Economic Indicators of

CHINA
Submitted To:
Prof. Puneet Rai

Submitted By:
Geetika Sikka
Sunidhi Trivedi
Nishkarsh Gupta

Economic Overview:
The Chinese economy experienced astonishing growth in the last few decades that catapulted
the country to become the world's second largest economy. In 1978when China started the
program of economic reformsthe country ranked ninth in nominal gross domestic product
(GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of
USD 9.2 trillion.
Since the introduction of the economic reforms in 1978, China has become the worlds
manufacturing hub, where the secondary sector (comprising industry and construction)
represented the largest share of GDP. However, in recent years, Chinas modernization propelled
the tertiary sector and, in 2013, it became the largest category of GDP with a share of 46.1%,
while the secondary sector still accounted for a sizeable 45.0% of the countrys total output.
Meanwhile, the primary sectors weight in GDP has shrunk dramatically since the country opened
to
the
world.
China weathered the global economic crisis better than most other countries. In November 2008,
the State Council unveiled a CNY 4.0 trillion (USD 585 billion) stimulus package in an attempt to
shield the country from the worst effects of the financial crisis. The massive stimulus program
fueled economic growth mostly through massive investment projects, which triggered concerns
that the country could have been building up asset bubbles, overinvestment and excess capacity
in some industries. Given the solid fiscal position of the government, the stimulus measures did
not derail Chinas public finances. The global downturn and the subsequent slowdown in demand
did, however, severely affect the external sector and the current account surplus has
continuously diminished since the financial crisis.
Apparently, China exited the financial crisis in good shape, with GDP growing above 9%, low
inflation and a sound fiscal position. However, the policies implemented during the crisis to foster
economic growth exacerbated the countrys macroeconomic imbalances. Particularly, the
stimulus program bolstered investment, while households consumption remained repressed. In
order to tackle these imbalances, the new administration of President Xi Jinping and Premier Li
Keqiang started to unveil economic measures aimed at promoting a more balanced economic
model at the expense of the once-sacred rapid economic growth.

Chinas Balance of payments:

Chinas external position is extremely solid. The current account has recorded a surplus in every
year since 1994. The capital account followed suit and only recorded two deficits in the last 20
years. This situation of surpluses in the both the current and the capital put pressure on the
national currency and prompted the Central Bank to sterilize most of the foreign currency that
entered the country. As a result, Chinas foreign exchange reserves skyrocketed to almost USD
4.0 trillion in 2014. The current account surplus reached its peak in 2007, when it represented
10.1% of GDP. Since then, however, the surplus has narrowed and in 2013 it fell to only 2.0% of
GDP.
Chinas capital account has bold controls, which implies that the country lacks the freedom to
convert local financial assets into foreign financial assets at a market-determined exchange rate
and vice versa. The new Xi-Li administration and the Peoples Bank of China vowed to accelerate
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interest rate liberalization and capital account convertibility. In this regard, Chinese authorities
have started to implement some measures, such as removing a cap on foreign-currency deposit
rates in Shanghai.
The capital account benefited from strong inflows of Foreign Direct Investment (FDI). FDI has
performed strongly in the last decade, with record inflows of USD 118 billion in 2013, thereby
becoming the second largest recipient of foreign investment. Among the countries that invest
more in China are Hong Kong, Singapore, Japan, Taiwan, and the United States. In addition,
Chinas outward investment soared in recent years and, according to some analysts, the country
could become a net exporter of capital in the coming years.

Chinas Trade Structure:

China has experienced interrupted merchandise trade surpluses since 1993. Total trade
multiplied by nearly 100 to USD 4.2 trillion in only three decades and, in 2013, China surpassed
the
United
States
as
the
worlds
biggest
trading
nation.
The opening of the country and the governments massive investment programs have prompted
the country to become a major manufacturing hub. This situation fostered trade growth in the
last decades, particularly after China joined the World Trade Organization in 2001. As an
economy highly integrated into the global trade system, the country benefited from a steady
improvement in its terms of trade since 2000. However, the global economic downturn in 20082009 led the country to reduce manufacturing output, thus putting a drag on Chinas trading
sector.
Moreover, the country has engaged in several bilateral and multilateral trade agreements that
have opened new markets for its products. In 2003, China signed the Closer Economic
Partnership Arrangement with Hong Kong and Macau. A Free Trade Agreement (FTA) between
China and the ASEAN nations came into effect on January 2010, which created the worlds third
largest free trade area in terms of nominal GDP. China also established, among others, FTA with
countries such as Chile, Costa Rica, Pakistan, Peru, New Zealand, Thailand and Singapore.
Moreover, there are other FTA under negotiation with Australia, the Gulf Cooperation Council,
Japan,
Korea
and
Norway.

Exports from China:

Electronics and machinery make up around 55% of total exports, garments account for 13% and
construction material and equipment represent 7%. Sales to Asia represent over 40% of total
shipments, while North America and Europe have an export share of 24% and 23%, respectively.
Although exports to Africa and South America expanded rapidly, they only account for 8% of total
shipments.
Due to favorable global trade conditions and Chinas accession to the World Trade Organization
in December 2001, the country has experienced an astonishing growth of 26.9% annually in real
goods and services exports during the 2002-2008 period.
While exports contracted sharply in 2009 due to the downturn in global demand, shipments in
2010 and 2011 rebounded strongly following the 2008 financial crisis. In 2012 and 2013, export
growth
averaged
7.8%.
In nominal terms, merchandise exports jumped from just USD 267 billion in 2001 to USD 2.2
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trillion in 2013, which represents annual average growth of 20.2%. According to Focus Economics
Consensus Forecast panelists projections from September 2014, Chinese exports are expected
to slow to a 6.6% increase in 2014 following an expansion of 7.9% in 2013. Panelists see exports
picking up in 2015 to an 8.8% expansion.

Imports to China:
In order to supply factories and support Chinas rapid development, the countrys imports are
mostly dominated by intermediate goods and a wide range of commodities, including oil, iron
ore, copper and cereals. Chinas soaring demand for raw materials has pushed global commodity
prices up in recent years, thereby boosting the coffers of many developing nations and
commodity-exporting economies.
Supply of imports into China is mostly dominated by Asian countries, with a combined share of
nearly 50% of total imports. Purchases from Europe and North America account for 17% and
10%, respectively. As a major global buyer of commodities, imports from Africa, Australia, the
Middle East and South America have increased strongly in the last decade to represent a
combined share of around 23%.
In parallel with skyrocketing exports, growth in imports of real goods and services soared in the
2002-2008 period, recording an annual average expansion of 24.4%. Imports experienced a
contraction in 2009 due to the global crisis, but recovered quickly in 2010 and 2011. In the 20122013
period,
imports
recorded
a
modest
increase
of
7.2%.
In nominal terms, merchandise imports increased more than eight-fold in the 2001-2013 period,
increasing from USD 244 billion in 2001 to USD 2.0 trillion in 2013. Focus Economics Consensus
Forecast panelists projections from September 2014 show Chinese imports moderating slightly
from a 7.3% increase in 2013 to a 6.9% expansion in 2014. In 2015, panelists expect imports to
accelerate to a 9.3% expansion.

Chinas Economic Policy:

Economic growth soared in the last few decades mainly due to the countrys increasing
integration into the global economy and the governments bold support for economic activity.
However, the successful economic model that lifted hundreds of millions out of poverty and
fueled the countrys astonishing economic and social development has also brought many
challenges. Severe economic imbalances, mounting environmental issues, rising economic
inequality and an aging population are the key questions that the new administration lead by
President Xi Jinping will have to tackle in the near future in order to ensure the countrys
sustainability.
The final communique of the Third Plenary Session of the 18thChina Communist Party (CPC)s
Central Committee held in Beijing on 9-12 November 2013 unveiled an ambitious road map for
economic reform. Chinese authorities vowed to deepen economic reform and give the market a
decisive role in allocating resources. That said, they reaffirmed the leading role of the state in the
economy. Authorities also stressed the need to promote market-oriented reforms in state-owned
companies and to accelerate interest rate liberalization, capital account convertibility and
exchange rate reform. According to the Plenum communique, reforming the hukou system of
household registration, enhancing farmers property rights, further development of social
welfare, improving the judiciary system and promoting a more developed fiscal system would be
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on the agenda. In addition, Xi launched an aggressive anti-corruption campaign, which targeted

senior officials of the Communist Party.
Although gradual, Chinese authorities have already unveiled a series of reforms in a wide range
of sectors, signaling Xi Jinping and Li Keqiangs commitment to push forward their agenda.

Chinas Fiscal Policy:

Before 1978, China had a highly centralized fiscal system, which mainly reflected the countrys
planned economic system. The central government collected all revenues and allocated all the
spending of the administration and public institutions. In parallel with the reforms implemented
in the country for Deng Xiaoping, the government started to decentralize the fiscal system.
In 1994, the government launched a bold fiscal reform in order to struggle against a rapid
decline in the tax/GDP ratio, which dampened the governments ability to conduct
macroeconomic and redistribution policies. The flagship of the reform was a new taxation system
and the adoption of a tax-sharing scheme, where the most lucrative sources of tax revenues,
such as the Value-Added Tax and the Enterprise Income Tax, were administrated by the central
government.
The result of this reform was a steady increase in revenues, which jumped from 10.8% of GDP in
1994 to 22.7% of GDP in 2013. While expenditures followed suit and increased at a double-digit
rate in the same period, the fiscal deficit was kept in check. In the 1994-2013 period, the
governments
fiscal
deficit
averaged
1.4%
of
GDP.
The new system, however, left local government with just few sources of revenue and they had
to rely on land sales and indirect borrowing (mostly so-called shadow banking) to finance their
activity. In addition, local governments put in place off-budget local government financing
vehicles to raise funds and finance investment projects. According to data released by the
National Audit Office in December 2013, the total amount of debt held by local governments was
CNY 17.9 trillion (USD 3.0 trillion) or 33.0% of GDP, which was well above the CNY 10.7 trillion
reported in the 2010 audit.
Although debt is still at manageable levels, the government should be wary of both the increase
in reliance on shadow banking and the rapid pace of debt accumulation. Moreover, the
government should increase the revenue sources for local governments. In this regard, in August
2014, the National Peoples Congress passed amendments to the budget law, allowing provincial
government to issue bonds directly and increase transparency. This move paves the way for local
governments to raise debt in the bond market.
Chinas government debt is almost entirely denominated in local currency and owned by
domestic institutions. In addition, the government has cash savings equivalent to 6% of GDP in
the Peoples Bank of China. This situation shields the economy against government debt crises.

Chinas Monetary Policy:

Under the guidance of the State Council, the Peoples Bank of China (PBOC) formulates and
implements monetary policy, prevents and resolves financial risks, and safeguards financial
stability. The PBOCs main objectives are: ensuring domestic price stability, managing the
exchange rate and promoting economic growth. At the beginning of each year, the State Council
establishes guiding targets for GDP, the Consumer Price Index (CPI), money supply (M2) and
credit growth. The PBOCs policy rate is the one-year lending rate. The Banks last change in its
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key policy rate was in July 2012 and the lending rate has remained at 6.00% since then. In
monetary policy reports from Q1 and Q2 2014, the Central Bank vowed to maintain a prudent
monetary policy while conducting policy fine-tuning at an appropriate time.
The Central Bank manages money supply through Open Market Operations (OMO), which are
conducted with both domestic and foreign currencies and comprise repo and reverse repo,
government securities and PBOC bills. The Bank also uses the reserve requirement ratio to
influence lending and liquidity. The reserve requirement ratio for major lenders currently sits at
20.0%, where it has rested since May 2012. Other instruments that the Central Bank uses to
manage and adjust liquidity in the banking system are short-term loans, short-term liquidity and
standing lending facility operations.
The agenda of Chinas top authorities include bold reforms on interest rate and monetary policy
management in order to adopt a more market-driven approach.

Chinas Exchange Rate Policy:

The IMF labels Chinas exchange rate regime as a crawl-like arrangement. The speed and
direction of the crawling peg is decided by Chinese authorities according to domestic and
international economic developments. The PBOC classifies its regime as a managed floating
exchange rate regime based on market supply and demand with reference to an undisclosed
basket of currencies. The U.S. dollar is likely to represent a large stake of the basket. The yuan
fluctuates in an intraday trading band around an official midpoint rate. On 15 March, the PBOC
widened the trading band from +/-1 to +/-2.
From 1995 to 2005, China kept its currency fixed versus the U.S. dollar at around 8.28 CNY per
USD. This was the case until 2005, when it switched to a managed float of the currency to
facilitate a controlled appreciation of the CNY. However, in the wake of the global financial crisis,
China pegged its currency to the USD at 6.82 CNY per USD from June 2008 to June 2010. In 2010,
the
PBOC
allowed
the
yuan
to
trade
more
flexibly.
While the Chinese yuan is freely convertible under the current account, it remains strictly
regulated in the capital account. Chinese authorities expressed their willingness to allow the
yuan
to
be
fully
convertible
in
the
near
future.
Chinese authorities are gradually enhancing the use of the currency in other parts of the world in
order to promote the yuan as a global reserve currency. Although the process is far from being
completed, China has already established trade settlements with selected countries and
launched a series of currency swap agreements with more than 20 central banks. In addition,
China is rapidly expanding the yuans offshore market. The opening up of the countrys capital
market will be a crucial step in the yuans journey to becoming a major reserve currency.

Gini coefficient in china: inequality of income distribution in china

from 2005 to 2015:
This statistic shows the inequality of income distribution in China from 2005 to 2015 based on
the Gini Index. In 2008, China reached a score of 49.1 (0.491) points. The Gini Index is a
statistical measure that is used to represent unequal distributions, e.g. income distribution. It can
take any value between 1 and 100 points (or 0 and 1). The closer the value is to 100 the greater
is the inequality. 40 or 0.4 is the warning level set by the United Nations.
PAGE 5

Income distribution in China additional information:

The Gini coefficient is used to measure the income inequality of a country. The United States, the
World Bank, the US Central Intelligence Agency, and the Organization for Economic Co-operation
and Development all provide their own measurement of the Gini coefficient, varying in data
collection and survey methods. According to the United Nations Development Programme,
countries with the largest income inequality based on the Gini index are mainly located in Africa
and Latin America, with Seychelles having the worlds highest value in 2012. The worlds most
equal countries, on the contrary, are situated mostly in Europe. The United States Gini for
household income has increased by around nine percent since 1990, to 0.47 in 2010.
Growing inequality counts as one of the biggest social, economic and political challenges to
many countries, especially emerging markets. Over the last 20 years, China has become one of
the worlds largest economies. As parts of the society have become more and more affluent, the
countrys Gini coefficient has also grown sharply over the last two decades. As shown by the
graph at hand, Chinas Gini coefficient ranged between 0.47 and 0.49 over the last decade,
higher than the warning line of increased risk of social unrest.

Ease of Doing Business:

Ease of Doing Business in China improved to 78 in 2016 from

80 in 2015. Ease of Doing Business in China averaged 87.67 from 2008 until 2016, reaching an
all-time high of 99 in 2012 and a record low of 78 in 2016. Ease of Doing Business in China is
reported by the World Bank.

PAGE 6

Inflation rate in china:

The graph shows the inflation rate in China from September 2015 to September 2016. In July
2016, the inflation rate in China had ranged at 1.8 percent. The term inflation means the
devaluation of money caused by a permanent increase of the price level for products such as
consumer or investment goods. The Consumer Price Index shows the price development for
private expenses and shows the current level of inflation when increasing. For comparison,
inflation in India amounted to 9.44 percent that same year.
Inflation rate is most commonly measured by the Consumer Price Index. A positive inflation rate
reflects a rise in prices. Between 2004 and 2014, China only once experienced a deflation
situation, with price levels decreasing by roughly 0.7 percent in 2009.
Monthly inflation in China between June 2013 and June 2014 was moderate compared to other
emerging markets. During the first half of 2014, the monthly inflation rates of Brazil, Russia and
India ranged from 5.5 percent to eight percent, while in China the figures were between 1.8
percent and 2.5 percent.
In China, there is a regional difference in inflation rates. As of September 2013, Tibet had
experienced the highest CPI at 104.3 percent, while Shanghai reported a CPI growth of 2.5
percent. According to the National Bureau of Statistics of China, as of June 2014, inflation was
mainly fuelled by a surge in food prices, as they had increased by 3.7 percent compared to
previous year. The price gain in other non-food sectors was relatively slight. Tobacco and liquor
prices even decreased by 0.6 percent compared with the year before.
Low inflation might be good news for consumers and businesses, but it also indicates slower
expansion of the economy. As stated in research by IMF, GDP growth momentum in China has
cooled down since 2010. With a population of more than 1.3 billion people, China outpaced Japan
PAGE 7

as the worlds second-biggest economy in 2010. According to a forecast by Goldman Sachs,

Chinas GDP will amount to about 32 trillion U.S. dollars in 2030, surpassing the United States as
the worlds leading economic power.

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