DIFFERENCE OF TWO
ECONOMIES
CHINA <> AMERICA
Members
Damar
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Chayaporn
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My
Hanh
Binh
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OUTLINE
I. Introduction
II. China
-Government Policy
-Investment in China
III. United States
-House Bubble
- Collapse of house bubble and effects on economy
-Deflation
IV. Difference between China and United States
V. Conclusion
CHINA
China Government Policy
Mao Zedong (Chairman of the People's Republic of
China 1954-1959): Communism
Past 1978-end of the’90s
• Socialism
• Private Company
• Turn away from
Interventionist industrial
Policy
Present end of the’90s-2010
• Socialism
• State-Owned Company
• Interventionist industrial
Policy
Investment in China
Advantages
• Wealthy
• Cheap material, labor cost
• Population: 1.3 billion
Disadvantages
• Poverty
• Conservative thinking
• Connection factor
• Tricky
UNITED STATES
Investment booms in America in 1990s
The Internet explosion: The period of
tremendous growth of the Internet in the
latter half of the 1990s. In the 1994-1996
time frame, it changed from a scientific and
governmental research network to a
commercial and consumer marketplace.

Real estate: The real estate market changed its
direction markedly around 1990, from a booming
market to a market in the doldrums for the better
part of a decade, and then the market started
accelerating upwards at increasing rates.
The national home price boom since the late 1990s
appears unprecedented in US history, although the
“baby boom” in housing of the late 1940s and early
1950s comes close, and there have been some very
large local boom
United States Housing Bubble
The Collapse of Housing Bubble
Causes:
-
The crash of subprime lending market (subprime
mortgages): When the interest rates started to raise,
people stopped buying house.
-
The financial mania ran its course, buyers become
scarer. The buyer pool was seriously depleted leaving
prices artifically high levels. When the abundance of
sellers became greater than the number of available
buyers qualifying for financing, prices began to fall.
Results:
-
Banks were awash in debts
-
A large amount of companies faced forclosure. Even
the companies that did not foreclose suffered losses
that amounted to billions of dollars.,
-
People cut spending, shrinked sales for businesses
and prompted layoffs.
Effects on Economy
 The
result
of
the
collapse
of
American housing price:
+ Homeowner: shrinking sales for
businesses and prompting layoff.
+
Vital signs weaken: plunging
home sales, a bleak job market,
the quarterly rate of economic
growth had slowed – to 1.6%
 fears of a second recession are
growing despite an aggressive
regimen of treatments
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Effects on Economy
• The government policy makers cannot deliver
meaningful intervention , because any proposed
curative can risk adding to national debt:
 the dramatic expansion of the debt make the
people fear that the creditors (like China and
Japan) might demand sharply higher interest rate
to finance American spending
 The rate inflicts inflation or rising prices
Reasons:
1. The rate : Merchants loose
faith in the sanctity of
dollar and demand more
dollars in exchange for oil,
electronics and other
items
2. Investors: loose faith in real
estate and stocks 
flooding into government
saving bonds  interest
rate low
JAPAN
Japan’s years of pain were made worse by
deflation:
Deflation  a sustained, broad drop discourages
business from investing and hiring  Less work
and lower wage  less spending power 
reinforce a predilection against hiring and
investing
===> a downward spiral
Germany
• Has long harbored particularly powerful fears
of inflation
• Germany has done well in the current
downturn without large stimulus spending
• Germans had 2 advantages over Americans:
+ a more extensive social safety net to give
consumers more money
+ a vibrant manufacturing base to churn out
more goods for export
From above situation =>>>>The
growing impression of weakening
economy combined with a dearth of
policy options has made one country
fall in to trouble
American now: trouble began when a
speculative real estate frenzy ended,
leaving banks awash in debts. The
crisis was deepened by indecisive
policy
+ the trajectory of prices is leading to
fears of deflation
American’s solutions
to attack deflation:
• The primary way: inject credit into the economy, giving reluctant
consumers the ability to spend
• The Fed adjust a benchmark overnight rate for banks, has kept its
target rate near zero
• The Fed also relieved American banks of trouble investments,
many linked to mortgages, to give the banks room to make new
loans
Result
• 1. The good result:
The Fed has been confronting the possibility of
another depression.
• 2. The bad one:
+The Fed added to the nation’s debts
+ following the economists: that’s the wrong
medicine for the American economy – take
the medicine and stave off the lethal threat,
the deal with the collateral problems
DIFFERENCES
AMERICA
 An ailing economy.
 Inflation or Deflation.
 National debt.
CHINA
o An ailing economy.
o Inflation or Deflation.
o State firms
o Lack of control by
government
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 Uncertainty reigns on
Wall street.
China’s change
•
China’s state-run companies runs again (pump the public money
into companies that it expects to upgrade the industrial base and
employ more people).
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China’s change
 Enhance government control
over some parts of the
economy.
 Become the world’s secondlargest economy this year
(their own more statist
approach to economy
management, the socialist
system’s advantages).
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China’s change
 Enhance government control over some parts of
the economy.
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China’s change

Major industrial policy(dismantled great
sections which are being partly undone
in the first 20 years from 1978 to 90s).

Less attuned to the interest of
foreign investors and China’s own
private sector the earlier generation
(economy reforms).
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China’s change
 4 trillion renminbi ($588) stimulus
package (china pumped out for new
highways, railroads and other big
projects went to state-owned
companies.)
 Huge expansion of the government role
in the corporate sector in 2009 (set up
8000 state-owned investment
companies,EX: chinese auto maker).
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China’s achievement
 State control of energy supplies is crucial to
china’s growth (taking over coal price, fuel).
 State companies keep government contract
for roads and bridges, finance and even
military.
 Top-down strategy (state control of vast ereas
of the economy will generate china’s growth.)
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