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Brief about Chinas Economy

China is the 2nd largest economy in the world according to both GDP (current prices, US dollars) and GDP (PPP),after the United States. In 2012, Chinas GDP (current prices, US dollars) was US$8.227 trillion and its GDP (PPP) was US$12.405 trillion. In 2012, Chinas real gross domestic product (GDP) grew at an average annual rate of nearly 10%. .

cont.
It is estimated that to date 500 million people in China have been raised out of extreme poverty. China has emerged as major global economic power. It is now the worlds largest manufacturer, merchandise exporter, and holder of foreign exchange reserves. For many countries around the world, China is rapidly becoming their most important bilateral trade partner. In 2011, they were the largest exporting/importing partner for 32 and 34 countries respectively.

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Chinas real GDP growth averaged 9.2%. However, the economy has shown signs of slowing. Real GDP grew by 7.8% in 2012 and is projected to grow at the same level in 2013.

Table 1. Chinas Annual Real GDP Growth: 1979-2012 and 2013 Projection

Year 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Real Growth Rate (%) 7.6 7.9 5.3 9.0 10.9 15.2 13.5 8.9 11.6 11.3 4.1 3.8

cont
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 9.2 14.2 13.9 13.1 10.9 10.0 9.3 7.8 7.6 8.4 8.3 9.1 10.0

cont
2004 2005 2006 2007 10.1 11.3 12.7 14.2

2008
2009 2010 2011 2012 IMF 2013 Projection

9.6
9.2 10.4 9.2 7.8 7.8

Economic Geography
China is the 4th largest country in the world, measuring 9,569,901 sq km. The Chinese economy is better understood as a decentralized collection of several regional economies, with large imbalances between the rural and urban population.

According to some reports, China has deposits of every one of the 150 minerals found so far in the natural world. Of these, more than 20 rank in the forefront of the world. Ranking first in the world, in proven deposits, are 12 minerals: tungsten, antimony, titanium, vanadium, zinc, rare earth, magnesite, pyrite, fluorite, barite, plaster stone and graphite.

ranking second and third are six: tin, mercury, asbestos, talcum, coal and molybdenum; and ranking fourth are five: nickel, lead, iron, manganese and the platinum family. China also ranks third in the world in the deposit of 45 important minerals. Additionally, with its vast mountain ranges, Chinas hydropower potential is the largest in the world.

China Economic Forecast


Nonetheless, while its GDP (PPP) is set to overtake that of the USs, Chinas nominal GDP (current prices, US dollars) will still be below that of its rival in 2018. The USs GDP (current prices) is forecasted to hit $21.101 trillion in five years, significantly higher than Chinas $14.911 trillion. Going by current growth rates ,it will take another 30-40 years for China to become the worlds largest economy in both GDP (PPP) and GDP (current prices)

China Economic Structure


China has one of the most diverse spread of industrial production in the world, fitting for a country that is called 'The Worlds Factory'. Though fewer in number than before, as a result of massive state consolidation, todays SOEs are far more powerful. As of 2012, large state-owned enterprises produced over 50 percent of Chinas goods and services and employed over half of the nations labour force. 65 of the Chinese SOEs also made it into 2012 Fortune Global 500 list, including State Grid Corporation of China, which operates the country's power grid, and oil companies China National Petroleum Corporation and Sinopec.

Measuring the Size of Chinas Economy


Table 2. Comparisons of Chinese, Japanese, and U.S. GDP and Per Capita GDP in Nominal U.S. Dollars and a Purchasing Power Parity Basis: 2012

China

Japan

United States

Nominal GDP ($ billions) GDP in PPP ($ billions) Nominal Per Capita GDP ($) Per Capita GDP in PPP ($)

8,231 12,576 6,190

5,887 4,558 46,680

15,724 15,724 50,020

9,460

36,150

50,020

China Exports, Imports and Trade


China is the worlds second largest trading nation behind the US leading the world in exports and coming in second for imports. From 2009-2011 its trade to GDP ratio was 53.1 percent, while its trade per capita was $2,413. Since its recession into the WTO in 2001, Chinas share in global trade has doubled accounting for 10.38 percent of the worlds merchandise trade exports and 9.43 percent of merchandise trade imports.

For many countries around the world, China is rapidly becoming their most important bilateral trade partner. In 2011, they were the largest exporting/importing partner for 32 to 34 countries respectively.

Major Chinese exports 2012


HS Code Description Percent 2012/201 $ billions of 1 Total % Change 2,050.1 100.0 7.9 487.5 23.8 9.4 376.0 18.3 6.3 87.1 4.4 8.6 77.9 3.8 31.2 72.8 3.6 19.9

85 84 61 94 90

62

World Electrical machinery Machinery Knit apparel Furniture and bedding Optical, photographic, cinematographic, measuring checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof Woven apparel

61.2

3.0

-2.9

Major Chinese Imports 2012


World 85 27 84 26 90 Electrical machinery Mineral fuel, oil etc. Machinery Ores, slag, and ash Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof Vehicles, not railway (mainly autos and parts) Plastic Special Classification Organic chemicals Copper and articles thereof 1,817.3 381.6 311.6 181.9 133.6 106.4 100 21.0 17.2 10.0 7.5 5.9 4.4 8.7 14.0 -8.8 -11.3 7.4

87 39 98 29 74

70.6 69.5 68.7 60.9 54.6

3.9 3.8 3.8 3.4 3.0

8.1 -1.0 38.9 -36.1 0.6

Table 4. Chinas Merchandise World Trade: 1979-2012 and Projections for 2013 ($ billions) Year 1979 Exports 13.7 Imports 15.7 Trade Balance 2.0

1980
1985 1990

18.1
27.3 62.9

19.5
42.5 53.9

1.4
15.3 9.0

1995
2000 2001 2002

148.8
249.2 266.2 325.6

132.1
225.1 243.6 295.2

16.7
24.1 22.6 30.4

2003

438.4

412.8

25.6

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2004 2005 2006 2007 2008 2009 2010 2011 593.4 762.0 969.1 1,218.0 1,428.9 1,202.0 1,578.4 1,899.3 561.4 660.1 791.5 955.8 1,131.5 1,003.9 1,393.9 1,741.4 32.0 101.9 177.6 262.2 297.4 198.2 184.5 157.9

Causes of Chinas Economic Growth


Economists generally attribute much of Chinas rapid economic growth to two main factors: large-scale capital investment) and rapid productivity growth.

China as the Worlds Largest Manufacturer


Chinas gross valued added manufacturing was equal to 32.3% of GDP, compared to 12.1% for the United States and 18.9% for Japan.

Chinas growing FDI Inflows


Chinas trade and investment reforms and incentives led to a surge in FDI beginning in the early 1990s. Such flows have been a major source of Chinas productivity gains and rapid economic and trade growth.

There were reportedly 445,244 foreign-invested enterprises (FIEs) registered in China in 2010, employing 55.2 million workers or 15.9% of the urban workforce

Figure 10. Major Recipients of Global FDI Inflows in 2012


($ billions)

Figure 13. Major Sources of Global FDI Outflows in 2012


($ billions) 350 300 250 200 150 100 50
Japan China Hong Kong UK Germany U.S.

Canada Russia Switzerland

Chinas Regional and Bilateral Free Trade Agreements


The Chinese government has maintained an active policy of boosting trade and investment ties around the world, especially with countries in Asia. China currently has free trade agreements (FTAs) with ASEAN, Chile, Costa Rica, Hong Kong, Macau, New Zealand, Pakistan, Peru, and Singapore. China also has an economic cooperation framework agreement (ECFA) with Taiwan. China is currently in the process of negotiating FTAs with the Cooperation Council for the Arab States of the Gulf (which includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and Bahrain), Australia, Iceland, Norway, Switzerland, and the Southern African Customs Union (which includes South Africa, Botswana, Lesotho, Namibia, and Swaziland).

In May 2012, China, Japan, and South Korea agreed to begin negotiations for an FTA in 2012. China has also considered negotiating an FTA with India, but with little progress to date. In December 2012, China joined with the 10 members of ASEAN, Japan, South Korea, Australia, and New Zealand in agreement to begin negotiations toward a Regional Comprehensive Economic Partnership (RCEP), which, if concluded, could constitute the worlds largest free trade bloc.

Major long-Term Challenges Facing the Chinese Economy

Changes in Chinas Wage Advantage


Chinas huge population and relatively low wage rates gave it a significant competitive advantage when economic reforms and trade liberalization were first begun by the government in the late1970s.

From 2000 to 2012, Chinese average real wages grew at an average annual rate of 11.8%.

Chinas Incomplete Transition to a Market Economy


Despite Chinas three-decade history of widespread economic reforms, Chinese officials contend that China is a socialistmarket economy. This appears to indicate that the government accepts and allows the use of free market forces in a number of areas to help grow the economy, but where the government still plays a major role in the countrys economic development.

Industrial Policies and SOEs


According to the World Bank, China has become one of the worlds most active users of industrial policies and administrations.51 According to one estimate, Chinas SOEs may account for up of 50% of non-agriculture GDP. It is estimated that there were 154,000 SOEs as of 2008, and while these accounted for only 3.1% of all enterprises in China, they held 30% of the value of corporate assets in the manufacturing and services sectors. Of the 58 Chinese firms on the 2011 Fortune Global 500 list, 54 were identified as having government ownership of 50% or more.56 The World Bank estimates that more than one in four SOEs lose money.

The Banking System


Chinas banking system is largely controlled by the central government, which attempts to ensure that capital (credit) flows to industries deemed by the government to be essential to Chinas economic development.

SOEs are believed to receive preferential credit treatment by government banks, while private firms must often pay higher interest rates or obtain credit elsewhere.

An Undervalued Currency
China does not allow its currency to float and therefore must make large-scale purchases of dollars to keep the exchange rate within certain target levels. Chinas undervalued currency makes its exports less expensive, and its imports more expensive, than would occur under a floating exchange rate system.

Implications of Chinas Unbalanced Economic Growth Model


Overdependence on Exporting and Fixed Investment
Figure 18. Chinese Gross Savings, Gross Fixed Investment, and Private Consumption as a Percent of GDP: 1990-2012
(percent) 60.0 50.0 40.0 30.0 20.0 10.0 0.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Growing Pollution
Chinas economic growth model has emphasized the growth of heavy industry in China, much of which is energy-intensive and high polluting. The level of pollution in China continues to worsen, posing serious health risks to the population. The Chinese government often disregards its own environmental laws in order to promote rapid economic growth.

Cont
According to a 2008 World Bank report, 16 out of 20 of the worlds most polluted cities (in terms of air pollution) are in China. According to one Chinese government official estimate in 2006, environmental damage costs the country $226 billion, or 10% of the countrys GDP, each year.

In October 2009, Chinas media reported that thousands of children living near smelters had been found to have excessive amounts of lead in their blood.