Home' Trinidad and Tobago Guardian : April 26th 2015 Contents APRIL 26 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
ECONOMY | SBG5
estimate that FDI flows to China grew from
US$2 billion in 1985 to US$127 billion in 2013.
China has now become the world s second
largest destination for FDI flows, after the
FDI has brought with it new technology
and new processes, which boosted efficiency.
Productivity gains in China also came from
the reallocation of resources from formerly
heavily controlled sectors such as agriculture,
trade and services to the more productive agri-
China has perhaps the highest savings rate
among the world s major economies. Tradi-
tionally, household savings in China has aver-
aged more than 50 per cent of income com-
pared with less than 10 per cent in the US
and around 13 per cent in the European Union.
In addition to cultural factors, the high savings
rate among the Chinese is related to the absence
of formal social safety nets and limited credit
availability to the general population.
China s gross domestic savings levels have
so exceeded its domestic investment require-
ments, that over the past few years the Chinese
Government has actively sought to encourage
greater consumption and to promote capital
Growing FDI outflows
In the 1980s and 1990s, the Chinese Gov-
ernment focused on attracting FDI into China
to help boost the development of domestic
firms. In this period, investment by Chinese
firms abroad was sharply restricted. In 2000,
China s Government initiated a new "go global"
strategy, which sought to encourage Chinese
firms, especially state-owned enterprises, to
According to UN data, FDI outflows from
China rose from US$2.7 billion in 2002 to
US$101 billion in 2013.
China is now ranked as the third largest
source of FDI outflows, after the United States
Several factors seemed to have influenced
the drive to encourage more FDI flows. First,
there was the need to seek higher returns from
China s foreign investments, most of which
were invested in US treasury securities.
Second, the government wished to acquire
control of more natural resources (including
oil) in order to sustain China s rapid economic
Third, the government announced a goal of
developing globally competitive Chinese firms
with their own brands. Investing in foreign
firms, or acquiring them was viewed as one
method whereby Chinese firms could obtain
technology, management skills and interna-
tionally recognised brands.
International reserves holdings
China holds the world s biggest foreign cur-
rency (FX), which reserves currently stand at
US$3.9 trillion. US analysts surmise that a
major factor behind China s reserve build-up
is the persistent intervention in the exchange
markets that help keep the RMB undervalued.
While an official breakdown is not provided
by the Chinese authorities, it is rumored that
about two-thirds of China s reserve stock is
held in US treasury securities, making China
the largest foreign holder of Treasury secu-
Still seeking sustainability:
The new normal
The marked deceleration in rate of real GDP
growth since the 2008 global financial crisis
was discussed earlier. The main contributing
factor was the slowdown in export expansion,
which fell from an average of close to 30 per
cent per year in 2001-2008, to under 10 per
cent a year over the past three years.
The Chinese authorities seem reconciled to
a slower but more sustainable pace of economic
growth as the government shifts its focus to
rebalancing the economy and improving the
quality of growth. Analysts are referring to
the lower medium term growth target: seven
per cent a year, starting in 2015 as "the new
In a recent address to his Parliament, Chinese
Premier Li conceded that "the deep-seated
problems in China s economic development
were now becoming more obvious".
The Chinese Leader stressed the need for
re-balancing the economy, a strategy, which
he defined to include "seeking innovation-
driven development, strengthening the econ-
omy s foundations, seeking green development
and redoubling efforts to upgrade China from
being a manufacture of quantity to one of
Premier Li listed among the Government s
priorities for the next few years:
• Reforming the giant state-enterprise sector
and providing a greater role for private business
in the economy.
• Liberalising the banking system, currently
over-burdened by non-performing loans to
the state enterprise sector and local govern-
• Accelerating efforts to boost private con-
sumption so as to relieve the over-dependence
on export markets, along with concerted efforts
to cut out wasteful investment.
The Government s programme also includes
an intensification of the anti-corruption drive
and a vow to fight pollution, which Premier
Li referred to as "a blight on people s quality
of life and a trouble that weighs on their hearts."
Ewart Williams is an economist who
served two five-year terms as Governor of
the Central Bank of T&T between 2002
and 2012. For 30 years, before joining the
Central Bank, he worked at the International
Monetary Fund see story on page 13.
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