Free Essay

Paper Rifkinada Economic Comparative Analysis Between China Morocco

In: Other Topics

Submitted By RifkiNada
Words 6742
Pages 27
INTRODUCTION TO CHINESE ECONOMY AND POLICIES

A COMPARATIVE ANALYSIS BETWEEN THE MOROCCAN ECONOMY AND THE CHINESE ECONOMY

Submitted to: Dr. Prof. XU Tongsheng Submitted by: RIFKI Nada Graduate Student Master of International Business Date Submitted: December 2, 2014

JIANGXI UNIVERSITY OF FINANCE AND ECONOMICS
SCHOOL OF INTERNATIONAL TRADE AND ECONOMICS

Introduction The purpose of this essay is to present a comparison between the Moroccan economy and the Chinese economy in broad lines. The comparison will focus on the analysis of the economies sectors, their respective current account balances and the business environment in each of both countries.

Thesis Although both economies are quite different regarding their economy ’s structures and economic growth patterns, it is evident that the initiatives their respective governments took into joining the world’s trading system benefited their economies on the long run. The recent world crisis gave raise to new challenges for both the Moroccan and the Chinese economy and gave urge to restructure the structure of their nation’s economy.

Roadmap This essay is divided in three parts. The first two part, describe respectively the Moroccan and the Chinese economies. In the last third part, I will compare both economies in regards to the information given in the first and second parts. Describing each of these two economies –in the first and second parts, I will start by giving general information and an overview of the economy. Then I will more to give more insights on each sector of the Moroccan and Chinese economies. The comparative analysis that comes in the third part of this essay will follow the same model.

Analysis of Morocco’s Economy

1. General Information Region Income category Population GDP (PPP) GDP per capita Unemployment Inflation (CPI) FDI Inflow Public Debt Currency Languages Middle East & North Africa Lower middle income 1 32.5 million2 USD 171.2 billion with a 3% growth in 2012 and a 5-year compound annual growth of 4.4%2 USD 5,265 per capita2 8.8%2 1.3%2 USD 2.8 billion2 59.6% of GDP2 Moroccan Dirham (MAD) Arabic (official), Berber languages (Tamazight (official), Tachelhit, Tarifit), French (language of business, government, and diplomacy) Capital Major urban areas Urbanization Government type Legal System Rabat Casablanca, Rabat, Fes, Marrakech, Tangier and Agadir 57% of the total population3 Constitutional Monarchy with an elected parliament Mixed legal system between the French civil law and the Islamic law

2. Economy Overview During the 80’s, Morocco was heavily indebted due to the infrastructural investments the post-colonial Moroccan government started and the sharp drop of the prices of phosphate which represented its principal source of revenue. After pursuing a Structural Adjustment Plan overseen by the International Monetary Fund, characterized by drastic austerity measures and pro-market reforms privatizing almost all state-owned companies, the economy gradually gained a healthy state.3 The healthy and stable state of the economy and low inflation contributed to a steady economic growth since the new King Mohammed VI took over the throne in 1999. Who since then, triggered many structural reforms and sectoral strategies based on its proximity to Europe and low labor costs in the region in order to transform the structure of the economy and promote new products. Moving from traditional industries such as textiles –in which the Morocco’s competitiveness started to lag –to new industries, -principally aeronautics and automobiles – which are areas of innovation, drivers of growth and high added value products to tackle the chronic commercial deficit of the nation.4 Europe is Morocco’s principal trading partner with about 70% of the country’s commercial transactions. The recent economic crisis in the Euro zone translated into a slowdown of the
1 th

World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, Morocco (15 Edition). 6 p. 2 The Heritage Foundation in partnership with The Wall Street Journal, Index of Economic Freedom, 2014. 323 p. 3 Central Intelligence Agency, The World Factbook, 2014. 4 The African Development Bank, The Organization for Economic Co-operation and Development and The United Nations Development Programme, African Economic Outlook, Morocco, 2014. 3 p.

Moroccan economy starting from 2012. The 2011-2012 fuel prices crisis had serious repercussions on the economy and worsened the government budget and the current account deficit, as almost all the country’s fuel needs are imported and subsidized by the government. Since 2013, following the IMF recommendations the actual government is gradually reducing the fuel subsidies in order to reach limit it to 2 percent 5 of the GDP in the incoming years. The Moroccan economy is chronically dependant of agriculture (practically fishery and forestry) –which employs 45 percent of the economy’s labor force and accounts for only 15 percent of the GDP6 –and its large tourism industry. The four other key sectors of the economy are phosphates, textiles, apparel and subcomponents. Morocco’s competitiveness lays in the progress the economy made since the start of its industrial development strategies and infrastructures development related to these strategies. Especially the new Tanger-Med port –one of the largest ports on the Mediterranean and in Africa, the developing Free Trade Zone of Tangier –which is the center of the Moroccan automobile industry –and the Casablanca-Tangier high-speed rail line project connecting the major economic axes. To boost its export, Morocco signed a series of trade agreement. The most significant are the Bilateral Free Trade Agreement with the U.S. in 2006 and the Advanced Status Agreement with the European Union in 2008. But the structure of the Moroccan industry does not allow the economy to bear the profits of these trade agreements and lower its large trade deficit. In which for the most part accounts for the energy facture, although the government is planning to pursue more renewable energy to tackle this issue and is planning on producing 40 percent of the nation’s consumption by 2020.7 Although Morocco made remarkable progress in the recent two decades, high unemployment, high illiteracy in rural areas and poverty remain. With a 9 percent unemployment rate and 35.4 percent of unemployment among the urban youth, only half the population is economically active –lowest proportion among the emerging countries. Although, the wellbeing of the bottom of the 40 percent has remarkably increased in absolute and relative terms, high inequality still remains characterized by a Gini coefficient of 0.41. Worth mentioning that extreme poverty was almost eradicated in the recent decades (0.3 percent now), still 13.3 percent of the population make it just above the poverty line and a fifth of the population is fluctuating above and below the poverty line.5 The main challenges that Morocco faces are the need to sustain economic growth to create more jobs, improving the business environment by making it more dynamic and competitive in order to attract more foreign investment and boost the exports5, trigger more efficient reforms in the education, health and judiciary system and drastically change the costly subsidy program. 7 The new government is therefore expected to cut down on subsidies, reform the precarious pension system, encourage competitiveness through improving the quality of the services in the key sectors of the economy and create more jobs in a country with a relatively high fertility rate. 5 3. Agriculture and Fishery industries Agriculture Morocco is a self-sufficient country in regards to its domestic consumption except for sugar,
5 6 7

World Bank Group, Morocco Overview, 2014. http://www.worldbank.org/en/country/morocco/overview#1 The Heritage Foundation in partnership with The Wall Street Journal, Index of Economic Freedom, 2014. 323 p. Central Agency of Intelligence, The World Factbook, 2014.

grains, tea and coffee –more than 40% of the economy flour and grains consumption are imported from the U.S. and France.8 The country enjoys a temperate climate and adequate precipitation, and the entire country land is arable –except for the Western Sahara. Almost 43 percent of the arable land is principally dedicated to cereals, 3 percent to pulses, 7 percent to cotton, sugar cane, sugar beets and oilseeds, 2 percent to forage and 2 percent to vegetables. 8 Morocco is known for its high quality agricultural goods that are mainly exported to European countries, especially tomatoes, oranges, potatoes, olive oil, olives and argan oil.8 The contribution 20 percent contribution of the Agriculture sector to the economy’s GDP is shy compared to the load of workforce –45 percent of the total workforce –employed in the industry. The fact that the sector is still labor intensive shows that it still relies on traditional means of production and not enough modernized as shown in the Machinery usage data by the FAO.

Food and Agriculture Organization of the United Nations 9

Food and Agriculture Organization of the United Nations 9 It is worth noting that considerable efforts by the government have been made to enlarge the irrigated superficies in the country. In 2012 the total area equipped for irrigation increased by 16.55 percent compared to 1997.
8 9

Marokko Info, Agriculture and Fishery. http://www.marokko-info.nl/english/agriculture-and-fishery/ Food and Agriculture Organization of the United Nations, Country Profiles, Morocco, 2012. http://faostat.fao.org/CountryProfiles/Country_Profile/Direct.aspx?lang=en&area=143

Source: Food and Agriculture Organization of the United Nations9 The top commodity produced by Morocco is Wheat but it is only the seventh in terms of production value. While olives, which are the fifth top commodities produced in terms of volume, constituted the top one in terms of production value.

Source: Food and Agriculture Organization of the United Nations 9 The top two commodities in terms of value and volume produced by the Moroccan economy are tomatoes, tangerines, mandarins and clementines. Unfortunately, these commodities are of very low added value and do not benefit the economic structure neither the commercial balance of the economy.

Source: Food and Agriculture Organization of the United Nations 9 Fishery

Since the 30’s, the Fishery industry has been growing. Morocco is the biggest producer of the European sardine and the country benefits from its large coastline facing the Mediterranean and the Atlantic Sea in which the waters are rich in seafood especially on the Western Sahara coast. And coastal fishing represents around 86 percent of the total fishery industry. 8 The Fishery industry in Morocco consists mainly of Marine fishery, which constitutes 99 percent of the total fishery production. While the Inland fishery had experienced a growth of 250 percent since 1995 it still accounts for less than 1 percent of the total production. The total fishery production in 2010 was 33.73 percent higher than in 1995, an evolution that due to the increase of the marine production by 33.29 percent.

Source: Food and Agriculture Organization of the United Nations9 Even though the total fishery production only increased by 33 percent, the value of the export of the fishery products more than doubled since 1995 and this shows that there was a development in the food processing industry.

Source: Food and Agriculture Organization of the United Nations 9 4. Manufacturing Industry The Manufacturing sector represents less than 16 percent of the total GDP of the Moroccan economy. 10 The leading industries in the Moroccan economy are phosphate mining and processing –Morocco holds the largest phosphate reserves, food processing, leather goods, textiles, construction and automobile. 11

10 11

Macro Economy Meter, 2013. http://mecometer.com/infographic/morocco/manufacturing-statistics/ Encyclopedia of the Nations, Africa, Morocco, 2014. http://www.nationsencyclopedia.com/Africa/Morocco-INDUSTRY.html

Source: Macro Economy Meter10 Food processing industry accounts for most of the industrial production with 30.6 percent in 2012 of the total production. The main products from this industry that the economy exports are canned fish, fruits and wine.12 Textiles and clothing, which used to be a growing industry, represents for 9.7 percent. While machinery and transport equipment represents 4.7 percent. The latter is an industry that constitutes the focus of the latest government strategies regarding industrialization. The investments made by the government in infrastructures –such as the Tanger-Med port –and in facilitating business during the last decade helped the automobiles and the aeronautics sectors to give a strong performance. Thus, the 2013 strategy of the government is to boost the investment and expand the capacity of these two industries. This recent focus on high value-added export industries brings the Moroccan economy to be among the most attractive African countries for industrial foreign direct investment.12 5. Service Industry The service industry accounts for more than 50 percent of the Moroccan economy’s GDP. It is higher than the average of the Middle East North Africa Region which accounts for around 47 percent of the region’s GDP.

12

Oxford Business Group, Industry, Mining and Retail, The Report: Morocco 2014. http://www.oxfordbusinessgroup.com/morocco-2014/industry-mining-retail

Source: World Bank Group 13 Trade in services –the sum of total exports and imports in services relative to the DDP –fluctuated during the last decade between 22 percent and 26 percent. In 2012, trade in services accounted for slightly less than 25 percent of the total economy’s trade transactions. Again, it is relatively higher than the MENA region’s part of services in the trade balance –less than 20 percent during between 2005 and 2009.

Source: World Bank Group13 The service industry employs 35 percent 14 of the economy’s total labor force. Three fields constitute its top industries: Tourism, Telecom, IT Industry –especially IT Outsourcing (ITO) and Business Processing Outsourcing (BPO). Tourism represents the Major Service industry which is the economy’s largest source of foreign currency. The country is advertised as an exotic, safe and cheap destination for tourists. The sector is mainly dependant on Europe, with 80 percent 15 of the country’s tourists from the European Union.
13

World Bank Group, 2014. http://data.worldbank.org/indicator/NV.SRV.TETC.ZS/countries/MA-xq?display=graph 14 Focus Africa, Country at a Glance, Morocco, 2011. http://focusafrica.gov.in/Country_at_glance_Morocco.html 15 Hong Kong Trade Development Council, Emerging Markets, Morocco: Market Profile, 2012. http://emerging-markets-research.hktdc.com/business-news/article/Africa/Morocco-Market-Profile/mp/en/1/1X 000000/1X06NP1W.htm

Compared to many other African countries, the Moroccan IT and Telecom industries are quite developed. Morocco was the first North African country to install 3G network.14 Because of its low-cost French-speaking labor-force (also Spanish-speaking in the North of the country), Morocco became a destination for French and Spanish outsourcing business, the European Outsourcing Association (EOA) awarded the country the prize of the “Offshoring destination of the year”. The ITO and BPO constitute the biggest creators of jobs. In 2011, for instance, 52,000 jobs were created by the sector with USD 0.9 billion in output. 15 6. Current Account Balance The Current Account of the Moroccan economy is in deficit since the mid-2000’s. In terms of Moroccan Dirham –here using the Moroccan currency only to give an order of magnitudes to this trend, from 2011 up to 2014, the balance of the Current Account averaged a deficit in foreign revenues of MAD -5018.27 Million –reaching its best in 2002 with MAD 11.697 Million and its highest deficit in 2012 with MAD -28726.70 Million. 16

Source: Trading Economics16 In 2011, the Current Account deficit reached -7.98% of the GDP16. As we can see from the graph below, since the 2010, the deficit of the Current Account balance keeps on getting wider.

Source: Trading Economics16 The increase of the deficit through the last decade was first caused by the constant decrease in the international prices of phosphates and later worsened during the period of time in which the international prices of energy and food rose tremendously in addition of the world economic crisis that reached the Moroccan economy later in 2012 –due to the poor performance of the

16

Trading Economics, Morocco, Current Account Balance, 2011. http://www.tradingeconomics.com/morocco/current-account http://www.tradingeconomics.com/morocco/current-account-balance-percent-of-gdp-wb-data.html

agriculture sector during that year.17 7. Business Environment Typical Company Legal form: Société à Responsabilité Limitée (SARL) Paid in minimum capital requirement: MAD 0 City: Casablanca Start-up Capital: 10 times GNI per capita 18 Paying Taxes The total taxes paid by companies are up to 49.3 percent on average, the table 19 below summarizes the taxes rates applied to a typical company. Tax or mandatory contribution Corporate income tax Social security contributions Taxe sur les services communaux Vehicule tax Stamp Duty Social security contributions on employee Value added tax (VAT) Total Source: Doing Business 2015, World Bank Group
19

Statutory tax rate 30% 16% 10.5% MAD 8000 MAD 20/page 6.29% 20%

Tax base taxable profit Gross salaries 3%of fixed assets fixed fee number of pages in contract gross salaries Value added

Total tax rate (% of profit) 25.3% 22.7% 0.8% 0.5% 0 0 0 49.3%

On the ease of paying taxes, Morocco is ranked 66 th out of 189 countries. The country’s score reaches almost the regional average with a difference of 0.76 points, and is doing better than its neighbors in the MENA region (by 3.58 points, 18.85 points, 36.06 points and 59.98 points compared respectively to Tunisia, Egypt, Algeria and Mauritania) and even its European neighbors, Spain and France, with a difference of respectively 2.44 points and 5.57 points.
20

17

International Monetary Fund, Morocco-Program note, 2014. https://www.imf.org/external/np/country/notes/pdf/morocco.pdf 18 th World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, Morocco (15 Edition). 20 p 19 th World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, Morocco (15 Edition). 63 p 20 th World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, Morocco (15 Edition). 61 p.

Source: Doing Business 2015, World Bank Group 20 The government reforms regarding the taxation system and the electronic filling and payment system of the corporate tax and the value added tax in the recent two decades played a major role in improving its ranking. Trading Across Borders On how easy it is for a company established in Morocco to Import or Export Goods, Morocco ranks 31st out of 189 economies. The economy’s score is high above the regional average score (with a difference of 14.49 points) and higher than its neighbors’ scores in the MENA region (by 4.28 points, 13.08 points, 20.43 points and 29.15 points compared respectively to Tunisia, Egypt, Algeria and Mauritania). The country scores 0.04 points lower than Spain and 5.54 points lower than France. Morocco owes its good score to the significant reduction of the administrative burden especially regarding the number of export documents required. 21

21

World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, Morocco (15 Edition). 65-66 p.

th

Source: Doing Business 2015, World Bank Group 21

Analysis of China’s Economy

1. General Information Region Income category Population GDP (PPP) GDP per capita Unemployment Inflation (CPI) FDI Inflow Public Debt: 22.8% of GDP21 Languages Capital Major urban areas Urbanization Government type Legal System East Asia & Pacific Upper middle income 22 1,354.0 million23 USD 12.4 trillion with a 7.8% growth in 2012 and a 5-year compound annual growth of 9.3%21 USD 9,162 per capita21 4.1%21 2.7%21 USD 121.1 billion21 Currency: Renmenbi (RMB) Mainly Mandarin (official language) and Cantonese. Beijing Shanghai, Beijing, Guangzhou, Shenzhen, Chongqing and Wuhan 50.6% of the total population24 Communist state Civil law influenced by the Soviet and European law systems.21

2. Economy Overview After the Cultural Revolution led by Mao Zedong and since the late 70’s when Deng Xiaoping started introducing market reforms to the Chinese economy, the country moved gradually through the last three decades from a closed –centrally planned economy to a market-oriented economy. To undertake this transition, the reforms that have been undertaken can be summarized as following:       Phasing out of collectivized agriculture, gradual liberalization of prices, fiscal decentralization increased autonomy for state enterprises, growth of the private sector, development of the stock markets,

 modern banking system, and  opening to foreign trade and investment.24 The gains in efficiency acquired through this restructuration of the Chinese economy since 1978 and its growing integration in the world trading and financial systems enabled the GDP to multiply by more than a tenfold. Now, the Chinese economy plays a major role in the world economy and is the world’s largest exporter since 2010 and second largest economy after the U.S. since 2013 –In 2011, the Chinese economy surpassed Japan’s economy.24
22

World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, China (15 Edition). 6 p. 23 The Heritage Foundation in partnership with The Wall Street Journal, Index of Economic Freedom, 2014. 159 p. 24 Central Intelligence Agency, The World Factbook, 2014.

th

But China would have to face a slow in economic growth if it does not address the following issues:    Debit overhang of its provinces’ governments due to the credit fueled stimulus programs; Industrial overcapacity; Inefficient allocation of capital by the state-owned banks because of the influence of Guanxi;

 Slow recovery of China’s trading partners. Yet China is still a developing country, accounting of the fact that its per capita income is still below the world average per capita income and that there are many more market reforms and economy restructuration that the government still have to undertake. There are many challenges that the Chinese government needs to tackle in order to sustain economic growth and development. The recent economic crisis that took over the world proved to the Chinese economy that it cannot rely anymore on only its export to drive economic growth and needs to lower its high saving rate in parallel to encouraging domestic consumption. With millions of rural migrants moving to the economically developed and developing cities in China every year –250 million in 2011, it is important for the Chinese government to accelerate the development of inner China, to facilitate high-wage opportunities for the middle-class and raise the number of college graduates. Corruption is widespread in China and it constitutes a real challenges not only to the business environment but also to a more integrated and harmonious society. The rapid high economic growth that China experienced in the recent gave raise to high inequality and alarming environment damage –air pollution, soil erosion and scarce water table –that the government needs to contain. Poverty constitutes a serious issue with about 98.99 million people living below the national poverty line (RMB 2,300), China has the second largest number of poor after India. 25 Another problem that China is facing is demographic. Due to the one-child policy, China is now one of the most rapidly aging societies in the world. As any other country in the world, China has also to address energy efficiency by seeking other energy sources such as nuclear energy and develop other alternative energy sources other than coal and oil. In order to address all these issues and also sustain a healthy economic growth. The Chinese government adopted in March 2011 the 12 th Five-Year Plan and reiterated it at the Communist Party’s 3rd plenum meeting in November 2013.26 The goal of this structural strategy is to improve the quality of life rather than a rapid path of growth as it only relies on a 7 percent economic growth rate contrasting with the double digit economic growth China has experienced in the past decade before the world economic crisis. The Five-Year Plan emphasizes on continued economic reforms and on increasing domestic consumption in order to become less dependent of fixed investment by the local governments, the exports and heavy industries that degrade the country’s environment.25 3. Agriculture Industry The share of the Agriculture sector is around 10.1 percent of the GDP in 201227. In 2011, the
25 26 27

World Bank Group, China Overview, 2014. http://www.worldbank.org/en/country/china/overview#1 Central Agency of Intelligence, The World Factbook, 2014. Economy Watch, Economic Structure of China, 2013.

primary sector employed 37 percent of the total labor force of the economy. While it was a few more points higher in the 90’s, one can easily conclude that this decrease of the agriculture sector share in the economy’s output is due to the massive industrialization the economy experienced in the last decades.

Source: International Trade Center 28

Source: Food and Agriculture Organization of the United Nations29 Since 1997, the total area equipped for irrigation increased by 29.59 percent. The second table below also shows us that there was a very significant increase in machinery usage since the decentralization of the agriculture. Since 1985, the usage of harvester and threshers increased by 559.26 percent and the usage of agricultural tractors developed by 11.25 percent.

Source: Food and Agriculture Organization of the United Nations 29 http://www.economywatch.com/world_economy/china/structure-of-economy.html 28 International Trade Center, China Services Sector Analysis, 2011. http://www.intracen.org/uploadedFiles/intracenorg/Content/Exporters/Sectors/Service_exports/Trade_in_servic es/China_ServicesBrief.pdf 29 Food and Agriculture Organization of the United Nations, Country Profiles, China, 2012. http://faostat.fao.org/CountryProfiles/Country_Profile/Direct.aspx?lang=en&area=351

Source: Food and Agriculture Organization of the United Nations29 Even though only 14 percent of the total country land is used for arable and permanent crops, China is the world’s largest producer of agricultural products.27

Source: Food and Agriculture Organization of the United Nations 29 Considering the share of Food in China’s Imports in the graph below, we can conclude that economy produces enough agriculture commodities to satisfy its domestic needs. Even though China is the world’s largest producer of agricultural products, these commodities are mainly for domestic consumption as food represents an insignificant part of the economy ’s exports.

Source: Food and Agriculture Organization of the United Nations 29 As mentioned above, China is the world’s largest producer of agricultural products. The Economy is ranked first in the production of rice, wheat, potatoes, sorghum, peanuts, tea, millet, barley, cotton, oilseed, pork, and fish.27 Of the total cultivated land 75 percent is used for producing crops. Rice is the most important food crop and wheat is the second most important in terms of production volumes. Potatoes, Oil seeds and Tea are also among the major agricultural commodities produced by China. Oil seeds and Tea are also a source of export revenues. 30 It is worth mentioning that the fisheries and aquaculture production increased by 78.82 percent since 1995. The obvious reason for this significant increase is the development of the economy ’s fishery equipment.

Source: Food and Agriculture Organization of the United Nations 29 4. Manufacturing Industry The Industrial sector of the “World’s Factory” represents 47 percent of the total economy’s output and employs 29 percent of the available work force.
30

Economy Watch, China Agriculture, 2010. http://www.economywatch.com/agriculture/country-wide/china.html

Source: International Trade Center28 The graph below shows that the share of the manufacturing sector has slowly diminished through the last years. This is due of the rapid catch-up of the tertiary sector.

Source: Trading Economics 31 The State-Owned Enterprises (SOEs) used to play a major role in the beginning of the industrialization of the Chinese economy. 35 years ago, SOEs used to account for 77.6 percent of the industrial output, while they represent now 46 percent of the manufacturing sector. But we should make no mistake, SOEs still play a major role in the economy and in 2012, 65 SOEs made it to the 500 Fortune Global list 31. The main compounds of the Chinese manufacturing sector are: mining, ore processing, iron, steel, aluminum, coal, machine building, armaments, textiles and apparel, petroleum, cement, chemicals, fertilizers, consumer products –including toys, footwear and electronic, food processing, transportation equipment, and telecommunication equipment. 5. Service Industry The tertiary sector accounts for 43 percent of the Chinese economy total GDP and employs 34 percent of the Chinese total labor force. It is the third largest service industry following the U.S. and the Japanese service industry31. The service industry is catching up quickly with the Manufacturing sector, since the early 90’s, the share of the sector doubled in the last two decades.

31

Trading Economics, China Industrial Production, 2014. http://www.tradingeconomics.com/china/industrial-production

Source: International Trade Center28

Source: Investopedia32 Its major components are:  Wholesale and retail trades with 10 percent of the total GDP;  Real estate (6 percent);    Finance services (6 percent); Transport, storage and post (5 percent); And Hotel and catering services (2 percent).32

Considering the fact that the service sector is the most labor-intensive industry, it would create faster more job with higher wages encouraging the domestic consumption which will help the Chinese economy to break its dependency from the exports. The government is very well aware of these fact, thus, the communist party through the 5-Year Plan is encouraging companies which operates in services and in trade in services. Also, the Internationalization of the Renminbi would greatly develop the financial and banking industry of the Chinese economy. It is predicted that in 2016, the Mainland China stock market would become the third biggest in the World (Shanghai stock exchange market and Shenzhen stock exchange market).31 6. Current Account Balance
32

BAIPAI Prableen, China's GDP Examined: A Service-Sector Surge, Investopedia, 2014. http://www.investopedia.com/articles/investing/103114/chinas-gdp-examined-servicesector-surge.asp

China’s Current Account Balance has experienced a perpetual positive trend the last decades. After reaching its peak during the second half of the 2000’s, the balance sold started to experience a slower increase compared to its fast pace before the world economic crisis.

Source: Trading Economics 33 7. Business Environment Typical Company Legal form: Limited Liability Company Paid in minimum capital requirement: CNY 0 City: Shanghai, Beijing Start-up Capital: 10 times GNI per capita 34 Paying Taxes The total taxes paid by companies are up to 64.6 percent on average, the tables 35 below summarize the taxes applied to a typical company in Shanghai and Beijing respectively. Shanghai: Tax or mandatory contribution Employer paid – Social security and housing fund contributions Corporate income tax Urban maintenance tax Education surcharge Stamp Duty Real estate tax Levies for construction and maintenance of river projects
33 34

Statutory tax rate 35%+7% 25% 7% 3% 0.03% 1.2% 1%

Tax base gross salaries taxable profits value added tax and business tax value added tax and business tax transactions 80% building value value added tax and business tax

Total tax rate (% of profit) 49.1% 7.3% 3.5% 1.5% 1% 1% 0.5%

Trading Economics, China Current Account, 2014. http://www.tradingeconomics.com/china/current-account th World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, China (15 Edition). 21 p. 35 th World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, China (15 Edition). 84-86 p.

Business tax Land use tax Value added tax (VAT) Employee paid – Social security and housing fund contributions Total

5% RMB 6 per square meter 17% 10.5%+7%

capital gain land area value added gross salaries

0.5% 0.1% 0% 0% 64.5%

Source: Doing Business 2015, World Bank Group Beijing: Tax or mandatory contribution Employer paid – Social security and housing fund contributions Corporate income tax Urban maintenance tax Education surcharge Stamp Duty Real estate tax Business tax Land use tax Employee paid – Social security and housing fund contributions Value added tax (VAT) Total Source: Doing Business 2015, World Bank Group

35

Statutory tax rate 32%+12% 25% 7% 3% 0.03% 1.2% 5% RMB 12 per square meter 10.2%+12% 17%
35

Tax base gross salaries taxable profits value added tax and business tax value added tax and business tax transactions 80% building value capital gain land area gross salaries value added

Total tax rate (% of profit) 49.1% 7.3% 3.5% 1.5% 1% 0.8% 0.5% 0.3% 0%

64.6%

Regarding the ease of paying taxes, China rank is 120 th out of 189 economies. The country’s score is 6.8 points below the regional average score. But it is doing better than India by 11.91 points and slightly better than Japan by a quarter of a point. The United States and the Russian Federation are scoring respectively 13.4 points and 13.19 better. 36

36

World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, China (15 Edition). 82 p.

th

Source: Doing Business 2015, World Bank Group 36 The new Corporate Tax Law in 2011, which unified the tax regimes for domestic and foreign companies and clarified the calculation of the taxable income for corporate income, and the efforts made in enhancing the electronic system of filling and payment of taxes improved China’s position in the recent decade regarding the ease of paying taxes. 37 Trading Across Borders China’s economy ranks 98th out of 189 countries on the ease of trading across borders. The country’s score is slightly below the regional average with a difference of 1.88 points. Although China scores lower than the United States and Japan (by respectively 16.57 points and 15.55 points), the country is doing better than India and the Russian Federation with respectively a difference of 6.21 points and 18.1 points. 38

37

World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, China (15 Edition). 83 p. 38 th World Bank Group, 2014. Doing Business 2015, Going Beyond Efficiency, Economy Profile 2015, China (15 Edition). 88 p

th

Source: Doing Business 2015, World Bank Group 38

Comparison between the Moroccan and the Chinese Economy

1. General Information Comparison Indicator Income category Population GDP Morocco lower middle income 32.5 million USD 171.2 billion / 3% growth in 2012 / 4.4% 5-year compound annual growth GDP per capita Unemployment Inflation FDI inflow Public Debt Urbanization Government type USD 5,265 8.8% 1.3% USD 2.8 billion 59.6% GDP 57% of the total population Constitutional Monarchy with an elected parliament Legal system Mixed System Soviet and European inspired Civil Law between the French Civil Law and the Islamic Law China upper middle income 1,354 million USD 12.4 trillion / 7.8% growth in 2012 / 9.3% 5-year compound annual growth USD 9,162 4.1% 2.7% USD 121.billion 22.8% GDP 50.6% of the total population Communist state

Morocco and China both belong to the middle income countries’ club. However, there is a gap between the two economies. Morocco belongs to the lower middle income category while China belongs to the Upper middle income category. The gap can be seen in the difference between the two countries GDP per capita –with a difference of USD 3,897 GDP per capita. Morocco’s unemployment rate is 4.7 points higher that China’s unemployment rate. On the other hand, the annual growth in 2012 and the 5-year compound annual growth are respectively 4.8 points and 4.9 points lower in Morocco than in China. We can notice that the differences between these aggregates are of a coefficient of two. The traditional correlation between GDP growth and job creation helps us to conclude that the difference between the unemployment rates of the two economies is due to the pace in which the Chinese economy is twice more fast in creating jobs than the Moroccan economy. 2. Economy Overview Comparison Both economies were able to trigger economic growth since the 80’s only after integrating the world economy, opening their markets and operate a less regulated economy. The structural reforms that both countries undertook gave positive long-term benefits to both economy but in a higher extent to the Chinese economy. However, now both economies need to change the structure of their economies. The recent economic crisis showed the limits of the present models. Morocco needs to be less dependent of the tourism and phosphates revenues and the performance of the agriculture sector by

developing the economy’s service sector with less fluctuating fields such as the IT and telecoms and the industrial sector by encouraging manufacturing fields that give a higher output per product. China also needs to keep on encouraging its service sector in catching up with the economy’s industrial field, as the country cannot keep on depending on the external demand and such damaging heavy industries. The challenges that face the Moroccan and the Chinese economy are more or less the same. Both countries need to develop alternative energy sources to cope with the increase of international energy prices, and both need to take more measures towards corruption, education and health system and poverty –to a higher extend regarding China. But Morocco’s most imperative challenge is to reduce its public subsidies, while China needs to keep on encouraging the domestic demand and the decrease of its high domestic saving rate. 3. Agriculture Industry Both economies are able to support their domestic needs in terms of food supply. The main difference that one can observe is the fact that the Moroccan economy is by far more dependant of the performance of the primary sector than the Chinese economy to reach a decent economic and trade performance. 4. Manufacturing Industry The share of the manufacturing industry in the economy of China is significantly larger than Morocco’s manufacturing sector share of the GDP -47 percent compared to 16 percent. Not only the Chinese industrial sector occupies a larger proportion of the GDP but is also more developed than the Moroccan industrial sector. Considering the main compounds of each economy’s manufacturing sector, we can observe that the Chinese economy relies more on heavy industrial activities while the Moroccan manufacturing industry still relies on low value-added products. 5. Service Industry While the Moroccan service industry accounts by 7 points in the economy more than in the Chinese economy –50 percent compared to 43 percent for China, the share of the Chinese service sector is by far larger in the World economy. The main compounds of each of both economy show us that the Chinese service sector is more focused on the domestic demand while, on the other hand, the Moroccan service industry is very dependant of the foreign demand –mainly tourism and offshore. 6. Current Account The Current Account of the Moroccan economy and the Chinese economy are indeed greatly different. The Sold of the Moroccan Current Account has been experiencing a constant and chronic deficit while the Chinese Current Account –despite the world economic recession –is still well-performing. This indeed shows that the structure of a country’s economy plays a crucial role in drawing foreign revenues. 7. Business Environment The Moroccan Business Environment is relatively more attractive than the Chinese Business Environment. The average total taxes paid by a typical company is 15.3 points higher in China than in Morocco – with respective average taxes of 49.3 percent in Morocco and 64.6 percent in

China. It is also easier to pay taxes and to trade across borders in Morocco. The Moroccan economy stands respectively for each of these indicators 66 th and 31st while China is ranked 120 th and 98th with a difference of 54 ranks and 67 ranks respectively to each indicator. 8. Conclusion It is indeed a hard to draw conclusions from comparing two countries with very different demographic and economic structures, but also different economic systems and geopolitical variables operating through the last decades in the country. But the comparison of China and Morocco’s economies allows us to see that economies can benefit on the long term through opening their markets and reducing trade barriers. We can agree that in both countries, the governing systems are very different from the standard emerging country political system. Which allow us to see that there are no perfect governance and development model, each country should seek a system that suits the best its cultural and demographic features.

Similar Documents