The Re-Emergence of China and
Implications for New Zealand
Professor Bob Buckle
Pro Vice-Chancellor & Dean of Commerce
Victoria Business School
Victoria University of Wellington
Wellington Commerce Teachers, 30 November, 2012
China and its regions
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
China’s Remarkable Economic
Transformation
• 1978: China one of world‟s poorest countries
- real per capita GDP 1/40th USA level
- " "
"
" 1/10th Brazil level.
• Since then: real per capita GDP grown at an
average rate of 8% per year.
• Now: Real per capita GDP is 1/5th USA
"
"
"
" " same as Brazil.
China’s Remarkable Economic
Transformation
• In 1978 China produced 2% of world GDP.
• Today China produces 13% of world GDP.
• Today China is the world‟s 2nd largest economy.
• China‟s economic transformation has no historical
precedent. From 1978 to 1988, poverty headcount
fell by 154 million (Huang, 2012): “The greatest
poverty reduction of all time”. (Jacques, 2009)
• How did it happen? How has it impacted on NZ?
China and USA Shares of World GDP
30
25
(%)
20
China GDP (PPP Basis)
US GDP (PPP Basis)
15
China Forecasted
10
US Forecasted
5
0
1980
1985
1990
1995
2000
2005
2010
2015
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
China’s pre-modernisation history
• China was a world economic and technological leader
in the “pre-modern” era which peaked in Song Dynasty
(circa 1200).
• Sometime between 1500 and 1800 it lost its leadership
to Western Europe. Explanations vary:
–
–
–
–
–
–
China fell behind before the Industrial Revolution when it became more centralised and inward looking
during Ming (1368-1644) and Qing (1644-1911) dynasties which stifled innovation and commerce;
Others argue parts of China (e.g. lower Yangzi Valley) were still as advanced as Europe until Industrial
Revolution and fell beyond thereafter due to
Western Europe‟s good fortune in having large deposits of coal, a seafaring and exploration culture, and
colonies,
While the Qing Dynasty, with its imperial political-institutional system and bureaucracy, stifled commerce
and adaptation, and
China was easily exploited by European powers (Opium wars with UK in 1840s and 50s, Sino-Japanese
war 1894-95), and disrupted by continuous civil wars and the Japanese invasion during WWII, and was
therefore unable to benefit from the exposure to European technologies and trade.
China‟s per capita GDP actually declined between 1800 and 1950 (Zhu, 2012).
• But from 1950s growth started to recover,
sporadically, then rapidly after 1978.
China and Western Europe GDP
per capita: 1500-2000
Zhu (2012)
China and USA GDP per capita: 1952-2009
Zhu (2012)
Mao’s industrialization attempt
•
After establishment of PRC in October 1949, China started to
industrialize: real per capita GDP growth averaged 3% pa, 19501978.
•
Development was based on forced capital investment in „heavy‟
industry, setting low prices for agriculture, and limiting household
spending - The USSR model.
•
Big push of the „Great Leap Forward‟ failed, led to a collapse in
agriculture and the „Great Famine‟ of 1958-1960 and massive
foreign debt (Dikotter, 2010).
•
Mao‟s attempt to restore his political power (in 1960s) via the
„Cultural Revolution‟ caused further disruption.
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
China’s Economic Transformation
Process
• Deng Xiaoping fostered a policy of Gaige Kaifang (“reform
and opening up”).
• Influenced by success of „Asian Tigers‟
(Hong Kong, Singapore, South Korea and Taiwan).
• No grand design: gradual, experimental, decentralised.
“Groping the stones while crossing the river” (Xiaoping).
• „Socialist market economy with Chinese characteristics‟
(or „privatisation with ……….‟)
The role of rural reforms
• Reforms started in the rural China.
• Dual-track pricing - farmers could sell crops at market
prices after satisfying state obligations. Rural
capitalism acted as a multiplier amplifying the effects
of policy reforms.
• Township and village (private) enterprises emerged,
undermining the monopoly of state-enterprises (valueadded by these rural businesses increased from 6% of
GDP in 1978 to 26% in 1996).
• Rural financial reforms enabled rural credit co-ops,
private financial intermediation. Reversed in 1990s
(post-Tiananmen) to fund coastal urban
development.
Opening up to the world
• Liberalisation of trade and foreign investment via
creation of Export Processing Zones (EPZ), starting
with Guangdong. Hong Kong investment was key.
• Massive internal migration of low wage rural labour.
• Tax and tariff concessions in EPZs, surge in foreign
investment, new technologies and large scale
production acted to generate high productivity growth.
• Low unit labour cost (ulc) industries source of export
growth (average ulc 70% US level in 1980, fell to 30%
by mid-1990s).
• Facilitated by liberalisation of western economies
during this period.
Creation of special economic zones
Harvey (2005)
Shares of Agricultural Employment
%
Transformation of coastal cities:
Shenzhen 1970 and 2010
Features of Chinese manufacturing
Li, Li, Wu, and Xiong (2012)
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
Welcoming the Forces of Globalisation
• China‟s export growth was facilitated by liberalisation
of western economies during this period, and support
from some key economies.
• Most Favoured Nation status with USA (1979).
• Member of APEC (since inception in 1989).
• Member of WTO in 2001.
• FTA with New Zealand in 2008.
• China‟s share of world trade has grown from around
1% in 1980 to about 10% today.
MFN Agreement 1979 with USA
China and U.S. Shares of World Exports
20
18
16
China
US
14
(%)
12
10
8
6
4
2
0
Year
China and U.S. Shares of World Imports
20
18
16
14
(%)
12
10
China
US
8
6
4
2
0
Year
Implications for the Global Economy
• China part of an integrated Asian supply network.
• Developed economies are a source of demand.
• Resource based and primary commodity
countries are sources of raw materials, energy,
food (e.g. minerals from Australia, dairy from
NZ).
• Wealth transfer to rest of world, supplying lower
priced manufactured goods and pushing up
commodity prices.
China’s Terms of Trade (Px/Pm)
Index
130
120
110
100
90
80
70
60
50
40
1980
1984
1988
1992
1996
2000
2004
2008
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
Implications for New Zealand
• China‟s share of NZ trade risen dramatically.
• Now NZ‟s second largest trading partner after
Australia.
• Raised NZ‟s terms of trade and net national
income.
• China‟s investment in NZ industries is still
relatively small.
• Is China the 21st century version of what
Great Britain was for NZ (and Australia)?
Terms of trade
140
China's Terms of Trade
130
NZ's Terms of Trade with China
120
110
100
90
80
70
60
1980
1985
1990
1995
2000
2005
2010
China’s Share of NZ’s Exports
and Imports
20
18
16
14
(%)
12
Imports
Exports
10
8
6
4
2
0
Year
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
Case Study: NZ Market for Dairy Products
SDairy
Price of
Dairy
a
DDairy
a
Quantity of Dairy
NZ Market for Dairy Products
after Emergence of China
SDairy
Price of
Dairy
c
b
a
DDairy
c
a
b
Quantity of Dairy
NZ Market for Manufacturing
after Emergence of China
SManufacturing
Price of
Manufacturing
a
c
b
DManufacturing
c
a
b
Quantity of Manufacturing
Future Implications for New Zealand
• Bringing global economic activity closer to NZ.
• NZ economy more sensitive to China and other
emerging Asian economies (Vietnam, Indonesia).
• Example is impact on NZ dairy and manufacturing
industries.
• Impact also on service sector: tourism and
education.
• Changing NZ‟s economic relationship with Australia.
Production Possibility Frontier
Dairy Products
a
Relative Price Line
PPFNZ
Manufactured Products
Terms of Trade and Production
after Emergence of China
New Relative Price Line
(rise in price of dairy products relative to
manufactured products)
Dairy Products
b
a
Relative Price Line
PPFNZ
Manufactured Products
Terms of Trade, Production and Trade
after Emergence of China
New Relative Price Line
(rise in price of dairy products relative to
manufactured products)
Dairy Products
Exported
b
a
Consumption
indifference curve
Relative Price Line
PPFNZ
Manufactured Products
Imported
Presentation
• China‟s remarkable economic transformation.
• China‟s pre-modernisation history.
• China‟s economic transformation process.
• Welcoming the forces of globalisation.
• Implications for New Zealand.
• Case study: Impact on NZ dairy and manufacturing
industries.
• How is VUW preparing students and business?
How is Victoria University preparing
students and business for this future?
• Global perspective.
• Victoria International Leadership programme VILP).
• Marketing and International Business programmes
and research have an Asia focus.
• New BNZ Professor in Business in Asia.
• School of Languages and Cultures.
• Confucius Institute.
• NZ Contemporary China Research Centre.
Further reading
•
Dikotter, Frank (2010), Mao’s Great Famine, London, Bloomsbury, 420.
•
Harvey, Martin (2005), “Neoliberalism „with Chinese characteristics‟”, Chapter 5 in A
Brief History of Neoliberalism, New York, Oxford University Press, 120 – 151.
•
Li, Hongbin, Lei Li, Binzhen Wu and Yanyan Xiong (2012), “The end of Cheap Chinese
Labor”, Journal of Economic Perspectives, 20 (4), 57-74.
•
Jacques, Martin (2009), When China Rules the World, London, Penguin Books, 812.
•
Mitter, Rana (2008), Modern China: A very short introduction, New York, Oxford
University Press, 153.
•
Wasserstrom, Jeffrey, N (2010), China in the 21st Century: What everyone needs to
know, London, Oxford University Press, 164.
•
Zhu, Xiaodong (2012) “Understanding China‟s Growth: Past, Present, and Future,
Journal of Economic Perspectives, 20 (4), 103-124.