Generally attribute much of China’s rapid economic growth to two main factors: large-scale capital investment which is financed by large domestic savings and foreign investment, and rapid productivity growth. Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. China has historically maintained a high rate of savings. When reforms were initiated in 1979, domestic savings as a percentage of GDP stood at 32%. However, most Chinese savings during this period were generated by the profits of SOEs, which were used by the central government for domestic investment. Economic reforms, which included the decentralization of economic production, led to substantial growth in Chinese household savings as well as corporate savings. As a result, China’s gross savings as a percentage of GDP is the highest among major economies. The large level of savings has enabled China to substantially boost domestic investment. In fact, China’s gross domestic savings levels far exceed its domestic investment levels, which have made China a large net global lender. The rapid growth of the Chinese economy has tendency to overtake the United States in the nearest future. The “actual” size of China’s is still arguable but measured in US dollars using nominal exchange rates, China’s GDP in 2013 was $9.5 trillion. According to the IMF.14, this was more than a half of the size of the U.S. economy. Many economists contend that using nominal exchange rates to convert Chinese data (or that of other countries) into U.S. dollars fails to reflect the true size of China’s economy and living standards relative to the United States. Nominal exchange rates simply reflect the prices of foreign currencies vis-à-vis the U.S. dollar and such measurements exclude differences in the prices for goods and services across countries.
Another important thing is a fact that China is the World’s biggest manufacturer. China has emerged as the world’s largest manufacturer according to the United Nations. In 2012, the value of China’s manufacturing on a gross value added basis was 28.2% higher than that in the United States. Manufacturing plays a considerably more important role in the Chinese economy than it does for the United States and Japan. In 2011, China’s gross valued added manufacturing was equal to 30.5% of GDP, compared to 12.3% for the United States and 18.7% for Japan.19 In its 2013 Global Manufacturing Competitiveness Index, Deloitte (an international consulting firm) ranked China first in manufacturing in 2013 and projected it would remain so in five years (the United States ranked third in 2013 and was projected to rank fifth in 2018). The report stated that “China’s competitiveness is bolstered by conducive policy environment either encouraging or directly funding investments in science and technology, employee education and infrastructure development,” and further stated that “the landscape for competitive manufacturing is in the midst of a massive power shift, in which twentieth-century manufacturing stalwarts like the United States, Germany and Japan will be challenged to maintain their competitive edge to emerging nations, including China.Future prospects and forecasts look positive for China. The continuous high growth of China’s economy and its growing impact to the outside world, especially to the neighboring region has increasingly received great attention.
PART 2.
Mongolia is the landlocked country, sandwiched between two powerful nations, Russia and China. Yet, Mongolia still has its power as it had during dominance of Mongol Empire in 13th century. In 2013, Mongolia was the second fastest growing economy in the world. In 2014, the Mongolian economy is expected to grow by a blistering 15.3%, and the IMF expects it to be the fastest growing economy in the world over the next decade. Mongolia has been called as Saudi Arabia of Asia, next Asian Tiger (Mongolian Wolf as preferred by Mongolians). An increasing natural resource and booming mining sector are the key players behind Mongolian Economic expansion and growth. And given Mongolia’s richness in natural resources and its economically strategic location next to China, the world’s biggest consumer of natural resources, there is every reason to state that economic boom is sustainable.
A rapidly increasing natural resource and booming mining sector is expected to make Mongolia’s the second fastest growing economy worldwide in 2013, building upon over a decade of rapid economic expansion. Relations between Mongolia and China haven’t been always good as it is today. Throughout history, there have been countless conflicts between Mongolia and China. In 1949, the first official diplomat relation has been made between Mongolia and China, and since then it continued to grow friendlier. Friendly cooperation agreement was approved in Ulaanbaatar in 1994 between the two countries. As of 1990, total trade turnover of Mongolia and China was 1.5 percent, and it rose to 53.0 percent in 2012. The biggest investor of Mongolia since 1990, is China with 3,650.9 million US dollars. This is actually 31.7 percent of total foreign direct investment since 1990. According to statistics, 93 percent of Mongolia’s export is China while 28 percent of total import is from China. China has become an increasingly important trade partner since 1990, accounting for 51.7% of Mongolian exports in 2001 and supplying 19.0% of its imports. Other important trading partners include Japan, South Korea and the European Union. Mongolia’s trade balance with China alone accounted for over 20 percent of GDP. Our main export products are mainly mining product and as for the import, fuel, food and consumer products are dominated in Mongolia’s import. China is responsible for almost half of both consumption of coal and industry of coal in the world market. This indicates that China has already become one of major player in this industry. While China imports only 8% of its coal from overseas, 43% of that now comes from Mongolia. Over 5,000 Chinese firms operate in Mongolia, with a combined investment of around $2.5 billion, 3with $1.4 billion invested by PetroChina. As of 2011, China has invested $ 700 million in Mongolia, and has increased by 3 times compared to 2005. However, about 70 percent of the investment is mainly in geology and investment in the mining sector. In 2010, the stock (total amount) of Chinese FDI accounted for $1.4 billion, or 32.4 percent of the total FDI stock in Mongolia. For that year, new Chinese FDI (flow) totaled $193 million, accounting for only 11.4 percent of Mongolia’s new FDI (flow). The potential for Mongolia to sate China’s coal appetite—particularly coking coal for steel production drives Chinese state-owned enterprise investments in this sector.
As early as 2005, 53percent of Chinese investment in Mongolia was in the mining industry, focused primarily on coal. While other international companies are entering the market, China remains a major player in Mongolia’s mining industry. However, it is worth noting that while China only imports 8 percent of its coal and produces the rest domestically, 43percent of these imports are from Mongolia. By mentioning all these statistics, it’s quite clear that correlation between Mongolian economy and Chinese economy is positive. It is safe to assume that Chinese economy has a huge impact on Mongolia and its economy. Just only by knowing trade balance between China and Mongolia is almost 20 percent on total GDP of Mongolia, anything happens to foreign trade with China, Mongolian economy will definitely be affected by it. Several econometrics analyses were conducted over past years to show existing relations between the two countries economy. According to latest research conducted by Central Bank of Mongolia, Chinese inflation has a positive relation with Mongolian inflation, negative with RMB/MNT exchange rate and has a positive relation with foreign trade deficit. (Source: Central Bank of Mongolia). According to highlight of this correlation analysis, inflation in China and increase our rate of inflation and the yuan / found little to reduce the currency. Since 2000 the Chinese industrial sectors, including machinery and equipment, the construction sector has grown rapidly, rising copper prices on the world market have a major impact on the economic growth of Mongolia. In times of crisis, our main export partner, China's domestic consumption of copper has decreased, both manufacturing sector growth and rate of economic growth has slowed down, and decline in copper prices on the world market have caused a decline in growth of the Mongolian economy. After the crisis, by the majority of coal exports of Mongolia were to China, and coal prices on the world market has raised, the economy of Mongolia’s largest foreign trade partner’s economy has recovered. Due to such factors, Mongolia’s economic growth was accounted for 17.5 percent in 2011. As Chinese inflation increases, inflation in Mongolia follows China and this effect has a tendency to counteract after 5 months. It is also obvious that if GDP and Inflation of China increase, then price of coal also increases. It can be explained by increased demand of coal in China. Evaluation of China’s economic growth trends has been observed to have a direct effect on Mongolian economy, and there are no other significant correlations between the indicators. To conclude, the problem is that Mongolian economy is not only mainly dependent on mining sector, but to have an only one buyer is more serious problem that Mongolia has faced for now. The fact that the majority of consumer products are imported from China, is important reason that commodity price in China has an impact on inflation in Mongolia. It is also very difficult for Mongolia to be not dependent due to Mongolian geographic location. Nevertheless, Mongolia is landlocked between two powerful nations; this might be an opportunity to establish a bridge between Russia and China, moreover, between Europe and East Asia.
Dulguun.G
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