Week 6

SMU Classification: Restricted
ECON113: ECONOMICS OF GLOBALISATION

Week 6: Emerging Economies - China
Yuan MEI
2022 – 2023 Term 1
1
Midterm
• Week 7 during class time after the Q&A session
• Duration: one hour
• Format: written, closed-book exam

▪ Multiple-choice questions and true/false questions (same
as Wooclap quiz questions)
▪ Short-answer questions
• Wooclap questions and answers from Week 1 to Week 6 will

be uploaded onto Elearn this week
2
Recap from Last Week
• Smoot – Hawley
• GATT / WTO
• Regional trade liberalization
• US-China trade war
• Discussion question: What do you think of the US-China

trade war? Is it benefiting or hurting the interests of
Singapore and other Southeast Asian Countries?
3
Contents
• Economic history of modern China
▪ Centrally-planned economy
▪ Socialist marketing economy
• Some features of Chinese economy today

▪ State-Owned Enterprises
▪ Special economic zones
▪ E- Commerce and High-Tech Industry
• Challenges and Plans

▪ Emptying the Cage for the New Birds
▪ Huawei Controversy
▪ China Puzzle
▪ One Belt One Road
4
Some Basic Facts About China
• Size: 9.6 M km2 ( 13000 times larger than Singapore)
• Population:
▪ 1.4 B (2500 times larger than Singapore)
▪ 50 cities with more than 2 M population
• Ethnic groups:
▪ 91% Han, 55 minority groups
▪ Largest minority group: Zhuang
• Population in 2010: 17 M
• Most popular dialect: Wu

▪ Users in 2015: 80 M 5
Economic History of Modern China
• Mao’s Era (1949 – 1978)
• Reform and Opening-Up (1978 - )
6
GDP per Capita (current USD)
7
Mao’s Era
• Centrally planned economy with minimal trade (share of

world trade in 1977 is 0.6%)
• Major shifts in policies, usually accompanied with changes

in political power structure
▪ First five-year plan (1953 – 1957): industrialization with
the help from Soviet Union
▪ Great Leap Forward (1958 – 1960)

• People’s communes
▪ Focus on agriculture (1961 – 1965)
▪ Cultural revolution (1966 – 1976) 8

Great Leap Forward
9
Source: Wikipedia
Great Leap Forward
28 kg per square meter
world record in 2017:

1.72 kg per square meter
10
Source: Quora
International Trade in Mao’s Era
• Determined almost entirely by planning

▪ State Planning Commission’s import plan covered more
than 90 percent of all imports
▪ Similar plan for exports
• Trade plan executed by a handful of corporations

▪ Each typically dealt with a narrow range of commodities
• A significant share of China's exports consisted of goods for

which China did not enjoy a comparative advantage
▪ Significant quantities of capital-intensive goods
▪ Plan written in terms of quantities, so relative prices and
exchange rate played little role
11
Deng Xiaoping
Source: Washington Post

12
Let’s watch a video.
13
Reform and Opening-UP Era
• Under Deng Xiaoping’s rule China gradually transforms to a

socialist marketing economy
▪ Privatization
▪ Decentralization
▪ Opening-Up
▪ Special-economic zones
• “It doesn't matter whether a cat is black or white, as long as

it catches mice.”
14
Three Types of Enterprises in China
• State-owned enterprises (SOEs)

▪ Either directly controlled by State-owned Assets Supervision
and Administration Commission of the State Council
▪ Or the state is the controlling shareholder
• Private
• Foreign
▪ Wholly-foreign owned
▪ Joint-Venture
15
Automakers in China
Source: Xiao and Ju (2014)

16
SOEs in China
• In 1978, SOEs
▪ Employed nearly 80% of urban workers
▪ Contributed 78% of industrial output
• In 1990s, leaders of the Communist Party realized that SOEs

were very inefficient and private firms were the drivers of fast
economic growth
• SOE reform in 1990s: “Grasp the Large, Let Go of the Small”

▪ Large SOEs: corporatized
▪ Small SOEs: closed or privatized
• 2016: “Stronger, better and larger” SOEs

▪ raised concerns about the future of the private economy
17
SOEs in China: Profit Share
18
Special Economic Zones (SEZ)
• In 1978, China virtually had zero foreign direct investment

(FDI) and negligible foreign reserve
• SEZ was first proposed by Guangdong Province to attracted

FDI in 1979
▪ Skepticism from the central government
▪ Started as a small-scale experiment in four cities
• Shenzhen, Zhuhai, Xiamen, and Shantou
• Huge success, especially in Shenzhen

▪ Drastic increase in FDI
▪ Today: hundreds of technological development areas,
free-trade zones, and export processing zones
19
SEZ and FDI
Source: Xu (2011)
20
The China-Singapore Suzhou Industrial Park (SIP)

• DENG Xiaoping during his tour to Southern China in 1992 said:
“Singapore enjoys good social order and is well managed. We
should tap on their experience, and learn how to manage better than
them.”
• 1994: both governments decided to join hands in developing a

modern industrial park
• Poor performance in the first few years

▪ Ownership split was Singapore 65% China 35%
▪ Local officials more interested in their own similar project
• In 2001, the two sides agreed to swap majority stake.

21
Chongqing
Suzhou
Tianjin 22
International Trade
• Significant trade liberalization since joined WTO in 2001
• Currently world’s largest exporting country and second largest

importing country (behind the United States)
• In 2019, exports and imports constitute 19% and 17% of GDP,

respectively
• 2020Q2: China's share of global exports reached a record 20 percent
23
Exports as a share of global market
Source: Harvard Center for International Development 24

25
26
E – Commerce
• Taobao (淘宝): the world's biggest e-commerce website
• Over 617 M monthly active users as of March 2018
• Single-handedly transformed the Singles Day (11th Nov) to

China’s most popular commercial event
▪ 2009: RMB 50 million
▪ 2017: RMB 213.5 billion
• Future plan: global online-shopping platform

▪ Lazada.sg
27
Things on Taobao
28
Things on Taobao
29
Mobile Payment
Pearvideo.com
http://gd.ifeng.com/a/20190409/7357617_0.shtml
sina.com.cn/news/s/2018-10-15/detail-ifxeuwws4333598.shtml 30
Emptying the Cage for the New Birds
• First appeared in an official document written by WANG

Yang, the party secretary of Guangdong Province in 2008
• A industrial strategy to deal with

▪ Decreasing demand for Chinese exports after the
financial crisis
▪ Increasing competition from other developing countries
• Two components
▪ Relocate low value-added industries to in land regions
with cheaper labor
▪ Attract high value-added industries to the most
developed Pearl River Delta
31
Pearl River Delta
32
Foxconn
source: dw.com 33
Shenzhen-Made Smartphones in Africa
34
Firms in Shenzhen
35
Let’s watch a video.
36
Sales of Electric Vehicles
37
Some Popular EV Models in China
38
Huawei Controversy
• Some facts about the company

▪ Founded in 1987 by REN Zhengfei, a former technologist in
the army
▪ Main products: telecommunications equipment, cellphones,

other electronic devices
▪ Smart phone market share: 20% in 2020Q2 (1st in the world)
▪ 5G network equipment: considered one of the most advanced

along with Nokia and Ericsson
▪ 5405 patent applications in 2018 (1st in the world)

39
40
Source: https://www.theatlantic.com
Timeline
• Prior 2018: USA banned sale of Huawei cell phones through
network providers, but still used its network equipment
• Jan 2018: National security allegations surface again
• Dec 2018: Arrest of Huawei CFO MENG Wanzhou
• May 2019:
▪ US Commerce Department added Huawei to the “Entity List” –
that bans Huawei from buying parts and components from US
companies without US government approval
▪ Google and other hardware firms immediately suspended their
business with Huawei
41
Timeline
• May 2020: U.S. Commerce Department tightens export controls
▪ Commerce Secretary Wilbur Ross: ANY use of American
software or American fabrication equipment is banned and
requires a license
▪ Huawei CEO YU Chengdong: Huawei’s self-developed Kirin

chips will become a swan song
• September 14 2020: last day of supplying chipsets to Huawei
• Sep 2021: deal between Meng and US Department of Justice

▪ Meng admitted Huawei concealing its link to Skycom and
operating it in violation of US sanctions against Iran
▪ Allowed to formally deny her key charges and did not have to
pay a fine
42
43
China Puzzle
• Institution: refers to those basic and stable mechanisms that

govern the incentives of agents and coordinate activities in
major political and economic games.
• Conventional view: a set of institutions must be in place to

make markets function well
▪ Protect property rights
▪ Enforce contracts
▪ Separate from business
44
China Puzzle
• Xu (2011): “Chinese institutions in government, corporate

governance, law, and finance look notoriously weak.”
▪ Poor legal protection of property rights
▪ Poor corporate governance
▪ Lack of democratic accountability
▪ Absence of rule of law
• “This incredible contrast between ‘poor’ institutions and

China’s spectacular performance challenges our general
understanding of the mechanics of institutions and our
understanding of ‘institutional quality.’”
45
Corruption Perceptions Index, 2017
46
Regionally Decentralized Authoritarian Regime

• Regionally Decentralized Authoritarian (RDA) regime is characterized
by economic decentralization and political centralization
• Economic decentralization
▪ Subnational governments have influence or even direct control
rights over a substantial amount of resources
▪ Competition across regions for political incentives
• Quantifiable targets
• Innovative reform policies
• Political centralization
▪ Regional leaders directly appointed by upper-level government
▪ Constant reshuffling across regions
47
Governance Structure in China
Source: XU (2011) 48
One Belt One Road
• An initiative from China

▪ One Belt: Silk Road Economic Belt
▪ One Road: 21st Century Maritime Silk Road
• Aims to connect Asia, Africa and Europe, through Europe-Asia

continental roads as well as sea routes through the South China
Sea and Indian Ocean, promoting economic cooperation among
countries along those routes.
• The realization of this development strategy requires physical

infrastructure – roads, rail, ports and aviation – undergirded by a
strong financing framework
49
One Belt One Road
50
Source: https://ie.enterprisesg.gov.sg/
Worries
• Neocolonialism
▪ Sri Lanka gave China operating rights to the Hambantota
port for 99 years
• Projects funded by Silk Fund and Asian Infrastructure

Investment Bank (AIIB), both led by China
▪ Debt trap diplomacy
• Whether the money can actually be deployed wisely
51
Malaysia’s East Coast Rail Link

• A railway project connecting Port Klang on the Straits of
Malacca to Kota Bharu in northeast Peninsular Malaysia
• 2016: finance deal and construction agreement, valued at

USD13.1 billion, signed by the Malaysian Government and the
state-owned China Communications Construction Company Ltd
• Jan 2019: Malaysia will be "impoverished" if it continues with

the East Coast Rail Link (ECRL), said Prime Minister Mahathir
Mohamad
• Apr 2019: construction resumed after a new deal was achieved

▪ Cost down by one third
▪ China also agreed to a 50-50 joint venture
52
Quiz Time
https://www.wooclap.com/ECON113L6
After Class Discussion
• Discussion question: How should Singapore respond to the rise

of China and its One Belt One Road Initiative? Will it hurt the
welfare of Singaporeans?
• Please read this week’s supplementary materials on Elearn
• Discussion at the beginning of Week 9’s class
54

Week 6

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SMU Classification: Restricted

ECON113: ECONOMICS OF GLOBALISATION

2022 – 2023 Term 1

• Duration: one hour

• Format: written, closed-book exam

• Wooclap questions and answers from Week 1 to Week 6 will

Recap from Last Week

• Regional trade liberalization

• US-China trade war

• Discussion question: What do you think of the US-China

• Some features of Chinese economy today

• Challenges and Plans

Some Basic Facts About China

• Size: 9.6 M km2 ( 13000 times larger than Singapore)

• Most popular dialect: Wu

Economic History of Modern China

• Mao’s Era (1949 – 1978)

• Reform and Opening-Up (1978 - )

GDP per Capita (current USD)

• Centrally planned economy with minimal trade (share of

• Major shifts in policies, usually accompanied with changes

▪ Great Leap Forward (1958 – 1960)

▪ Focus on agriculture (1961 – 1965)

▪ Cultural revolution (1966 – 1976) 8

Great Leap Forward

Great Leap Forward

28 kg per square meter

world record in 2017:

International Trade in Mao’s Era

• Determined almost entirely by planning

• Trade plan executed by a handful of corporations

• A significant share of China's exports consisted of goods for

Source: Washington Post

Let’s watch a video.

Reform and Opening-UP Era

• Under Deng Xiaoping’s rule China gradually transforms to a

• “It doesn't matter whether a cat is black or white, as long as

Three Types of Enterprises in China

• State-owned enterprises (SOEs)

▪ Or the state is the controlling shareholder

Source: Xiao and Ju (2014)

• In 1990s, leaders of the Communist Party realized that SOEs

• SOE reform in 1990s: “Grasp the Large, Let Go of the Small”

• 2016: “Stronger, better and larger” SOEs

SOEs in China: Profit Share

Special Economic Zones (SEZ)

• In 1978, China virtually had zero foreign direct investment

• SEZ was first proposed by Guangdong Province to attracted

• Huge success, especially in Shenzhen

SEZ and FDI

The China-Singapore Suzhou Industrial Park (SIP)

• 1994: both governments decided to join hands in developing a

• Poor performance in the first few years

• In 2001, the two sides agreed to swap majority stake.

• Significant trade liberalization since joined WTO in 2001

• Currently world’s largest exporting country and second largest

• In 2019, exports and imports constitute 19% and 17% of GDP,

• 2020Q2: China's share of global exports reached a record 20 percent

Exports as a share of global market

Source: Harvard Center for International Development 24

• Taobao (淘宝): the world's biggest e-commerce website

• Over 617 M monthly active users as of March 2018