Economy of the People's Republic of China

Economy of
the People's Republic of China
Fiscal year 1 January - 31 December
Trade Organizations WTO, APEC
GDP (2006, Nominal) $2.68 Trillion (4th)
GDP (2006, PPP) $10.0 Trillion (2nd)
GDP per capita (2006, Nominal) $2,034 (105th)
GDP per capita (2006, PPP) $7,593 (80th)
GDP growth rate (2006) 11.1%
GDP by sector (2005) agriculture (12.46%), industry (47.28%), services (40.26%)
Inflation rate (2006) 1.5%
Household income or consumption by percentage share (2004) lowest 10%: 1.8%, highest 10%: 33.1%
Pop below poverty line (2004 est) 10%
Labour force (2006 est) 798.1 million
Labour force by occupation (2005 est) agriculture 45%, industry 24%, services 31%
Unemployment rate (2006 est) 4.2%
Trading Partners
Exports $974 billion f.o.b. (2006 est.)
Main Partners (2005) US 21.4%, Hong Kong 16.3%, Japan 11%, South Korea 4.6%, Germany 4.3%
Imports $777.9 billion f.o.b. (2006 est.)
Main Partners (2005) Japan 15.2%, South Korea 11.6%, Taiwan 11.2%, US 7.4%, Germany 4.6%
Public Finances
Public Debt 22.1% of GDP (2006 est.)
External Debt (2006 est) $305.6 billion
Foreign Reserves (March 2007) $1.202 Trillion
Revenues (2006 est) $446.6 billion
Expenses (2006 est) $489.6 billion
Economic Aid (ODA)
The economy of the People's Republic of China is the fourth largest in the world when measured by nominal GDP. Its economic output for 2006 was $2.68 trillion USD.[1] Its per capita GDP in 2006 was approximately US $2,000 (US $7,600 with PPP), still low by world standards (110th of 183 nations in 2005), but rising rapidly. As of 2005, 70% of China's GDP is in the private sector. The smaller public sector is dominated by about 200 large state enterprises concentrated mostly in utilities, heavy industries, and energy resources.[2]

Since 1978 the People's Republic of China (PRC) government has been reforming its economy from a Soviet-style centrally planned economy to a more market-oriented economy while remaining within the political framework provided by the Communist Party of China. This system has been called "Socialism with Chinese characteristics" and is one type of mixed economy. Since being introduced in 1978, these reforms have helped lift millions of people out of poverty, bringing the poverty rate down from 53% in 1981 to 8% in 2001.[3]

To this end, authorities have shifted agricultural work (in which approximately half of the work force is engaged) to a system of household responsibility in place of the old collectivization, increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprise in services and light manufacturing, and opened the economy to increased foreign trade and foreign investment. The government has emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government also has focused on foreign trade as a major vehicle for economic growth. While the accuracy of official PRC figures remain the subject of much debate, Chinese officials claim the result has been a tenfold increase in GDP since 1978. Some international economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by private enterprises.


In 1949, PRC followed a socialist heavy-industry-development strategy, or the Big Push strategy. Consumption was reduced while rapid industrialization was given high priority. The government took control of a large part of the economy and redirected resources into building new factories. Entire new industries were created. Most important, economic growth was jump-started. Tight control of budget and money supply reduced inflation by the end of 1950. Though most of it was done at the expense of terrorizing the private sector of small to big businesses via the Three-anti/five-anti campaigns between 1951 to 1952. The campaigns were notorious for being Anti-Capitalists, and imposed base-less charges that allowed the government to punish capitalists with severe fines.[4]

In 1952, gross industrial output of China was estimated at 34,900 million yuan[5] in current prices.

Current GDP per capita grew a paltry 17% in the Sixties,[6] rising to 70% in the Seventies, and China surged ahead of India registering a remarkable growth of 63% in the turbulent Eighties and finally reaching a peak growth of 175% in the Nineties. However, Chinese prosperity still remains concentrated in the coastal and southern provinces and efforts have been made in recent years to expand the prosperity to the inner provinces and the industrial Northeast rust belt.

In the 1980s, the PRC tried to combine central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits. The PRC pursued agricultural reforms, dismantling the commune system and introducing the household responsibility system that provided peasants greater decision-making in agricultural activities. The government also encouraged nonagricultural activities, such as village enterprises in rural areas, and promoted more self-management for state-owned enterprises, increased competition in the marketplace, and facilitated direct contact between mainland Chinese and foreign trading enterprises. The PRC also relied more upon foreign financing and imports.

Chinese paramount leader Deng Xiaoping on June 30 1984 said:
"What is socialism and what is Marxism? We were not quite clear about this in the past. Marxism attaches utmost importance to developing the productive forces. We have said that socialism is the primary stage of communism and that at the advanced stage the principle of from each according to his ability and to each according to his needs will be applied. This calls for highly developed productive forces and an overwhelming abundance of material wealth. Therefore, the fundamental task for the socialist stage is to develop the productive forces. The superiority of the socialist system is demonstrated, in the final analysis, by faster and greater development of those forces than under the capitalist system. As they develop, the people's material and cultural life will constantly improve. One of our shortcomings after the founding of the People's Republic was that we didn't pay enough attention to developing the productive forces. Socialism means eliminating poverty. Pauperism is not socialism, still less communism."[7]

During the 1980s, these reforms led to average annual rates of growth of 10% in agricultural and industrial output. Rural per capita real income doubled. Industry posted major gains especially in coastal areas near Hong Kong and across the strait from Taiwan, where foreign investment helped spur output of both domestic and export goods. China became self-sufficient in grain production; rural industries accounted for 23% of agricultural output, helping absorb surplus labor in the countryside. The variety of light industrial and consumer goods increased. Reforms began in the fiscal, financial, banking, price setting, and labor systems.

Enlarge picture
China's nominal GDP trend from 1952 to 2005. (Click to enlarge)

On the darker side, the leadership has often experienced in its hybrid system the worst results of socialism (lassitude, political corruption, disrespect of personal property) and of capitalism (windfall gains, a huge and widening gap between rich and poor, stepped-up inflation). Beijing thus has periodically backtracked, re-tightening central controls at intervals. At the end of 1988, in reaction to a surge of inflation caused by accelerated price reforms, the leadership introduced an austerity program.

China's economy regained momentum in the early 1990s. Deng Xiaoping's Chinese New Year's visit to southern China in 1992 gave economic reforms new impetus. The 14th Communist Party Congress later in the year backed up Deng Xiaoping's renewed push for market reforms, stating that the PRC's key task in the 1990s was to create a "socialist market economy." Continuity in the political system but bolder reform in the economic system were announced as the hallmarks of the 10-year development plan for the 1990s.

During 1993, output and prices were accelerating, investment outside the state budget was soaring, and economic expansion was fueled by the introduction of Special Economic Zones (SEZs) and the influx of foreign capital that the SEZs facilitated. Beijing approved additional long-term reforms aimed at giving still more play to market-oriented institutions and at strengthening the center's control over the financial system; state enterprises would continue to dominate many key industries in what was now termed "a socialist market economy". The PRC government called in speculative loans, raised interest rates, and reevaluated investment projects. The growth rate was thus tempered, and the inflation rate dropped from over 17% in 1995 to 8% in early 1996. The economy slowed in the late 1990s, influenced in part by the Asian Financial Crisis of 1998-99, with official growth of 7.8% in 1998, and 7.1% for 1999. Growth accelerated again early in the new century, reaching 9.1% in 2003, 9.5% in 2004 and 9.8% in 2005.[8]

In December 2005, China's National Bureau of Statistics[9]revised its 2004 nominal GDP upwards by 16.8% or Rmb2,336.3 billion (US$281.9 billion), making China the 6th largest economy in the world. (overtaking Italy, with a GDP of almost $2 trillion USD.) At the start of 2006, the PRC officially announced itself as the 4th largest economy, measured by USD-exchange rate overtaking France and the United Kingdom. At the beginning of 2007 China stands as the second largest economy in the world measured by domestic PPP (purchasing power) measure, at about $10 trillion USD, although such estimates must be taken with a great deal of caution as PPP calculation is very rough, especially in a country as huge as China, Chinese purchasing power varies drastically between Shanghai and Sichuan, and PPP is irrelevant for imported goods and overseas purchases. By the end of 2008, China is predicted (measured by exchange rate) to overtake Germany as the third largest economy, and to overtake Japan by 2020.[10] It would then overtake the United States by 2040 to become the world's largest economy.[11]

Despite China's notable economic growth, its per capita and absolute GDP growth has been outpaced by some nations. From 1999 to 2006, Russia's nominal per capita GDP increased from $1334 to $6879 (515 percent), while PR China increased from $870 to $2000 (229 percent) [1] Similarly spectacular are some Middle Eastern and oil producing nations such as Qatar, Bahrain, United Arab Emirates, Kuwait, and Brunei. Kazakhstan, Turkmenistan, Azerbaijan, and Angola have managed to outpace China harnessing vast energy reserves in the same period. However, Equatorial Guinea, Africa is the star, having recorded 79% percent real GDP growth in 2004. Even nations in Asia such as Vietnam have managed to triple GDP between 1999 and 2006 in nominal per capita dollar terms, more than China. The reason for this is mainly due to China's large labor pool, which helps to contain inflation, and its refusal to increase the value of the Chinese yuan, which would have led to faster growth statistically, but may have sacrificed some stability in growth.

In addition, it must be noted that per capita income in absolute dollars (not percentage) GDP per capita is rising much faster in most of the developed world than China, because of China's very low base income. However, what China has going for it is that it may be able to continue this percentage of growth for decades to come, statistically spiraling growth in absolute dollar terms if its pace is maintained.

The Central Committee of the Chinese Communist Party recently approved the draft for the 11th 5-year plan for 2006 - 2010. The plan calls for a relatively conservative 45% increase in GDP and 20% reduction in energy intensity by 2010.


From 1995-1999 inflation dropped sharply, reflecting the tighter monetary policy of central banks and stronger measures to control food prices. At the same time, the government struggled to (a) collect revenues due from provinces, businesses, and individuals; (b) reduce corruption and other economic crimes; and (c) keep afloat the large state-owned enterprises, most of which had not participated in the vigorous expansion of the economy and many of which had been losing the ability to pay full wages and pensions. From 50 to 100 million surplus rural workers are adrift between the villages and the cities, many subsisting through part-time low-paying jobs. Popular resistance, changes in central policy, and loss of authority by rural cadres have weakened the PRC's population control program. Another long-term threat to continued rapid economic growth is the deterioration in the environment, notably air pollution, soil erosion, and the steady fall of the water table especially in the north. China continues to lose arable land because of erosion and economic development.

Overheating of the economy

Another significant hurdle for the Chinese economy is the potential for the rapid growth of the last decade leading to over-heating and inflation in the economy, which due to China's growing influence could have global repercussions. Chinese officials deny that the economy as a whole is over-heating, although they do admit that certain areas are "heating up" in that they have weak infrastructures that contribute to the lack of economic control. The recent economic growth is the result of large scale investments, which is far from efficient in comparison to other countries such as India. According to Chinese government research, the return of investment in India is three times higher than that of China, with a larger gap in comparisons with developed nations.

Taxation has also proved to be a problem in stabilizing the Chinese economy with tax cuts planned for certain economic sectors and industries. A primary goal of the tax cuts will be to assist in decreasing the investment disparity between rural and urban areas, and to encourage government owned corporations to compete with foreign corporations.

Labor shortage and the rising cost of exports

By 2005, there were signs of stronger demand for labor with workers being able to choose employment which offered higher wages and better working conditions, enabling some to move away from the restrictive dormitory life and boring factory work which characterize export industries in Guangdong and Fujian. Minimum wages began rising toward the equivalent of 100 U.S. dollars a month as companies scrambled for employees with some paying as much as an average $150 a month. The labor shortage was partially driven by the demographic trends as the proportion of people of working age falls as the result of strict family planning.[12]

It was reported in the New York Times in April, 2006 that labor costs had continued to increase and a shortage of unskilled labor had developed with a million or more employees being sought. Operations which rely on cheap labor were contemplating relocations to cities in the interior or to countries such as Vietnam or Bangladesh. Many young people were attending college rather than opting for minimum wage factory work. The demographic shift resulting from the one-child policy continued to reduce the supply of young entry level workers. Also, government efforts to advance economic development in the interior of the country were beginning to be effective at creating opportunities there.[13]

A follow up article in the New York Times in late August, 2007 reported acceleration of this trend. The minimum wage a young unskilled factory worker could be hired at had increased to $200 with experienced workers commanding more. There was strong demand for young workers willing to work long hours and live in dormitory conditions, while older workers, over forty, were considered unsuitable. Rising wages were being to a certain extent offset by increases in productivity, but in 2007 a slight rise in the cost of imports from China was recorded by the United States government:[14] "After falling since its inception in December, 2003, the price index for imports from China rose 0.4 percent in July, 2007, the largest monthly increase since the index was first published in December 2003. The July increase was the third consecutive monthly advance. Over the past year, import prices from China increased 0.9 percent."[15]


Main article: Agriculture in China
Enlarge picture
Production of wheat from 1961-2004. Data from FAO, year 2005. Y-axis : Production in Metric ton.
Main agricultural products: rice, wheat, potatoes, sorghum, peanuts, tea, millet, barley, cotton, oilseed, pork, fish.

China ranks first worldwide in farm output. Just under half of China's labor force is engaged in agriculture, even though only about 15.4% of the land is suitable for cultivation.

There are over 300 million Chinese farm workers - mostly laboring on small pieces of land relative to U.S. farms. Virtually all arable land is used for food crops, and China is among the world's largest producers of rice, wheat, potatoes, sorghum, millet, barley, peanuts, tea, and pork. Major non-food crops, including cotton, other fibers, and oil seeds, furnish China with a small proportion of its foreign trade revenue. Agricultural exports, such as vegetables and fruits, fish and shellfish, grain and grain products, and meat products, are exported to Hong Kong. Yields are high because of intensive cultivation, but China hopes to further increase agricultural production through improved plant stocks, fertilizers, and technology.

According to the United Nations World Food Program, in 2003, China fed 20% of the world's population with only 7% of the world's arable land. [2]

Pork is an important part of the Chinese economy with a per capita consumption of a fifth of a pound per day. The worldwide rise in the price of animal feed associated with increased production of ethanol from corn resulted in steep rises in pork prices in China in 2007. Increased cost of production interacted badly with increased demand resulting from rapidly rising wages. The state responded by subsidizing pork prices for students and the urban poor and called for increased production. Release of pork from the nation's strategic pork reserve was considered.[16]

Industry and manufacturing

China ranks third worldwide in factory output. Major state industries are iron, steel, coal, machine building, light industrial products, armaments, and textiles. These industries completed a decade of reform (1979-1989) with little substantial management change. The 1999 industrial census revealed that there were 7,930,000 industrial enterprises at the end of 1999; total employment in state-owned industrial enterprises was about 24 million. The automobile industry has grown rapidly since 2000, as is the petrochemical industry. Machinery and electronic products have become China's main exports.

Industry and construction produced 53.1% of China’s gross domestic product (GDP) in 2005. Industry (including mining, manufacturing, construction, and power) contributed 52.9% of GDP in 2004 and occupied 22.5% of the workforce.

China’s construction sector has grown substantially since the early 1980s. In the twenty-first century, investment in capital construction has experienced major annual increases. In 2001 investments increased 8.5% over the previous year. In 2002 there was a 16.4% increase, followed by a 30% increase in 2003.

The manufacturing sector produced 44.1% of GDP in 2004 and accounted for 11.3% of total employment in 2002.

China is the world’s leading manufacturer of chemical fertilizers, cement, and steel.

Prior to 1978, most output was produced by state-owned enterprises. As a result of the economic reforms that followed, there was a significant increase in production by enterprises sponsored by local governments, especially townships and villages, and, increasingly, by private entrepreneurs and foreign investors. By 2002 the share in gross industrial output by state-owned and state-holding industries had decreased to 41%, and the state-owned companies themselves contributed only 16% of China’s industrial output.

Steel industry

China has been rapidly increasing its steel production. Iron ore production kept pace with steel production in the early 1990s but was soon outpaced by imported iron ore and other metals in the early 2000s. Steel production, an estimated 140 million tons in 2000, was expected to reach more than 350 million tons a year by 2010.

Automotive industry

By 2004 China had become the world’s fourth largest automotive vehicle manufacturer. Automobile manufacturing has soared during the reform period. In 1975 only 139,800 automobiles were produced annually, but by 1985 production had reached 443,377, then jumped to nearly 1.1 million by 1992 and increased fairly evenly each year up until 2001, when it reached 2.3 million. In 2002 production rose to nearly 3.3 million and then jumped again the next year to 4.4 million. Domestic sales have kept pace with production. After respectable annual increases in the mid- and late 1990s, sales soared in the early 2000s, reaching 3 million automobiles sold in 2003. With some governmental controls in place, sales dipped to 2.4 million sold in 2004.

Some analysts expect sales to reach 6.9 million by 2015. By 2010 China’s automobile production is projected to reach 9.4 million, and the country could become the number-one automaker in the world by 2020. So successful has China’s automotive industry been that it began exporting car parts in 1999. China began to plan major moves into the automobile and components export business starting in 2005. A new Honda factory in Guangzhou was built in 2004 solely for the export market and was expected to ship 30,000 passenger vehicles to Europe in 2005. By 2004, 12 major foreign automotive manufacturers had joint-venture plants in China. They produced a wide range of automobiles, minivans, sport utility vehicles, buses, and trucks. In 2003 China exported US$4.7 billion worth of vehicles and components, an increase of 34.4% over 2002.


In 2005 the services sector produced 40.3% of China’s gross domestic product. Prior to the onset of economic reforms in 1978, China’s services sector was characterized by state-operated shops, rationing, and regulated prices. With reform came private markets and individual entrepreneurs and a commercial sector. Urban areas now have many shopping malls, retail shops, restaurant chains and hotels.


China’s estimated employed labor force in 2005 totaled 791.4 million persons, about 60% of the total population. During 2003, 49% of the labor force worked in agriculture, forestry, and fishing; 22% in mining, manufacturing, energy, and construction industries; and 29% in the services sector and other categories. In 2004 some 25 million persons were employed by 743,000 private enterprises.

One of the hallmarks of China's socialist economy was its promise of employment to all able and willing to work and job-security with virtually lifelong tenure. Reformers targeted the labour market as unproductive because industries were frequently overstaffed to fulfill socialist goals and job-security reduced workers' incentive to work. This socialist policy was pejoratively called the iron rice bowl.

In 1979-1980, the state reformed factories by giving wage increases to workers, which was immediately offset by sharply rising inflation rates of 6%-7%. In other words, although they were given more pay, their money was worth less and they could buy less, which meant they were poorer. The state remedied this problem, in part, by distributing wage subsidies.

The reforms also dismantled the iron rice bowl, which meant it witnessed a rise in unemployment in the economy. In 1979, immediately after the iron rice bowl was dismantled, there were 20 million unemployed people.[17] Official Chinese statistics reveal that 4.2% of the total urban workforce was unemployed in 2004, although other estimates have reached 10%. As part of its newly developing social security legislation, China has an unemployment insurance system. At the end of 2003, more than 103.7 million people were participating in the plan, and 7.4 million laid-off employees had received benefits.

China does have labour laws which, if enforced, would greatly alleviate common abuses such as not paying workers. In 2006, a new labour law was proposed and submitted for public comment. The new law, as currently drafted, would permit collective bargaining in a form analogous to that standard in Western economies, although the only legal unions would continue to be those affiliated with the All-China Federation of Trade Unions, the Communist Party’s official union organization. The ACFTU was established in 1925 to represent the interests of national and local trade unions and trade union councils. The ACFTU reported a membership of 130 million, out of an estimated 248 million urban workers, at the end of 2002.

The new law has support from labour activists, but is opposed by foreign corporations, including the American Chamber of Commerce and the European Chamber of Commerce. There is some expectation that the new law, if enacted, would be enforced.[18] An ongoing effort to organize Chinese operations of foreign companies succeeded in 2006 at Wal-Mart. The campaign is projected to include Eastman Kodak, Dell and other companies.[19]

External trade

Exports: $963.0 billion (2006)
Exports - commodities: machinery and equipment, textiles and clothing, footwear, toys, mineral fuels, plastics, optical and medical equipment, iron and steel
Exports - partners: US 21.0%, EU 18.1%, Hong Kong 17.0%, Japan 12.4%, ASEAN 7.2%, South Korea 4.7% (2004)
Imports: $795.0 billion (2006)
Imports - commodities: machinery and equipment, oil and mineral fuels, plastics, optical and medical equipment, organic chemicals, iron and steel
Imports - partners: Japan 16.8%, EU 12.4%, ASEAN 11.2%, South Korea 11.1%, US 7.9%, Russia 2.2% (2004)

China ranks seventh worldwide in services' output. High power and telecom density ensure this sector remain on high-growth trajectory in the long-term.

China's global trade exceeded $1.758 trillion at the end of 2006.[20]. It first broke the 1 trillion mark ($1.15 trillion) in 2004, more than doubling from 2001. At the end of 2004, China became the world's third largest trading nation behind the United States and Germany[21]. The trade surplus however was stable at $30 billion. (>40 billion in 1998, <30 billion in 2003). China's primary trading partners include Japan, U.S., South Korea, Germany, Singapore, Malaysia, Russia, and The Netherlands. According to U.S. statistics, China had a trade surplus with the U.S. of $170 billion in 2004, more than doubling from 1999. Wal-Mart, the United States' largest retailer, is China's 7th largest export partner, just ahead of the United Kingdom. Out of the 5 busiest ports in the world, 3 are in China.

The PRC has experimented with decentralizing its foreign trading system and has sought to integrate itself into the world trading system. In November 1991, the PRC joined the Asia-Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation in economic, trade, investment, and technology issues. In 2001, China served as APEC chair, and Shanghai hosted the annual APEC leaders meeting.

During his 1999 visit to the United States, Premier Zhu Rongji signed a bilateral Agricultural Cooperation Agreement, which lifted longstanding Chinese prohibitions on the import of citrus, grain, beef, and poultry. In November 1999, the United States and PRC reached a historic bilateral market-access agreement to pave the way for the PRC's accession to the World Trade Organization (WTO). As part of the far-reaching trade liberalization agreement, the PRC agreed to lower tariffs and abolish market impediments after it joins the world trading body. Chinese and foreign businessmen, for example, will gain the right to import and export on their own - and to sell their products without going through a government middleman. Average tariff rates on key U.S. agricultural exports dropped from 31% to 14% in 2004 and on industrial products from 25% to 9% in 2005. The agreement also opens new opportunities for U.S. providers of services like banking, insurance, and telecommunications. After reaching a bilateral WTO agreement with the EU and other trading partners in summer 2000, the PRC worked on a multilateral WTO accession package. To increase exports, the PRC has pursued policies such as fostering the rapid development of foreign-invested factories, which assemble imported components into consumer goods for export. The PRC joined the WTO on December 11, 2001, after 15 years of negotiations, the longest in GATT history. The U.S. is one of China's primary suppliers of power-generating equipment, aircraft and parts, computers and industrial machinery, raw materials, and chemical and agricultural products. However, U.S. exporters continue to have concerns about fair market access due to China's restrictive trade policies and U.S. export restrictions. Intellectual property theft makes many Western companies wary of doing business in mainland China. Some Western politicians and manufacturers also say the value of the Yuan is artificially low and gives export from mainland China an unfair advantage. These and other issues are behind the recent push for greater protectionism by some in the US Congress, including a 27.5% consumer tax on imports.

Trade volume between China and Russia reached $29.1 billion in 2005, an increase of 37.1% compared with 2004. A spokesman for the Chinese Ministry of Commerce, Van Jingsun, said that the volume of trade between China and Russia could exceed 40 billion dollars in 2007.[22]

China’s export of machinery and electronic goods to Russia grew 70%, which is 24% of China’s total export to Russia in the first 11 months of 2005. During the same time, China’s export of high-tech products to Russia increased by 58%, and that is 7% of China’s total exports to Russia. Also in this time period border trade between the two countries reached $5.13 billion, growing 35% and accounting for nearly 20% of the total trade. Most of China’s exports to Russia remain apparel and footwear.

Russia is China’s eighth largest trade partner and China is now Russia’s fourth largest trade partner, and China now has over 750 investment projects in Russia, involving $1.05 billion. China’s contracted investment in Russia totaled $368 million during January-September of 2005, twice that in 2004.

Chinese imports from Russia are mainly those of energy sources, such as crude oil, which is mostly transported by rail, and electricity exports from neighboring Siberian and Far Eastern regions. In the near future, exports of both of these commodities are set to increase, as Russia is building the Eastern Siberia – Pacific Ocean oil pipeline with a branch to Chinese border, and Russian power grid monopoly UES is building some of its hydropower stations with a view of future exports to China.

As of 31 December 2005, there were an estimated 37,504,000 broadband lines in China.[23] It represents nearly 18% world share. Over 70% of the broadband lines were via DSL and the rest via cable modems.

The World Bank estimates that it takes about 18 days to get a phone connection in China (86 days in India).[24]

With two stock exchanges (namely, Shanghai and Shenzhen), mainland China's stock market has a market value of $1 trillion by January 2007, which becomes the third largest stock market in Asia, only after Japan and Hong Kong.[25] It is estimated to be the world's third largest by 2016.[26]

See also: Closer Economic Partnership Arrangement with Hong Kong and Macau.

Foreign investment

In 1979, the government introduced legislation and regulations designed to encourage foreigners to invest in high-priority sectors and regions. A significant example of this is the Encouraged Industry Catalogue which sets out the degree of foreign involvement allowed in various industry sectors.

In 1980, the government eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, and allowed foreign partners to become chairs of joint venture boards. In 1991, the PRC granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies which invest in selected economic zones or in projects encouraged by the state, such as energy, communications and transport. It also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges. These "B" shares are sold to foreigners but carry no ownership rights in a company. In 2006, mainland China received $69.47 billion in foreign direct investment.[27]

Opening to the outside remains central to mainland China's development. Foreign-invested enterprises produce about 45% of mainland China's exports (note though, the majority of mainland China's foreign investment come from Hong Kong, Taiwan and Macau, two of which are under the administration of the PRC), and mainland China continues to attract large investment inflows. Foreign exchange reserves exceeded $800 billion in 2005, more than doubling from 2003 and in November 2006, mainland China became the world's largest holder of reserves which exceeded $1 trillion.

There are nevertheless companies withdrawing from the mainland Chinese market. Warner Bros., for instance, withdrew its cinema business in mainland China as a result of the regulatory restrictions that ban foreign investors from controlling joint ventures in the Chinese mainland. The regulation requires that Chinese mainland investors must own at least 51 percent stake or play a leading role in their joint ventures with foreign investors.[28]

Energy and mineral resources

Energy Electricity:
  • production: 2.8344 trillion kWh (2006)
  • consumption: 2.8248 trillion kWh (2006)
  • exports: 10.6 billion kWh (2003)
  • imports: 1.546 billion kWh (2003)
Electricity - production by source:
  • fossil fuel: 80.2%
  • hydro: 18.5%
  • other: 0.1% (2001)
  • nuclear: 1.2%
  • production: 3.504 million bbl/day (2004)
  • consumption: 6.391 million bbl/day (2004)
  • exports: 340,300 bbl/day (2004)
  • imports: 3.226 million bbl/day (2004)
  • net imports: 2.9 million barrel/day (2004 est.)
  • proved reserves: 18.26 billion bbl (2004)
Natural gas:
  • production: 35.02 billion m³ (2003)
  • consumption: 33.44 billion m³ est.)
  • exports: 2.79 billion m³ (2004)
  • imports: 0 m³ (2004 est.)
  • proved reserves: 2.53 trillion m³ (2004)
Over the past decade China has managed to keep its energy growth rate at just half the rate of GDP growth, a considerable achievement. Although energy consumption slumped in absolute terms and economic growth slowed during 1998, mainland China's total energy consumption may double by 2020 according to some projections. China is expected to add approximately 15,000 megawatts of generating capacity a year, with 20% of that coming from foreign suppliers.

China's mineral resources include large reserves of coal and iron ore, plus adequate to abundant supplies of nearly all other industrial minerals. Besides being a major coal producer, China is the world’s fifth largest producer of gold and in the early twenty-first century became an important producer and exporter of rare metals needed in high-technology industries. The rare earth reserves at the Bayan Obi mine in Inner Mongolia are thought to be the largest in any single location in the world. Outdated mining and ore-processing technologies are being replaced with modern techniques, but China’s rapid industrialization requires imports of minerals from abroad. In particular, iron ore imports from Australia and the United States have soared in the early 2000s as steel production rapidly outstripped domestic iron ore production.

The major areas of production in 2004 were coal (nearly 2 billion tons), iron ore (310 million tons), crude petroleum (175 million tons), natural gas (41 million cubic meters), antimony ore (110,000 tons), tin concentrates (110,000 tons), nickel ore (64,000 tons), tungsten concentrates (67,000 tons), unrefined salt (37 million tons), vanadium (40,000 tons), and molybdenum ore (29,000 tons). In order of magnitude, bauxite, gypsum, barite, magnesite, talc and related minerals, manganese ore, fluorspar, and zinc also were important. In addition, China produced 2,450 tons of silver and 215 tons of gold in 2004. The mining sector accounted for less than 0.9% of total employment in 2002 but produced about 5.3% of total industrial production.

Beijing, due in large part to environmental concerns, would like to shift China's current energy mix from a heavy reliance on coal, which accounts for 75% of China's energy, toward greater reliance on oil, natural gas, renewable energy, and nuclear power. The PRC has closed some 30,000 coal mines over the past 5 years to cut overproduction. This has reduced coal production by over 25%. Since 1993, China has been a net importer of oil; today imported oil accounts for 20% of the processed crude in China. Net imports are expected to rise to 3.5 million barrels (560,000 m³) per day by 2010. China is interested in developing oil imports from Central Asia and has invested in Kazakhstan oil fields. Beijing is particularly interested in increasing China's natural gas production - currently just 10% of oil production - and is incorporating a natural gas strategy in its tenth 5-year plan (2001-2005), with the goal of expanding gas use from its current 2% share of China's energy production to 4% by 2005 (gas accounts for 25% of U.S. energy production).

Beijing also intends to continue to improve energy efficiency and promote the use of clean coal technology. Only one-fifth of the new coal power plant capacity installed from 1995 to 2000 included desulphurization equipment. Interest in renewable sources of energy is growing, but except for hydropower, their contribution to the overall energy mix is unlikely to rise above 1%-2% in the near future. China's energy section continues to be hampered by difficulties in obtaining funding, including long-term financing, and by market balkanization due to local protectionism that prevents more efficient large plants from achieving economies of scale.

The World Bank estimates that it takes approximately 18 days to get an electrical connection in China compared with 82 days in India.


Main article: Environment of China

A harmful by-product of China's rapid industrial development has been increased pollution. A 1998 World Health Organization report on air quality in 272 cities worldwide concluded that seven of the 10 most-polluted cities were in China. According to the PRC's own evaluation, two-thirds of the 338 cities for which air-quality data are available are considered polluted - two-thirds of them moderately or severely so. Respiratory and heart diseases related to air pollution are the leading causes of death in China. Almost all of the nation's rivers are considered polluted to some degree, and half of the population lacks access to clean water. Ninety percent of urban water bodies are severely polluted. Water scarcity also is an issue; for example, severe water scarcity in northern China has forced the government to plan a large-scale diversion of water from the Yangtze River to northern cities, including Beijing and Tianjin. Acid rain falls on 30% of the country. Various studies estimate pollution costs the Chinese economy about 7% of GDP each year.

China's communist leaders are increasingly paying attention to the country's severe environmental problems. In March 1998, the State Environmental Protection Administration (SEPA) was officially upgraded to a ministry-level agency, reflecting the growing importance the PRC government places on environmental protection. At the beginning of 2007 SEPA announced 82 projects, with a total investment value of over 112 billion yuan, had been found in serious breach of the environmental impact assessment law and regulations on the integration of health and safety measures into project design. [3]

In recent years, the PRC has strengthened its environmental legislation and made some progress in stemming environmental deterioration. In 1999, the PRC invested more than 1% of GDP in environmental protection, a proportion that will likely increase in coming years. During the 10th 5-Year Plan the PRC plans to reduce total emissions by 10%. Beijing in particular has invested heavily in pollution control as part of its successful campaign to win the competition to host the 2008 Olympic Games.

The PRC is an active participant in the climate change talks and other multilateral environmental negotiations. It is a signatory to the Basel Convention governing the transport and disposal of hazardous waste and the Montreal Protocol on Substances That Deplete the Ozone Layer, the Kyoto Protocol, as well as the Convention on the International Trade in Endangered Species of Wild Flora and Fauna and other major environmental agreements.

The question of environmental impacts associated with the Three Gorges Dam project has generated controversy among environmentalists inside and outside China. Critics claim that erosion and silting of the Yangtze River threaten several endangered species, while Chinese officials say the hydroelectric power generated by the project will enable the region to lower its dependence on coal, thus lessening air pollution.

The U.S.-China Forum on Environment and Development, co-chaired by the U.S. Vice President and the Premier of the People's Republic of China, has been the principal vehicle of an active program of bilateral environmental cooperation since its inception in 1997. Despite positive reviews of the Forum's achievements from both sides, the PRC has often compared the U.S. program, which lacks a foreign assistance component, with those of Japan and several European Union countries that include generous levels of aid.

Macroeconomic trend

This is a chart of trend of gross domestic product of China at market prices estimated by the International Monetary Fund with figures in millions of Chinese Yuan.[29][30]
YearGross Domestic ProductUS Dollar ExchangeInflation Index (2000=100)
1980460,9061.49 Yuan25
1985896,4402.93 Yuan30
19901,854,7904.78 Yuan49
19956,079,4008.35 Yuan91
20009,921,5008.27 Yuan100
200518,232,1008.19 Yuan106

For purchasing power parity comparisons, the US Dollar is exchanged at 2.05 Yuan only.

Currency system

Main article: Renminbi
Currency: 1 yuan = 10 jiao = 100 fen

Exchange rates: yuan per US$1 - Starting July 21, 2005 China has allowed the Renminbi to fluctuate at a daily rate of up to .05%. The rate of exchange in middle 2007 was RMB7.45, while in early 2006 was RMB8.07:US $1 = 8.2793 yuan (January 2000), 8.2783 (1999), 8.2790 (1998), 8.2898 (1997), 8.3142 (1996), 8.3514 (1995)

Note: Beginning 1 January 1994, the People's Bank of China quotes the midpoint rate against the US dollar based on the previous day's prevailing rate in the interbank foreign exchange market.

Hong Kong and Macau

In accordance with the One Country, Two Systems policy, the economies of the former European colonies, Hong Kong and Macao, are separate from the rest of the PRC, and each other. Both Hong Kong and Macao are free to conduct and engage in economic negotiations with foreign countries, as well as participating as full members in various economical international organizations such as the World Customs Organization, the World Trade Organization and the Asia-Pacific Economic Cooperation forum, often under the names "Hong Kong, China" and "Macao, China".

See also


1. ^ China's GDP grows 10.7% in 2006, fastest in 11 years. ChinaDaily (2007-01-26). Retrieved on 2007-03-27.
2. ^ "China Is a Private-Sector Economy". BussinessWeek (2005-08-22). Retrieved on 2007-03-27.
3. ^ Fighting Poverty: Findings and Lessons from China’s Success (World Bank). Retrieved August 10, 2006.
4. ^ Spence, Jonathan D. [1991] (1991). The Search for Modern China. WW Norton & Company publishing. ISBN 0393307808
5. ^ Official Measures of Industrial Output in Current Prices, China 1952-96.
6. ^ Economics, Business, and the Environment — GDP: GDP per capita, current US dollars
8. ^ Analysts express optimism about Chinese shares (from, with source from Shanghai Daily)
9. ^ [4] National Bureau of Statistics "
10. ^ "Rise of a New Power," U.S. News and World Report June 20, 2005
11. ^ John Bryan Starr. Understanding China: A Guide to China's Economy, History and Political Structure.
12. ^ Yardley, Jim; David Barboza (April 3, 2005). Help Wanted: China Finds Itself With a Labor Shortage. New York Times.
13. ^ Barboza, David (April 3 2006). Labor Shortage in China May Lead to Trade Shift. New York Times.
14. ^ Bradsher, Keith (August 29, 2007). Wages Rise in China as Businesses Court the Young. New York Times.
15. ^ [5] U.S. Import and Export Price Indexes, July, 2007
16. ^ "Rise in China’s Pork Prices Signals End to Cheap Output" article by Keith Bradsher in the New York Times, June 8, 2007
17. ^ Vice-Premier Li Xiannian's speech, published in Hong Kong newspaper Ming Pao on June 14, 1979.
18. ^ "China Drafts Law to Boost Unions and End Labor Abuse" New York Times], October 13, 2006]
19. ^ "Official Union in China Says All Wal-Marts Are Organized" New York Times] October 13, 2006]
20. ^ China's foreign trade to top US$ 1.75 trillion. ChinaDaily (2007-01-02). Retrieved on 2007-03-27.
21. ^ Germany still the export achiever. CNN (2005-12-06). Retrieved on 2007-03-27.
22. ^ Trade between China and Russia could exceed $40 bln in 2007. The Voice of Russia (2007-08-02).
23. ^ [6]
24. ^ Pakistan, Growth and Export Competitiveness.
25. ^ Chinese stock market pushes above $1 trillion mark.
26. ^ Xinhua: Chinese mainland stock market to become world's third largest in 10 years
27. ^ [7]
28. ^ Warner Bros to withdraw from Chinese mainland (, with source from China Radio International)
29. ^ [8]
30. ^ [9]

External links

economy is the system of human activities related to the production, distribution, exchange, and consumption of goods and services of a country or other area.

The composition of a given economy is inseparable from technological evolution, civilization's history and social
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The Economy of Hong Kong is widely believed, and some argue incorrectly, to be the most economically free in the world. It has often been cited by economists such as Milton Friedman and the Cato Institute as an example of the benefits of laissez-faire capitalism.
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