Week 1: China’s World View

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.