China in the Global Economy: The last ten years and the next

China in the Global Economy: The last ten years and the next Ted H. Chu Chief Economist General Motors Company May 12, 2010 GIC Annual Monetary & Trade Conference

Ted Chu, China Next Decade 5‐12‐2010

1

Government & Policy Intensified anti­ corruption activities

Hu Jintao elected President

Violent protests in Lhasa, Tibet

Google to end censorship in China

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

“Population & Family Planning Law”

2

Agreement with Russia over border conflicts

China celebrates 60 years of communism

Economy Launched Grain Subsidy Policy Government announces a $586 billion stimulus

China becomes a member of the WTO

China becomes largest automobile market in the world

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Launched West Development Policies

3

Terminated Agriculture Tax

Millions of migrant workers lose their jobs due to global financial crisis

New gas pipeline opened between Turkmenistan & China

Culture, Education & Science Chinese scientists publish Indica genome sequence The Hanyu Pinyin alphabet

Four million people have to be resettled within the next 10­15 years in the Three Gorges Dam area

Shanghai Expo

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Beijing is awarded the 2008 Olympics

4

Three Gorges Dam project begins

Beijing 2008 Olympics The Chinese inaugural edition of “Rolling Stone”

Environment Earthquake in Qinghai province.

2,000 deaths, 12,000 injured, 100,000 homeless

Earthquake strikes Sichuan province. Death toll reaches 69,000

Water supply of Harbin City is polluted by local plant

2005

2006 China surpasses the United States in carbon dioxide emissions

5

2007

2008

2009

2010

China surpasses the United States as the world’s largest producer of household garbage

Health

First cases of SARS

WHO predicts , around 50 million Chinese children will die prematurely from tobacco use related disease

China’s MoH 10th case of Avian Flu

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SARS Quarantines

6

UN estimates 1 million Chinese are infected with HIV

Joint UN Program, MoH & WHO, on HIV/AIDS (UNAIDS) publish a report on AIDS.

Tainted Milk China has 90 million diabetics

Technology Government consolidates internet regulations

1st manned spacecraft into orbit

China reaches 94 million internet users China reaches 103 million internet users, 45.6 million computer hosts and 677,500 web sites

China celebrates fist domestically produced passenger jet

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

China reaches 210 million internet users

First­ever fiber optic network connection across Russian­ Chinese border (internet) CERNET2 China’s high speed network connecting 25 Universities 7

China is the malware capital of the world

Military China intensifies modernization of People’s Liberation Army China launches communication satellite

Government deploys troops to protect Three Gorges Dam from terrorist attacks

China shoots down old weather satellite, demonstrates ability to destroy spy satellites

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

China launches GPS satellite

State­owned Galileo Industries begins cooperation with EU’s Galileo navigation system China launches third navigation satellite

8

China’s military budget increases by nearly 18%

China’s plans to increase military budget another 18%

Future Milestones

Monetary policy changes?

2010 2011

Housing market?

Property taxes?

2012

2013

New Government

9

Labor force peaking

2014

2015

2016

Environmental Protection Laws?

Population aging

2017

2018

2019 2020

Population disproportionally male

GDP per Capita (PPP in 2009$) 35,000

Japan (1960-1990)

25,000

20,000

Russia

15,000

Brazil 10,000

China 5,000

0

India Source: Conference Board Total Economy Database

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

GDP per Capita (PPP in 2009$)

30,000

1998 GM China Market Study: Urbanization Projections 50

40

35

30

25

China Indonesia Thailand India Malaysia

20

15

Ted Chu, China Next Decade 5‐12‐2010

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

10

1979

Percent Urban Population in China

45

11

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1,400

1980

1979

1978

Population (in Millions)

China: Population

1,600

Population (in 10,000s)

Urban

1,200

Rural

1,000

800

600

400

200

0

13

50

2009

80

2008

90

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

Percent (%) of Total Population

Urban Population as a Percent (%) of Total Population

100

Brazil Russia

70

60

China

40

India

30

20

10

0

14

China: Population 250

229 197

200

180

150

100

50

0 2000

2005

P.R. China: Total Population Aged 15-19 (millions)

2010

2015

P.R. China: Total Population Aged 20-24 (millions)

2020

Higher Education Students 35,000

China

30,000

In Thousands

25,000

20,000

U.S.

15,000

India Russia

10,000

Germany/France/UK Brazil

5,000

Japan 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source:Â Euromonitor

1998 GM China Market Study: Urban Household Income 8

urban 1998 2005 2010

6

5

4

3

2

1

above 12

11

5

4

3

2

0 1.5

number of households at each income level (millions)

7

annual household income (thousand US$ at market exchange rate)

Ted Chu, China Next Decade 5‐12‐2010

17

1998 GM China Market Study: Rapid income growth led to continuous upgrades & fast saturation of electric & white goods 1970s

1980s

1990s

2000s (proj.)

B&W TV

color TV

large scn TV

home Ent. Ctr

cable TV

Internet /Web

motorcycle

family car cellular phone

radio

stereo radio/tape

bicycle sewing machine

washing machine

telephone

watch

electric fan

air conditioner

refrigerator

kitchen equip.

PC fitness equipment

Urban per capita income in mid-decade (PPP, 1995 U S$) 411 690 1566 3690 18

Industry (000 units)

Vehicle Sales in Major Markets

20,000 18,000

China

16,000

W.E. 14,000

12,000

USA 10,000 8,000 6,000

Japan Brazil India Russia

4,000

2,000

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0

Source: GM Corporate Planning 19

American & Chinese Spending Patterns 100% 90% 80%

9%

Other

10%

5%

Leisure

7%

10%

Transport

70% 15%

60%

25%

9%

Household Items

8%

11% 14%

50%

13%

Leisure Transport Health Care

11%

11%

13%

3% 2% 7%

Household Items

5%

Housing

13%

Clothing

9%

Food

39%

Housing

17%

40%

22%

Other

3% 3% 7%

13%

Health Care

4%

12%

15% Clothing

30%

5% 10%

52% 19%

20% 31%

Food

23%

10%

4% 9%

0% 1940's - U.S.

1970's - U.S.

2000's - U.S.

1990's - China

2000's - China

9000 8000 7000

Oil Consumption (thou barrels daily)

Brazil Russian Federation India China

6000 5000

4000 3000 2000

1000 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

0

21

China: Exports and Imports as a Share of GDP 40.0%

Exports

35.0%

Imports

Share of GDP (%)

30.0% 25.0%

20.0%

EX + IM as % of GDP China* US Japan India Russia Brazil Euro Zone

15.0% 10.0% 5.0%

2000 40 20 18 20 53 19 60

2009 57 19 22 33 36 21 56

22

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0.0%

China: Intl Liquidity: Total Reserves Minus Gold 3,000

2,416

2,000

1,500

1,000

Japan Euro Zone

500

Russia Taiwan

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

0

1990

Billions of US$ (NSA,EOP)

2,500

Every Decade has Winners 1400

Gold

Energy Commodities

NASDAQ

Nikkei 225

1200

Shanghai Stocks Five U.S. City Home Price Index

1000

800

What's Next?

600

400

200

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0 Sources: Gold: London Gold Bullion Market; Nikkei 225,NASDAQ and Dow Jones Shanghai: WSJ/Haver Analytics; Energy Commodities: S&P GSCI Energy Commodities Nearby Index/Haver Analytics; 5 U.S. City Home Price Index: Average of Case Shiller Index/Haver Analytics for Miami, Las Vegas, Los Angeles, San Diego, and San Francisco

Ted Chu, China Next Decade 5‐12‐2010

24

25

10-Jan-10

10-Jul-09

1,000

10-Jan-09

10-Jul-08

10-Jan-08

10-Jul-07

10-Jan-07

10-Jul-06

10-Jan-06

10-Jul-05

10-Jan-05

10-Jul-04

10-Jan-04

10-Jul-03

10-Jan-03

10-Jul-02

10-Jan-02

10-Jul-01

10-Jan-01

10-Jul-00

10-Jan-00

10-Jul-99

10-Jan-99

10-Jul-98

10-Jan-98

10-Jul-97

10-Jan-97

Stock Market Index (January 1997=100)

BRIC Stock Market Performance

1,200

Russia Brazil

800

600

400

India

200

China

0

China: The Next Decade Can be sustained • Income growth • Urbanization • Higher education • Military power expansion • Climbing the value chain

Cannot be sustained • Rate of labor force growth • Share of trade in GDP • Foreign reserve accumulation • Environmental deterioration • Widening of income disparity

What China needs: (1) social and geopolitical stability, (2) further structural reforms, (3) psychological maturity

Ted Chu, China Next Decade 5‐12‐2010

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