Economy of China


In the late 1978s, the Chinese leadership has been reforming the economy from a Soviet-style centrally planned economy to a more market-oriented economy that is still within a rigid political structure under Party control. The reforms replaced collectivization with privatization of farmlands, amplified the responsibility of local authorities and industry managers, permitted a wide variety of small-scale enterprises to flourish, and promoted foreign investment. Price controls were also relaxed. The economy changed from a centrally designed system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy.

The gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment are the roads taken by China to further its development. Finally, China also became a member of the World Trade Organization in 2001. Her appointment surely presents the world trading system with opportunities, but also poses the challenge of integrating a market with strong structural, behavioral and cultural constraints.

The reformation of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Appraised on a purchasing power parity (PPP) basis, China in 2006 became the fourth largest economy in the world by exchange rate and stood as the second-largest economy in the world after the US at US$ 8,158 trillion, but it gives an average GDP per person of only an estimated US$ 8,000, about one-fifth that of the US with 130 million Chinese still under international poverty lines.

The government emphasizes on personal income and consumption by introducing new management systems to help increase output. The government also focuses on foreign trade as a major medium for economic growth, which led to 5 Special Economic Zones (SEZ: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan Province) where investment laws are relaxed so as to attract foreign capital. Since the 1990s, similar concepts have been extended to major Chinese cities, including Shanghai and Beijing . The consequence has been a 6-fold increase of GDP since 1978. Chinese economic development is among the fastest in the world, and has been rising at an average annual GDP rate of 9.4% for the past 25 years.

China has gradually implemented reforms in a piecemeal fashion. Sale of equity by China's largest state banks to foreign investors and refinements in foreign exchange and bond markets in 2005 was a welcome move in the economic sector. On July 21, 2005 the People's Bank of China announced that it would move to a floating peg, allowing its currency to move against the US dollar by 0.3% a day, while 3% a day against other currencies. Many up-to-the-minute American companies have difficulty exporting to China due to US federal government limitations which exacerbated the trade gap between the PRC and the US, and perceived low quality of US goods. On the other hand, China runs a trade deficit with Taiwan and South Korea, importing more than exporting. China runs a large but diminishing trade surplus with Japan.

Economic development has gradually been quicker in coastal provinces than in the interior, and there are large disparities in per capita income between regions. The government has struggled to:

  • Sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force;
  • Reduce corruption and other economic crimes; and
  • Contain environmental damage and social strife related to the economy's rapid transformation.

There has been a momentous rise in the Chinese standard of living in recent years. Today, a rapidly declining 10 percent of the Chinese population is below the poverty line. 98.9 percent of the youth population is literate, compared to 69.9 percent in the 1980s. The life expectancy in China is the third highest in East-Asia, after Japan and South Korea. There is a big wealth disparity between the coastal regions and the remainder of the country. To oppose this potentially destabilizing problem, the government has initiated the China Western Development strategy (2000), the Revitalize Northeast China initiative (2003), and the Rise of Central China Policy (2004), which are all aimed at helping the interior of China to catch up.

China is now undergoing major reforms in its financial sector, which has been plagued by non-performing loans released in 1980s and early 1990s to incompetent state-owned enterprises. The government has spent five years and more than US$ 400 billion cleaning bad loans off the books of the big four state-owned banks, helping prepare them to become shareholder corporations. By the end of 2006, China had modernized three of its four largest banks and listed them publicly. China's largest bank, the Industrial and Commercial Bank of China (ICBC) in October 2006 raised US$ 21.6 billion in the world's largest initial public offering (IPO) in history. ICBC is now the world's second largest bank in market value, after only Citibank. These highly thriving IPOs have helped ease the government's burden and spur further structural reforms in China's nascent banking industry.

The 11th Five-Year Program (2006-10), accepted by the National People's Congress in March 2006 , calls for a 20 percent reduction in energy consumption per unit of GDP by 2010 and an estimated 45 percent increase in GDP by 2010. The plan states that conserving resources and protecting the environment are vital goals, but it lacks details on the policies and reforms essential to achieve these goals.

  • GDP (purchasing power parity): $10 trillion (2006 est.)
  • GDP (official exchange rate): $2.512 trillion (2006 est.)
  • GDP - real growth rate: 10.5% (official data) (2006 est.)
  • GDP - per capita (PPP): $7,600 (2006 est.)
  • GDP - composition by sector: agriculture : 11.9%

              industry : 48.1%

             services : 40%

note : industry includes construction (2006 est.)

  • Labor force: 798 million (2006 est.)
  • Investment (gross fixed): 44.3% of GDP (2006 est.)
  • Public debt: 22.1% of GDP (2006 est.)
  • Industrial production growth rate: 22.9% (2006 est.)
  • Exports: $974 billion f.o.b. (2006 est.)
  • Imports: $777.9 billion f.o.b. (2006 est.)
  • Reserves of foreign exchange and gold: $1.034 trillion (2006 est.)
  • Debt - external: $305.6 billion (2006 est.)
  • Fiscal year: calendar year.

 

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