ 64.9 billion.
• Import in February was down 24.1% from a year earlier to US$ 60.1 billion.

• Example 1: Businessman from Lanyan Group, domestic jean materials
  producer based in Zhoucun, Shandong Province.
•     A US client used to order five million meters of jean fabric a year, but
  this year’s order reduced to only one million meters.

• Example 2: In the same city in Shandong Province
•   Only 70 out of the total 100 clothing factories opened after the Spring
  Festival this year.

• Comment: “Chinese goods are popular among the US consumers, yet we
  still have to decrease purchase because of slowing US demand.” source:
    Ben Noonan, sourcing manager of Smartful Home, US


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                  Vivid Example
• Mattel Inc., the world’s biggest toymaker, imports from China,
  just reported the worst U.S. holiday-shopping season in 40
  years as consumers cut spending on Barbie dolls and Hot
  Wheels cars.
• Consequently, more than 4,000 toys companies in China
  closed last year as demand fell and countries tightened safety
  standard.




7/12/2010                                                      13
            Weaker Foreign Investment
• Foreign Direct Investment in China plunged 33% in January
  from the same month in Year 2008 to $7.54 billion, reported
  from Ministry of Commerce, as the global economic downturn
  slowed capital flows into this world’s third-largest economy.
• Prior to Financial Crisis, total direct foreign investment
  including the financial sector came to $108.3 billion last year,
  up 30% from 2007. Excluding the financial sector, direct
  foreign investment rose 24% in 2008 to $92.40 billion.
• After financial tsunami, in December 2008, investment fell
  5.7% from a year earlier to US$ 5.98 billion.



7/12/2010                                                        14
                Rescue Plan
• China launched its Economic Stimulus Plan to
  specifically deal with the Global Financial
  Crisis of 2008-2009.
• Premier Wen Jiabao proposed to spend 4
  trillion yuan ($585 billion) stimulus package to
  proper economic expansion.
• Premier Wen reaffirmed China’s goal of 8 &
  growth for 2009 after years of double-digit
  expansion figures.
• Control the unemployment within 4.6%.

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                Rescue Plan (2)
• It has primarily focused on increasing affordable
  housing, easing credit restrictions for mortgage and
  SMEs, lower taxes such as those on real estates
  sales and commodities, pumping more public
  investment into infrastructure development, such as
  the rail network, roads, and ports.
• Government plans to gradually cut all export taxes to
  zero to support overseas shipment.
• Spurring consumption include subsidizing purchases
  of home appliances by farmers, surging loan growth.

7/12/2010                                             16
                        Rescue Plan (3)
•   Economist suggested the government should cut the key one-year lending
    rate by more than 100 basis points this year from 5.31%, reduce taxes and
    distribute discount coupons to encourage spending.

•   Government researchers, suggested by Ministry of Finance’s research
    institute on February 7, 2009 have advocated weakening the yuan to support
    exports. They believe China should “actively guide” the yuan to about 6.93
    against the dollar to aid growth and bolster employment.

•   Stimulus spending through 2010 on public housing, railways, highways,
    airports and power grids to revive growth, This action is helped to drive
    banking lending to a record.

•   Local governments will be allowed to approve the setup of some new
    foreign-invested ventures and increases in foreign investment. Those
    officials will also be able to approve acquisitions by foreign companies of as
    much as $100 million in industries in which overseas investment is
    encouraged.



7/12/2010                                                                        17
• Rescue Plan’s Contribution to world economy

• Play an indispensable role in G20. The London summit following last
  November’s G20 crisis meeting in Washington and aims to agree on
  coordinated actions to revive global economy, reform of financial
  systems and principles for reforming international financial
  institutions.

• The G20 groups the US, Germany, Japan, France, Italy, Britain, and
  Canada, the European Union, Argentina, Australia, Brazil, China,
  India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South
  Korea and Turkey.

• China has its $1 trillion investment in US treasury. China is the
  foreign country which holds the most in US bond.



7/12/2010                                                               18
                          Conclusion
• According to the analysts from several investment bank, there is no sign to
  show export demand to recover in short period of time.
• “How fast imports recover depends on how soon the government’s
  stimulus package kicks in and creates real demand in major industries.”
  cited by Wang Qian, economist at JPMorgan Chase & Co.


• My Opinion
• How fast Chinese economy could recover is depended on the recovery
  pace of the United States. (They are still the dominant in World GDP
  (US$13,840,000 million)
• How fast Chinese economy could recover is also depended on
  “Consumer’s confidence in Spending. Spending is the driving force.


7/12/2010                                                                  19
                                  Reflection
• Major Natural Disasters of 2008
• Chinese winter storms
• 2008 Sichuan Earthquake - Growth rates for Sichuan dropped to
    4.6% in the 2nd but recovered to 9.5% annual growth for the whole of 2008
    (http://www.chinabusinesreview.com/public/0807/sands.html)

• 2008 South China Floods mildly affected
  national economic growth
• Despite closures and relocates of some
  factories because of 2008 Summer Olympics,
  games had minor impact on Beijing economy.

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            • Thank You!!!




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