Financial Reform in China: Impact and Implications, Slides of Banking and Finance

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Financial Reform in China

(revisited)

Last year I concluded that the crisis… •would cause a slowdown in Chinese exports•cut foreign capital imports•have only a modest impact on Chinese banks, unlessasset prices weakened further, but•that it had raised serious doubts in China about thefuture direction of financial reform …so what has happened since?

In China, economic growth slowed,but by less than many feared

China’s quarterly GDP growth, % year-to-year, 2007-2009Note: Q3F and Q4Fin 2009 are forecasts.Source: The China Analyst, September 2009.

A large fiscal stimulus helped offsetdeclining overseas demand

Fiscal stimulus measures, average % of GDP,forecasts for 2009 - 2010 Source: The China Analyst, September 2009.

…with assessed competitivenesshigher than the rest

Competitiveness in BRIICS countries, points (Max = 100),2009 forecasts Source: The China Analyst, September 2009.

Over the last 30 years, the world’s economiccentre of gravity has drifted nearly 2,000kmeastwards…

Source: Quah D (2009): The shifting distribution of global economic activity. The movement of the world’s economic centre of gravity, thousand km, 1976-

….pulled by Chinese cities… Source: Grether JM, Mathys N (2008): Is the World’s Economic Center of GravityAlready in Asia?

Top 15 Cities according to Distance Growth Rate, % change (1975 – 2004)

…leaving Europe behind. Source: Grether JM, Mathys N (2008): Is the World’s Economic Center of GravityAlready in Asia?

Bottom 15 Cities according to Distance Growth Rate, % change (1975 – 2004)

Although we must be scepticalabout these figures Source: The Economist, Is China deliberately understating the size of its tradesurplus?, 5 September 2009.

China, Germany, and Japan have experiencedsharp declines in their current account surpluses

China’s goods trade balance, German and Japan’s current account balances,$ Billion, half-yearly, using 2008 exchange rates, 2006 – H1 2009

Source: McKinsey Global Institute, Global capital markets: Entering a new era,September 2009.

1 China does not publish quarterly current account statistics; however, the monthly goods trade statistics have historically

accounted for about 70% of China’s current account surplus.

China’s entire growth model pushes downthe consumption share of GDP

Source: McKinsey Global Institute, If you’ve got it, spend it: Unleashing theChinese consumer, August 2009.

China’s financial markets are large by emergingmarket, but small by developed market standards

Financial markets in comparison, % of GDP, 2008 Source: Deutsche Bank Research, China’s financial markets – a future globalforce?, 16 March 2009.

China is unusually dependent on bankintermediation

Source: McKinsey Global Institute, Global capital markets: Entering a new era,September 2009.

1 Compound annual growth rate using 2008 exchange rates.

Note: Some numbers do not sum due to rounding.

Financial assets by region, $ Trillion, %, 2008

China’s share of global stock andbond markets is small

Bank assets (2007), debt securities outstanding (2008), stock marketcapitalisation (2008), PRC and global total, $ Trillion and PRC % of totalSource: Deutsche Bank Research, China’s financial markets – a future globalforce?, 16 March 2009.