CHINA ची�न 中国

Understanding Emerging Markets

Group 1

HISTORY

ANCIENT CHINA:• Xia Dynasty (c. 2100 – c. 1600 BC)• Shang Dynasty (c. 1700–1046 BC)• Zhou Dynasty (1046–256 BC)• Spring and Autumn Period (722–476 BC)• Warring States Period (476–221 BC)

History(Cont)

IMPERIAL CHINA:• Qin Dynasty (221–206 BC)• Han Dynasty (202 BC–AD 220)

EARLY MODERN:• Ming Dynasty (AD 1368–1644)• Qing Dynasty (AD 1644–1911)

MODERN CHINA:

• Republic of China (1912–1949)

• People's Republic of China (1949–present)

GEOGRAPHY

GEOLOGYWorld’s largest producer of antimony,

graphite, tungsten and zinc.

Largest hydro power potential.

SOCIAL ISSUES

Mass unrest issues have risen from 8,709 in 1993 to 90,000 in 2009.

Reasons:

a)Increase in migration,

b)Unemployment,

c)Loss of faith in system,

d)Corruption.

The imbalance of wealthUrbanization

CENSORSHIP:

a)Freedom of speech

b)Freedom press

c)Internet

Hukou system.

DEMOGRAPHICS

AGE STRUCTURE (present):

a)0-14 years: 17.4%

b)15-24 years: 16.1%

c)25-54 years: 46.5%

d)55-64 years: 10.9%

e)65 years and over: 9.1%

Median age: 35.9 years.

POPULATION GRAPH

1975 1980 1990 1995 2000 2005 2010 2011 20120

200

400

600

800

1000

1200

1400

1600Population(in millions)

Population, total

LIFE EXPECTANCY

1975 1980 1990 1995 2000 2005 2010 201160

62

64

66

68

70

72

74

76Life expectancy at birth, total (years)

Life expectancy at birth, total (years)

DEATH RATE

1975 1980 1990 1995 2000 2005 2010 20115.8

6

6.2

6.4

6.6

6.8

7

7.2

7.4Death rate, crude (per 1,000 people)

Death rate, crude (per 1,000 people)

FERTILITY

1940 1950 1960 1970 1980 1990 2000 2010 20200

1

2

3

4

5

6

7Total Fertility Rate (children born/woman)

Total Fertility Rate (children born/woman)

SEX RATIO

1940 1950 1960 1970 1980 1990 2000 2010 2020103.5

104

104.5

105

105.5

106

106.5

107

107.5

108

108.5

Sex Ratio In China

Political Systemof

China

China is a Communist Country.Communism is an idea of a free society with no

division or alienation, where the people are free from oppression and scarcity.

Symbol

China adopted communism in 1949.China operates with a ONE PARTY STATE

POLICY where Communist party of china is the dominating party.

Political Structure

Communist Party

82.6 million members

State Council

Second major institution of the Chinese political structure.

The executive branch.

It is the Central People’s Government & is Chaired by the Premier.

National People's Congress

• The legislative branch• is the highest state body and the

unicameral legislative house• Functions:

-Electing the President of the People's Republic of China

- approving the appointment of the Premier of the State Council

- approving the work reports & policies.

People’s Political Consultative Conference

Perform as “democratic supervisor” of the Party

It acts as a platform for the citizens to make suggestions about the policies.

PPCC members are often known as “political advisors”.

The People’s Liberation Army

• Unified military organization responsible for air, water and land operations.

• Very Crucial to the party and the government.

• Reports to Party Central Military Commission (CMC)

Environmental Conditions In

China

Environmental Problems

Water ResourcesDeforestationDesertificationClimate changePollution

Government Measures

Adjusting industrial structures and altering development modes.

Establishment of about 100 specialized environmental courts.

"Green Wall of China" projectIntroduction of Environmental education

Technological Scenario in China

Ancient Era

Pioneer in the field of science and technology

Greatest Discoveries includes-– Paper making– Printing Technology– Compass– Gunpowder

Started to loose its stand but rebounced in 19th century.

Modern Era

Experienced biggest technological transformation

Over 1.5 billion cell phones & 570 million Internet users

Major achievements

– BaiDu

– Sina Weibo

– Manufacturing hub of electronics gadgets.

Culture Chinese culture is one of the

oldest culture in the world. Many festivals are celebrated in china like spring festival, lantern festival. Spring festival is also known as Chinese New year. Important components of Chinese culture include:

Literature Music Martial Arts Cuisine

Economic Inequality

Income inequality

Gini coefficient is 0.74

Regional Income inequality

Rural-Urban income inequality

Causes for Income inequality

Non-Balanced Economic DevelopmentUnreasonable economic systemImperfect Tax SystemLack of Public ServicesLow Income transferHoukou or Chinese household Registration

System

Economics in China

अर्थ�शा�स्त्र

經濟學

1975 1980 1990 1995 2000 2005 2010 2011 2012

-6

-4

-2

0

2

4

6

8

10

12

14

GDP Growth

China

India

Brazil

Main reason for China’s Growth

1980 1985 1990 1995 2000 2005 2010 2011 20120

5

10

15

20

25

30

35

40

Export as a % of GDP

China

Brazil

India

Raise More Debt

Increase the Household

Consumption

2005 2006 2007 2008 2009 2010 2011 2012 2010 2011 20120

10

20

30

40

50

60

70

Household Consumption as a % of GDP

China

India

Brazil

China’s economy will not fall

2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

Household Saving as a % of GDP

China

India

Brazil

Increasing Debt is the only option

Before 1990, RMB was pegged at 2.46 per US dollar

As Chinese economy opened up, RMB was devalued to 8.62 yuan per dollar.

In 2005, peg was lifted but reinstituted again in 2008 due to financial crises in 2008

Stages of China’s Reforms

1970’s-1980’s – Opening up the country to the foreign investment.

US China Debt loop

China competitive advantage in the form of cheap labour

Fixed Rate of Exchange and Money Supply

1975 1980 1990 1995 2000 2005 2010 20110

20

40

60

80

100

120

140

160

180

200

Money and quasi money (M2) as % of GDP

Money and quasi money (M2) as % of GDP

1990 1995 2000 2005 2010 2011 20120

20

40

60

80

100

120

140

Consumer price index (2005 = 100)

Consumer price index (2005 = 100)

Stages of China’s Reforms• 1980’s-1994’s – Privatization and

Contracting

Lifting of Price controls, protectionist policies and

regulation

Introduction of tax distribution system that reduced the

proportion of tax revenues held by local government.

Government used debt to finance its expenditure which

led to increase in the debt to GDP ratio.

Current Economic Conditions

Fitch has downgraded China from AA- to AA+

Debt to GDP has accelerated from 148% to 205%

IMF has warned China for rising Debt levels

GDP has reached to 7.5% in 3rd Quarter of 2013

History of Banking sector

History of banking sector can be divided into two main periods

The Mao Era (1949-1978)

The Post-Mao Era or Deng Era (1978 onwards)

Banking Sector Outlook

Current cash reserve ratio for China stands at 20.50 which is one of the highest in the world.

POP has taken steps to improve the market sentiments

Money Supply and Loans are expected to grow

Banking Sector Outlook(Cont)

Urbanization is growing at a rate of 1.37%, which will increase the demand of financial services

Shadow Banking is increasing at 34%

China’s Development Bank and China’s six largest commercial bank continued to grow internationally.

Reintroduction of asset securitization is expected to be a breakthrough for asset and intermediate business innovation for banks.

It is expected that that the Banking sector Net profit would increase by 3% for 2013

Stock Markets

In 1990 and 1991, China sets up stock exchanges in Shanghai and Shenzhen

Stock Markets in Chine is regulated by China Security Regulatory Commission.

SSE composite Index is the most commonly used indicator to reflect SSE’s market performance.

Securities sectors outlook

Increase in the stake foreigner could hold.

Number of Brokers increased from 11 to 30

Investment Banking to move towards follow on and debt financing.

China stock market could fall because of the property bubble

Growth

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Infrastructure

Telephones (1989):

– Country X: 107 telephone sets per 1000

persons

– Country Y: 10 telephone sets per 1000

persons

Length of Railways (Electrified Railways) (1980)

– Country X: 61,240 kms (5,345 kms)

– Country Y: 53,900 kms (1,700 kms)

Infrastructure

China’s Growth

1 Country – 2 System

Han Dynasty

No Enemies

China’s GDP Growth

1975 1980 1990 1995 2000 2005 20100

10

20

30

40

50

60

AgricultureServicesIndustry

GDP Distribution

Agriculture

China ranks first in worldwide farm output

No. 1 in Wheat Production

Contributes 9% to GDP

Great Leap Forward (1958 – 1961)

Great Chinese Famine(1958 – 1961)

World’s Largest Importer of Soyabeans

Industry Sector Industry Contributes 46% to China’s GDP World’s leading manufacturer of chemical fertilizers,

cement, and steel China ranks second worldwide in industrial output Four Modernizations (1975)

o Industryo National Defenceo Agricultureo Science and technology

Energy industry Manufacturing and Automobiles Steel

Service Sector

Service Sector Contribution - 44 % Quantity Quality Hospitality Aviation Banking Automation

Trade relations

World Trade Organization, G20, BRICS

USA

Africa

Russia

Border Problems

TibetTaiwan (Kuomintang)IndiaJapanMongolia

Business Opportunities

• Education• Healthcare• Clean-tech/green-tech• Software• Food

Labour Issues

Fall Of China

Ageing PopulationYuan AppreciationDependence on WorldMiddleClass Sector

A Deaf Pilot cannot fly an airplane effectively, however good he may be

Will China Become Super Power ?

Military Power

Economic Power

Transnational Power

Market Outlook China

• Economy Set to take off again

Increase in spending by state government

Measures taken by People’s Bank of China

Increase in Demand and supply perception

New reforms of rational distribution system

Market Outlook China

• Points of Concerns China’s economy is at a moderation point from high

growth to mid high growth

China is loosing out on its competitive advantage

Manufacturing Sector is reaching saturation

Shadow Banking is a big concern

Property Bubble in China

Appendix

http://www.worldbank.org/en/country/china\

http://www.indexmundi.com/china/

http://en.wikipedia.org/wiki/China

http://www.pbc.gov.cn

http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp

http://www.deloitte.com/view/en_CN/cn/ind/g

http://www.businessweek.com/articles/2013-03-26/chinas-stock-markets-fall-on-fears-of-a-real-estate-crackdown

http://www.bloomberg.com/news/china/

Presented by:Anand KJAnkit Vora

Malhar Lakdawala

Shubham Jain

Lakshay Nangia