Lecture 5 - China Flashcards
What does China drive
Economic globalization (doesn’t just absorb FDI like other developing countries)
China’s GDP in comparison to USA
China has 1/7th GDP of USA – yet is so influential within the economy
Still relatively poor like any other developing country
Who is Milton Friedman
Responsible for the ideology of the free market (and that it should be implemented at a global scale) he advised Ronald Raegan and Margaret Thatcher
Who did Freidman try to influence
The leader of China when they were in social chaos + tried to enroll China into free market capitalism
Who tried to influence the leader of China
Freidman
What happened during the golden age of Fordism
China under Mao Zedong was insulated from global capitalist system
During the golden age of Fordism what did Mao aim to do
Emulate the Soviet Union.
Attempted industrialisation through ‘self reliance’ but generated serious domestic socioeconomic crises
Employment during the golden age of Fordism
- Close to a billion workers were kept out of the global labour market
- Fordism-‐Keynesianism thus developed parallel to the insulation of Soviet-‐styled ‘socialist’ economies
- Incidentally, both economic types encountered crises in the same period
When was the golden age of Fordism
1950s-60s (after WW2)
Communist leader of China
Zedong
What did Zedong want
Wanted to organize the country around the soviet union – didn’t want other larger brands or countries influencing them and their economy (= self reliance)
Who was Zedong
(Communist leader) – powerful in driving communist movement
What used to be looted from China during the golden age of Fordism
Workers kept out – even by 1980s apple computers still produced in USA because China didn’t accept their production – didn’t want people working for TNCs
How the two crises of Fordism-Keynesoanism and communism
Both Fordism-Keynesianism (profits began to drop in countries + they wanted more, needed to expand globally + not just keep production in certain countries) and communism encountered crisis together (social crisis – people are starving) – 2 crises are linked and they began to join with each other (soviet system and ex soviet system joined) – late 70s and 80s the global economy became more open, people looked for more places to progress to
Deng quote on after 1978
“There is capitalism in socialism too”
What happened after 1978
Triggered the emergence of market-‐based reforms and enhancement of international trade
Who stated: “There is capitalism in socialism too”
Deng 1978
What did Deng do
He enhanced international trade – China was once isolated from the global economy but this was changing
5 main features of reform
- Fiscal autonomy
- Financial decentralisation
- Marketisation
- Spatial selectivity
- Relaxation of population control
What happened in 1984
Fiscal system detached from banking
When did the fiscal system detach from banking
1984
What did decentralisation do
- Offered more autonomy to local governments in revenue collection and spending
- Offered significant potential to expand the extra-‐budgetary fund (i.e. revenue not subject to control by the central government)
What did local banking institutions do
Replaced the central bank in many functions, primary of which is credit creation
What marked the beginning of state controlled financialisation
Central bank no longer monitoring firm activities ‘from above’
What was marked by central banks no longer monitoring firm activities ‘from above’
The beginning of state controlled financialisation
Banking under the soviet system
Under the soviet system there was no financial banks – people didn’t use banks
There was only the fiscal system - government revenue collection system
What kind of markets are banks required for
Market economies
What do market economies need
Banks
What is the basis of market economies
Credit
When did banks start opening
1984
Decentralisation of financial reforms
Governments given more incentives in revenue collection from taxes (local governments are allowed to operate like businesses – to stimulate enthusiasm)
What is extra budgetary fund
Extra money on the side that doesn’t need to be reported (governments now feel empowered and want to drive growth further – incentivized to generate money)
Who is more willing in a trickle up method
More enthusiasm from government then the public will be more enthusiastic and willing to generate funds
What exchange rate does China have today
Fixed
What happened in the 80s in China
- Local banking institutions were created, not just one central bank (peoples bank of china – used to be only bank)
- They introduced credit creation – ability to generate credit, lending money (the economy has more money, an injection)
What does a bank run mean
All try to get money out of banks due to lack of confidence in financial institutions yet banks do not hold enough hard money
What is state controlled financialising
Introduction of financial tools to regulate everyday life (e.g. ATM cuts)
What is marketisation
Introduction of ‘market-‐like regulations’ in many realms of the economy
What launched in Shanghai
Stock markets launched in Shanghai and Shenzhen; banks encouraged to compete for loans; state-‐owned companies restructured (e.g. CNOOC)
When did China join the WTO
2001
What happened in 2001
China joined the WTO
What happened after China joined the WTO
Marketisation gained speed
Spatial selectivity of China - what were set up
Reforms first implemented along five Special Economic Zones in southeastern China in the 1980s
FDI in China
Foreign capital inflows expanded northwards in the 1990s, then nationwide
What happened until 1978
Private buying and selling (done by individuals) was not allowed – extremity of Chinese socialism
Until when was private buying and selling now allowed in China
Until 1978 private buying and selling (done by individuals) was not allowed – extremity of Chinese socialism
What happened after 1978
Small scale private transactions were allowed (no private demand or supply)
When were stock markets in China launched
1987
What happened in 1987
Stock markets in China were launched
How many stock markets are there in China
2 - which banks compete over
What happens if banks are in crisis
They just ask for money from Beijing
When did GDP in China dramatically grow
After 2001
What happened after 2001
GDP grew in China dramatically
What companies are allowed into the SEZs
Only state approved ones
Were the pattern of SEZ development logical
Not an even geographical process – was gradual: along the coast and then northwards
Development even or not in China
Still very uneven development (therefore still considered a developing country)
China and production today
Today key cities in China are powerhouses of production and encourage people to migrate
Area of development within China - example
Shenzhen 1982-2012
Area of development within China - how has Shenzhen changes
1982 - was flat, under construction, not developed
2012 - developed due to the opening up to the global market
Area of development within China - how many people live in Shenzhen
14 million
Area of development - what was Shenzhen the capital of
The IT capital of China
What happened before 1978 in China to population movement
Living in China and you are a rural citizen, you aren’t allowed to leave your own village (rural migration didn’t occur)
When weren’t you allowed to leave your own village (China)
1978
Slums China 1978
No slums in China because not allowed to enter cities – geography was destiny
A form of internal colonialism?
What happened after 1978 to population movement
- From central provinces to the coastal provinces
- Relaxation of migration
- Today still many restrictions
- Rural migrants have no right to be in the cities – today – but they can move
China as the ‘world’s factory’
Massive relocation of low value-‐ added industries into interior China
Issue with coastal areas being developed
Internal areas weren’t
Nation-states involvement in manufacturing
Encourages firms to move around internally
How firms reacted to the development of coastal areas
-Countries competed for the low cost, intensive labor production
-Firms had to be willing to move
Item production within
-China increased
How did China create value in manufacturing
Country started making higher value added products e.g. mobile screens
What did the state do to make China more competitive
The government created a time space compression project (reduce the sense of distance between countries) through a railway (used to have to go through coastal areas) - things are taken to Europe via rail in order to compete with other states
What kind of growth does China have
Export led growth
Is the railway in China profitable
Railway wont make money, it will lose money as no people want to get on the train for 2 weeks when they can fly – had to be subsidised
What policies were created to help competitiveness and uneven development
Massive state-led infrastructural investments in interior provinces to attract & retain cost-sensitive investors
What do coastal provinces now aim to attract
Investments in higher-order manufacturing and services
FDI in China - when did it decrease
Decreases due to 2008 financial crisis in US but made it into a global crisis
When was there a surplus of investment
2007/2008
What happened in 2007/2008
There was a surplus of investment into China
Inflows and outflows of China
Today outflows > inflows (net exporter of capital)
Places in a similar situation to China
Vietnam + India in a similar situation but they are not able to do the same as China - why does China have the money to do this?
China’s currency
RMB or yuan (also used outside of China)
How are dollars converted to RMB
At fixed rate set by Chinese central bank
Why is there a growing demand for RMB
More trade and FDI, there is growing demand for RMB, which should increase value of RMB versus the dollar
Naturally what should the Chinese XR be
Lower
Impact of increased value of RMB versus the dollar
China as a result is more expensive – don’t want to buy Chinese goods (therefore the currency isn’t widely used outside of China)
Inflation history of China
Hyperinflation
Why is there hyperinflation in China
Chinese businesses would rather be payed in dollars
Where do dollars go in China
Chinese central bank is very powerful – all the US dollars go to here and then are exchanged into RMB/yuan (they hold many US dollars in the bank + are used as reserves)
Importance of the dollar in China
- China is heavily dependent on the US dollar in order for their daily lives to function (also as their currency isn’t accepted in other places)
- They wanted to increase the value of the US dollars they were holding
How much money going into China is dollars
2/3rds
Chinese people access to dollars
Low amount of access that the individual person is allowed access to
US government fiscal status
Deficit - they need to borrow dollars from overseas e.g. China but after the 2008 crisis they thought the US was too risky to lend to
Rather than lend their money to other countries what does the Chinese state do with the money
Rather than lend their money to other countries they decided to lend it to the state owned corporations (why Chinese state owned corporations spend a lot) – can obtain loans in Chinese currencies easily as the other countries need dollars
Dollars currently in China
The more China is integrated in the global economy, the more firms want to locate their and put their money into China
Yet China itself has absolute poverty in some places
Almost contradictory
What happened after the 2007-8 financial crisis
The Chinese central state sprung into life
How did the Chinese central state spring into life following the 2007-8 financial crisis
Launched a massive ‘Go Abroad’ investment campaign, with a view to maximize the current value of its dollar holdings
What does the ‘Go Abroad’ campaign explain
Why China, which still has a large poor population, is now (paradoxically) the largest global exporter of (dollar-denominated) capital
Issues with state-driven global investments
- Foreign reserves cannot be targeted at solving (multiplying) domestic problems without causing inflation
- Chinese state taking immense risks (& hence contributing to instability in the global economy) through re-investing dollar reserves globally – what if the investments fail?
What does China now want to do with their foreign reserves
Spend them
What are Chinese firms encouraged to do
Take risks (they often lose money)
Implications of China’s ‘centrally-managed capitalism’
- A unique blend of organized and disorganized capitalism
- The Chinese central state has not disappeared
- Its role has been re-‐ emphasized as a result of globalizing tendencies
- A new ‘variety of capitalism’?
What is hyper-globalisation
Exponential increase in the international trade
