Case Study on Emerging Market Economies

CHINA

All of the country’s major banks, for example remained tightly linked to the state like oil , petrochemical and steel.

State and the party were the central players in nearly all aspects of china’ economy

Complex hierarchy of obedience, linking the child to its parent, the family to its ancestors and the subject to his or her ruler.

Mongols invaded in 1280 and the manchus in 1644

Opium wars (british merchants had been smuggling to china in an effort to smooth their chronic trade deficits. When Chinese protested, they ceded hong kong to the british and agreed to open 5 addition trading ports. (Unequal treaties)

Japnese invaded in 1931…when the Japanese surrendered in 1945 mao’s Chinese communicst party ccp backed by militia forces and several supportesers expanded its control.

Mao established the people’s republic of china PRC in 1949.

China under communism (1949-1978)

Two Big failures

Great leap forward (all Chinese citizens were urged to boost the countr’s steel production by establishing “backyard steel furnaces” to help overtake the west.

Steel output did rise dramatically but most of the steel was virtually useless. Agriculature production declined . and gnp declineds by about one third. Lead to the death by starvation of 30 to 40 million Chinese peasants

Cultural Revolution destroy the four old (thoughts, culture, customs and habits) by 1969 the country had descended into anarchy and red guards had begun to fight among themselves.

Reform of Deng Xiaoping

One child policy (addressed chornic food shortage)

Declined country’s fertility rate from 2.5 in 1981 to 1.6 in 2014…protected birth of 400 million people…in 2015 it was loosened when couples were allowed to have two children..china’s aging population declined the productive labor, and sivnificant increase in the average wage level

Household responsibility system (grain production had grown by roughly 30% and production of cotton sugarcane tobacco doubled)- allowed peasants to lease land for a fixed period from the collective provided that they delivered to the collective a minimum quota of produce

In 1979 china created four special economic zones (sez) sez organized in the south provided cheap labor, infrastructure and tax incentive to promote foreign investment.

Giving foreign investors more direct control of factories (dual exchange rate)

Downside- provinces in the east and coastal cities were the riches areas, while rural areas in the center and west of the country were the poorest …urban rural divide.

Chinese workers could expect both lifetime employment and an extensive firm based welfare system. (iron rice bowl)

Contract responsibility system- specified the enterprise performance targert, production  quota, and financial obligation to the state.

Establishment of township and village enterprises (TVEs) – small manufacturing operations led frequently by local communist officials, they paid taxes to the state rather than producing any contracted output.

By 1988, agriculture was growing steadily at 3.2% per year while industrial production increased to an amazing 20.7% annually.

By 1989, government agencies tightened administrative controls on imports and credit, devalued the currency by 21%- this was done to curb inflation.

Rectification program- huge protest 50 tanks stormed through the crowded streets leading to …randomly shooting protesters on sight. More than a 1000 people killed.

In 1994 ..divided tax system.

Limited shareholding system ( state remained the major shareholder in important firms)

Joined WTO in 2001…by 2004 world’s third largest exporter.

The banking sector remain inextricably tie to the state. The soe continued to produce significant share of total industrial output

Gini coefficient reached from .3 during 1980 to .49 in 2012. ( sharp contrast to their social ideology)

Liberalizing the financial sector and allowing capital market to emerge.

Increasing toll of non-performing loans(easy lending to the SOEs)

Shadow banking or loans provided by non bank institutions accounted for 30 percent debt in china…increased to 36 percent annually from 2007 to 2014

Central planning with One bank (people’s bank of china)- performing full monetary and financial functions..soe received 85 percent of corporate loans from the four largest state owned banks)

By 1999 the npl was between 1.65 to 1.8 trillion RMB.

Measure taken to reduce NPL…they formed asset management companies with 100 percent shrares of government –restructuring or disposing of the the debt

China showed no interest to appreciating the currency- fixed yuan was crucial for China’s stability and economic stability

As of 2004, china hold $174.4 billion in the us. Treasury bonds and total exchange reserves of $609.9 billion

Maoism and ideology that preached equality

To combat inequality- they planned to provide a basis standard of living allowance for low income urban citizens

China policymakers were also unwilling to eliminate the country’s hukou system..which dictated where workers could legally reside.

Hukou- household registration system implemented by mao to block rural migration into cities. Was established in 1950

China new normal

china growth slowed to 6.8 percent in 2017, debt reached to about 282 percent of gdp by 2016, rating agencies reacted by cutting china’s outlook from stable to negative.

30 percent of the world’s carbon emission, soil and pesticide contamination. Water pollution restricting birth gave rise to demographic divide

Xi Jinping, China’s president since 2012- authoritarian leader who favoured autocratic, top down approach to rule ..anit corruption campaign upon taking office

Maoist era- 1949-1976(marxism Leninism combined with Chinese revolution theory