China - Economy

Economy

As of 2012, China has the world's second-largest economy in terms of nominal GDP, totalling approximately US$7.298 trillion according to the International Monetary Fund (IMF). However, China's 2011 nominal GDP per capita of US$5,413 puts it behind around ninety countries (out of 183 countries on the IMF list) in global GDP per capita rankings. If PPP is taken into account in total GDP figures, China is again second only to the United States—in 2011, its PPP GDP reached $11.299 trillion, corresponding to $8,382 per capita. In 2009, China's primary, secondary, and tertiary industries contributed 10.6%, 46.8%, and 42.6% respectively to its total GDP.

From its founding in 1949 until late 1978, the People's Republic of China was a Soviet-style centrally planned economy, without private businesses or capitalism. To propel the country towards a modern, industrialized communist society, Mao Zedong instituted the Great Leap Forward in the early 1960s, although this had decidedly mixed economic results. Following Mao's death in 1976 and the consequent end of the Cultural Revolution, Deng Xiaoping and the new Chinese leadership began to reform the economy and move towards a more market-oriented mixed economy under one-party rule. Agricultural collectivization was dismantled and farmlands were privatized to increase productivity. Modern-day China is mainly characterized as having a market economy based on private property ownership, and is one of the leading examples of state capitalism.

Under the post-Mao market reforms, a wide variety of small-scale private enterprises were encouraged, while the government relaxed price controls and promoted foreign investment. Foreign trade was focused upon as a major vehicle of growth, leading to the creation of Special Economic Zones (SEZs), first in Shenzhen and then in other Chinese cities. Inefficient state-owned enterprises (SOEs) were restructured by introducing western-style management systems, with unprofitable ones being closed outright, resulting in massive job losses. By the latter part of 2010, China was reversing some of its economic liberalization initiatives, with state-owned companies buying up independent businesses in the steel, auto and energy industries.

Since economic liberalization began in 1978, China's investment- and export-led economy has grown almost a hundredfold and is the fastest-growing major economy in the world. According to the IMF, China's annual average GDP growth between 2001 and 2010 was 10.5%, and the Chinese economy is predicted to grow at an average annual rate of 9.5% between 2011 and 2015. Between 2007 and 2011, China's economic growth rate was equivalent to all of the G7 countries' growth combined. According to the Global Growth Generators index announced by Citigroup in February 2011, China has a very high 3G growth rating.

China is the third-most-visited country in the world, with 55.7 million inbound international visitors in 2010. It also experiences an enormous volume of domestic tourism; an estimated 740 million Chinese holidaymakers travelled within the country in October 2012 alone. China is a member of the WTO and is the world's second-largest trading power behind the US, with a total international trade value of US$3.64 trillion in 2011. Its foreign exchange reserves reached US$2.85 trillion by the end of 2010, an increase of 18.7% over the previous year, making its reserves by far the world's largest. China owns an estimated $1.6 trillion of US securities. China, holding over US$1.16 trillion in US Treasury bonds, is the largest foreign holder of US public debt. China is the world's third-largest recipient of inward foreign direct investment (FDI), attracting $115 billion in 2011 alone, marking a 9% increase over 2010. China also increasingly invests abroad, with a total outward FDI of $68 billion in 2010.

China's success has been primarily due to manufacturing as a low-cost producer. This is attributed to a combination of cheap labor, good infrastructure, relatively high productivity, favorable government policy, and a possibly undervalued exchange rate. The latter has been sometimes blamed for China's huge trade surplus (US$262.7 billion in 2007) and has become a major source of dispute between China and its major trading partners—the US, EU, and Japan—despite the yuan having been de-pegged and having risen in value by 20% against the US dollar since 2005. China has also been widely criticised for manufacturing large quantities of counterfeit goods—in 2005, the Asia Business Council alleged that the counterfeiting industry accounted for 8% of China's GDP at the time.

The state still dominates in strategic "pillar" industries (such as energy and heavy industries), but private enterprise (composed of around 30 million private businesses) has expanded enormously; in 2005, it accounted for anywhere between 33% to 70% of national GDP, while the OECD estimate for that year was over 50% of China's national output, up from 1% in 1978. The Shanghai Stock Exchange has raised record amounts of IPOs, and its benchmark Shanghai Composite index has doubled since 2005. SSE's market capitalization reached US$3 trillion in 2007, making it the world's fifth-largest stock exchange.

China now ranks 29th in the Global Competitiveness Index, although it is only ranked 135th among the 179 countries measured in the Index of Economic Freedom. In 2011, 61 Chinese companies were listed in the Fortune Global 500. Measured by total revenues, three of the world's top ten most valuable companies are Chinese, including fifth-ranked Sinopec Group, sixth-ranked China National Petroleum and seventh-ranked State Grid (the world's largest electric utilities company).

China's middle-class population (defined as those with annual income of at least US$17,000) has reached more than 100 million as of 2011, while the number of super-rich individuals worth more than 10 million yuan (US$1.5 million) is estimated to be 825,000, according to Hurun Report. Based on the Hurun rich list, the number of US dollar billionaires in China doubled from 130 in 2009 to 271 in 2010, giving China the world's second-highest number of billionaires. China's retail market was worth RMB 8.9 trillion (US$1.302 trillion) in 2007, and is growing at 16.8% annually. China is also now the world's second-largest consumer of luxury goods behind Japan, with 27.5% of the global share.

In recent years, China's rapid economic growth has contributed to severe consumer inflation, causing the prices of basic goods to rise steeply. Food prices in China increased by over 21% in the first four months of 2008 alone. To curb inflation and moderate rising property prices, the Chinese government has instituted a number of fiscal regulations and amendments, raising interest rates and imposing limits on bank loans. In September 2011, consumer prices rose by 6.1% compared to a year earlier, marking a reduction in inflation from the peak of 6.5% in July 2011. A side-effect of increased economic regulation was a slowdown in overall growth – China's quarterly GDP growth fell to 9.1% in October 2011, down from 9.5% in the previous quarter, and sank to 8.1% in April 2012. By October 2012, amid a manufacturing slowdown and increasing turmoil in global markets, China's quarterly GDP growth rate had fallen to 7.4%. However, the country's economic indicators began to rebound towards the end of 2012.

The Chinese economy is highly energy-intensive and inefficient—on average, industrial processes in China between 20% and 100% more energy than similar ones in OECD countries. China became the world's largest energy consumer in 2010, but still relies on coal to supply about 70% of its energy needs. Coupled with lax environmental regulations, this has led to massive water and air pollution, leaving China with 20 of the world's 30 most polluted cities. Consequently, the government has promised to use more renewable energy, planning to make renewables constitute 30% of China's total energy production by 2050. In 2010, China became the largest wind energy provider in the world, with a total installed wind power capacity of 41.8 GW. In January 2011, Russia began scheduled oil shipments to China, pumping 300,000 barrels of oil per day via the Eastern Siberia – Pacific Ocean oil pipeline.