Week 1: China’s World View

China's World ViewWeek 1: China’s World View

“The World’s Number Two: more intriguing than those in history … The Chinese Model: what has China done right, so far? … Mounting Challenges for The Future … China’s World View … Is the World Ready for an Ever Bigger China?”
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Summaries

  • Week 1 China's World View > The World's Number Two: more intriguing than those in history > Lecture Video
  • Week 1 China's World View > The Chinese Model: what has China done right, so far? > Lecture Video
  • Week 1 China's World View > Mounting Challenges for The Future > Lecture Video
  • Week 1 China's World View > China's World View > Lecture Video
  • Week 1 China's World View > Is the World Ready for an Ever Bigger China? > Lecture Video

Week 1 China’s World View > The World’s Number Two: more intriguing than those in history > Lecture Video

  • China, even though being number two in the world, is the largest in size, in terms of population.
  • Today, China is the largest automobile market in the world, accounting for 28% of the world’s auto sales every year.
  • Today’s Chinese auto sales are over 2.3 million units a year.
  • Can you recognize the first car on the top? The car has a very cute name in China, it’s called QQ. QQ in Chinese pronunciation means very cute, very small Interestingly, this car is not the only cute car or QQ car in the world, there’s another model, under the name of Chevrolet or Chevy, called Spark.
  • It’s the Chinese producer, Chery, who copied the American, General Motors, before the financial crisis.
  • Did GM go to court to sue the Chinese company Chery? No. Why is that? GM chose not to go to court to sue Chery, why is that? Because at this time, GM was trying to enter the Chinese market.
  • GM, after a lot of debate, internal debate realized that yes GM may win the legal case, but GM may lose the whole war of getting into China.
  • Because GM China was the most profitable branch of General Motors, and still is today.
  • It was, I would argue, because of the Chinese operation of GM which quickly made GM come back and made GM to be able to be re-listed on the US stock exchange.
  • GSM, used in mostly continental Europe and also partly in the US CDMA, being used in the US The Chinese wanted to have its own format called TD, TD format and ten years ago very few people believed the TD format could fly.
  • That’s easy, but let me explain to you how money matters in the case of China.
  • China is having the world’s highest savings rates, I’m talking about the national savings rate.
  • Every year about 50% of Chinese GDP is saved aside, not consumed, and these high savings have been able to allow China to accumulate a huge amount of money.
  • How much? Almost twenty trillion, the equivalent of US dollars, inside China.
  • Chinese money stock is the largest by far in the world.
  • In this chart I show that Chinese M2, we call money, broadly defined, including cash and deposits, bank deposits, accounts for almost 200% of Chinese GDP, which is around ten trillion US dollars.
  • So the proper ranking of the size of money stock is China, Europe, US and Japan.
  • How much in terms of China’s deposits in foreign countries? Chinese households deposit money in Chinese banks and Chinese banks in turn deposits some of its money in foreign banks, because China has too much money.
  • Well, if the Chinese government wants to do, which they won’t do, don’t be scared by the following thing.
  • China, the central government, can buy every share of equity in the London stock exchange.
  • China can buy twice as much as all the shares listed on the Australian stock exchange.
  • Now you may ask, well, all these numbers are fancy numbers, are government numbers, how does it relate to me? Housing, Chinese investors and families are going abroad buying houses.
  • In this picture we see Chinese tourists and investors walking into a beautiful house, I think in California.
  • China today is not recognized as a democracy, whereas, Germany after first being established in 1872 was arguably an emergent democracy.
  • China, to the contrary, is not recognized as a democracy.
  • Here is a picture of a Chinese National People’s Congress meeting.
  • There’s a dispute about what is democracy, but it’s fair to say, China is not a democracy recognized by many western countries.
  • China is run by a ruling party, by a constitution.
  • The pre-amble of the Chinese constitution says “China is led by the Communist Party in correlation with many other parties” But the Communist Party is the ruling party.
  • Notice, the key word is Communist Party, which is a good word in China in the minds of many people but may not be in the minds of many western friends.
  • Ideology is a potential issue between China and the rest of the world.
  • Finally, why China is an intriguing number two in the world is because the potential matters.
  • China is NO.2 in the world today in terms of size of GDP, but the potential is even higher.
  • You may argue that China may come into the Japanese trouble, having two decades of slumps, of slowing down.
  • Imagine China follows the path of the not so successful economic development experience of Latin America.
  • Imagine China follows the path, from now on the Latin American path of growth.
  • In about 25 or 30 years China’s per capita income will be 35% of the US. Today I remind you, China’s per capita income, adjusted for its purchasing power, That is we are using 1 US dollar to 3.5 RMB, China’s per capita income is only 20%. From 20% to 35% of US income.
  • If that’s the case, if Latin America today is the future of China, then in 20 years Chinese GDP will be 1.5 times as large as the US economy.
  • If you tell Chinese friends oh we’ll become a Latin American country in terms of economic performance, people wouldn’t be very happy.
  • Yet the size is already huge and this is the reason for China to be so intriguing.

Week 1 China’s World View > The Chinese Model: what has China done right, so far? > Lecture Video

  • In others words, all other things are not important the only important thing is economic growth Deng Xiaoping is a short guy, he is also very short in his expressions, he doesn’t waste words so when he says that number one is most important, he really meant that And how did this philosophy of GDPism or this ideology change China? Well, under this ideology market forces were released because in order for the economy to grow people in China quickly realised the market mechanism has to be introduced even though the market mechanism was initially criticized as capitalist But Deng Xiaoping had one expression, he said “The colour of the cat is not important, whether it’s black or white as long as the cat can catch a mouse.
  • There are more of us For each 1 of you there are 10, maybe 20 Chinese students going to your own countries to study Mostly the US and Europe.
  • That’s today’s situation Here, in the US campuses, whether they are Columbia or Harvard you’ll always come across Chinese students studying there And the number of Chinese students going abroad exploded Right now almost half a million Chinese students are studying overseas Now, you can imagine, 30 plus years ago people were concerned They were saying bright kids from Tsinghua University going abroad will never come back because in the US and Europe their living standard is so much higher the wages are so much higher, they will never come back Deng Xiaoping said, “I don’t care.
  • As long as 10% of them come back, we win because 10% of them can bring back good information and knowledge.
  • ” Talking about information So that’s, I think, the second lesson of China’s rapid economic growth That is open up and learn Here’s a picture of China’s the first German automobile manufactured in China The name is Santana which I think was originally designed in Brazil for the Brazilian market.
  • They’re not worried, why do we worry? We don’t worry.
  • ” That’s the mentality of opening up in China Here of course are the logos of the World Bank and the IMF I can tell you, being very familiar with these 2 institutions and also I was a consultant to both institutions, periodically That China has been the best student, or partner of these institutions.
  • Why? Here is a picture of Chinese leader Xi Jinping shaking hands with the managing director of the IMF.
  • Why? Partly because over the years whenever the President of the World Bank or the managing director of the IMF come to China the Chinese senior leader will always come out and meet them And most importantly, these institutions often write policy articles Either advising or criticizing in a subtle way of Chinese economic policy Chinese policy makers would tend to listen.
  • Do the experiments Sure enough that experiment or privatising the collectives was so successful that many other villages and counties began to copy and that started the Chinese agricultural reform and agricultural reform was the first reform of the Chinese whole reform program Another picture, of a poor place in southern China, a fishing village This village was bought to be a place to start economic reform by Deng Xiaoping It’s called a special economic zone The village was called Shenzhen, today it is a fancy, 10 million plus, population city in southern China bordering Hong Kong and with population from all over China moving there In fact population from all over the world moving there.
  • I believe the brother of the present US president, Obama lives there and is doing rather well doing business there, in Shenzhen That was a fishing village 30 plus years ago, and this is the witness of the spirit of just do it Let experiments show the outcome Let the winners of the experiment show the outcome These are the 3 simple, important lessons for China to be able to grow so fast If anyone asks me, what is the Chinese model? I would say, if there is any Chinese model, these are the 3 things GDPism, open up and learn and just do it, start experimenting So these are 3 important ingredients of the so-called Chinese model.

Week 1 China’s World View > Mounting Challenges for The Future > Lecture Video

  • Here we have this picture Whenever there are international issues there are domestic consequences What are they doing here? These are young people taking to the streets, protesting against the Japanese government on the Diaoyu Island issue And here is a picture of a young man doing what? Hitting a car What is the car? You cannot recognise this because this car is upside down.
  • I would argue that when it comes to such a big issue we have to look at the big pictures, we have to look at the fundamental factors Rather than detailed things What are the fundamental factors shaping the future of China? Well, in the economic dimension there are a few First, China is still a country with high savings rates, 50% of GDP The highest amount of currency reserves High savings rates, high currency reserves creates a foundation for the economy to deal with leverage, the high level of debt.
  • To deal with bubbles That’s the first fact Second fact: China is still a country with poor per capita income China is still a country where the per capita income is very low which indicates that people are still willing to work hard Unlike, today’s Greece or even part of Italy, people in China are still hungry This means that people are still willing to learn The third factor shaping the future of China is innovation You asked about innovation? Our student from Holland Let’s look at some early indications of innovation.

Week 1 China’s World View > China’s World View > Lecture Video

  • Here we have this picture Whenever there are international issues there are domestic consequences What are they doing here?
  • These are young people taking to the streets, protesting against the Japanese government on the Diaoyu Island issue And here is a picture of a young man doing what? Hitting a car What is the car? You cannot recognise this because this car is upside down.
  • I would argue that when it comes to such a big issue we have to look at the big pictures, we have to look at the fundamental factors rather than detailed things.
  • What are the fundamental factors shaping the future of China?
  • Well, in the economic dimension there are a few First, China is still a country with high savings rates, 50% of GDP The highest amount of currency reserves High savings rates, high currency reserves creates a foundation for the economy to deal with leverage, the high level of debt.
  • To deal with bubbles That’s the first fact Second fact: China is still a country with poor per capita income.
  • China is still a country where the per capita income is very low which indicates that people are still willing to work hard Unlike, today’s Greece or even part of Italy, people in China are still hungry This means that people are still willing to learn The third factor shaping the future of China is innovation You asked about innovation? Our student from Holland Let’s look at some early indications of innovation.

Week 1 China’s World View > Is the World Ready for an Ever Bigger China? > Lecture Video

  • Last section we talked about China’s world view, and we explained that China indeed has very unique perspectives on the global affairs as well as domestic issues.
  • Today, let’s talk about if the world is ready for an ever bigger China In other words, what are the potential disruptions that a likely continuing rise of China may have upon the rest of the world? Let’s first look at a picture.
  • Shall we do the deal? That’s Deng Xiaoping’s reply.
  • What does this tell us, that’s 40 years ago China is a country with large population, and relatively very few arable land.
  • The US, at least 150 year ago, was a large country with a relatively small population So both countries have different situations.
  • The underlying logic of Deng Xiaoping is we are different from the US so don’t bother with our policies It’s like you are doing your homework, and the classmate are doing your homework You are working on your physics, your classmate is working on economics And the economist classmate is trying to give you advice on how to solve your physics problems using the economic logic What do you say? Don’t bother me.

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