Economy of China

Mother Earth Travel > Country Index > China Map Economy History

Economic Reforms
Since 1979, China has been engaged in an effort to reform its economy. The Chinese leadership has adopted a pragmatic perspective on many political and socioeconomic problems, and has sharply reduced the role of ideology in economic policy. Political and social stability, economic productivity, and public welfare are considered paramount. In these years, 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.

In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits. China pursued agricultural reforms, dismantling the commune system and introducing a household-based system that provided peasants greater decisionmaking 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 Chinese and foreign trading enterprises. China also relied more upon foreign financing and imports.

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. 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.

By the late 1980s, however, the economy had become overheated with increasing rates of inflation. 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. During a visit to southern China in early 1992, China's paramount leader at the time Deng Xiaoping made a series of political pronouncements designed to reinvigorate the process of economic reform. The 14th Party Congress later in the year backed Deng's renewed push for market reforms, stating that China's key task in the 1990s was to create a "socialist market economy." The 10-year development plan for the 1990s stressed continuity in the political system with bolder reform of the economic system.

During 1993, output and prices were accelerating, investment outside the state budget was soaring, and economic expansion was fueled by the introduction of more than 2,000 special economic zones (SEZs) and the influx of foreign capital that the SEZs facilitated. Fearing hyperinflation, Chinese authorities called in speculative loans, raised interest rates, and re-evaluated investment projects. The growth rate was thus tempered, and the inflation rate dropped from over 17% in 1995 to 8% in early 1996. In 1996, the Chinese economy continued to grow at a rapid pace, at about 9.5%, accompanied by low inflation. The economy slowed for the next 3 years, with official growth of 8.9% in 1997, 7.8% in 1998 and 7.1% for 1999. The year 2000 showed a modest reversal of this trend. Gross domestic product in 2000 grew officially at 8.0% that year.

Despite China's impressive economic development during the past two decades, reforming the state enterprise sector and modernizing the banking system remain major hurdles. During the 15th National Congress of the Chinese Communist Party that met in September 1997, President Jiang Zemin announced plans to sell, merge, or close the vast majority of SOEs in his call for increased "non-public ownership." The 9th National People's Congress endorsed the plans at its March 1998 session.

Agriculture
Most of China's labor force is engaged in agriculture, even though only under 10% of the land is suitable for cultivation. There are 329 million Chinese farmers--roughly half the work force--mostly laboring on tiny plots of land relative to U.S. farmers. Virtually all arable land is used for food crops, and China is among the world's largest producers of rice, potatoes, sorghum, millet, barley, peanuts, tea, and pork. Major non-food crops, including cotton, other fibers, and oil seeds, furnish China with a large proportion of its foreign trade revenue. Agricultural exports, such as vegetables and fruits, fish and shellfish, grain and grain products, and meat 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. Incomes for Chinese farmers are stagnating, leading to an increasing wealth gap between the cities and countryside. Government policies that continue to emphasize grain self-sufficiency and the fact that farmers do not own--and cannot buy or sell--the land they work have contributed to this situation.

Industry
Major state industries are iron, steel, coal, machine building, light industrial products, armaments, and textiles. These industries completed a decade of reform (1979-89) with little substantial management change. The 1999 industrial census revealed that there were 7,930,000 industrial enterprises at the end of 1999 (including small-scale town and village enterprises); total employment in state-owned industrial enterprises was approximately 24 million. High-tech industries are well positioned to take advantage of opportunities created by WTO; the response of moribund industries--such as autos--is less clear. Machinery and electronic products have become China's main exports.

Energy and Mineral Resources
According to Chinese statistics, China has managed to keep its energy growth rate at just half the rate of GDP growth over the past decade. Though these numbers are not reliable, there is agreement that China has improved its energy efficiency significantly over this period. 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.

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.

China has closed thousands of coal mines over the past 5 years to cut overproduction. According to Chinese statistics, this has reduced coal production by over 25%. Since 1993, China has been a net importer of oil. Net imports are expected to rise to 3.5 million barrels per day by 2010. China is interested in developing oil imports from Central Asia and has invested in Kazhakstan 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 (2001-05) 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 sector 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.

Environment
One of the serious negative consequences of China's rapid industrial development has been increased pollution and degradation of natural resources. A 1998 World Health Organization report on air quality in 272 cities worldwide concluded that seven of the world's 10 most polluted cities were in China. According to China'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 cause 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 is a serious threat to sustained economic growth and has forced the government to plan a largescale 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 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 Chinese Government places on environmental protection. In recent years, China has strengthened its environmental legislation and made some progress in stemming environmental deterioration. In 1999, China invested more than one percent of GDP in environmental protection, a proportion that will likely increase in coming years. During the 10th 5-Year Plan, China plans to reduce total emissions by 10%. Beijing in particular will invest heavily in pollution control as part of its campaign to host a successful Olympiad in 2008. Some cities have seen improvement in air quality in recent years.

China is an active participant in the climate change talks and other multilateral environmental negotiations, taking environmental challenges seriously but pushing for the developed world to help developing countries to a greater extent. It is a signatory to the Basel Convention governing the transport and disposal of hazardous waste and the Montreal Protocol for the Protection of the Ozone Layer, as well as the Convention on International Trade in Endangered Species 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 dam will help prevent devastating floods and generate clean hydroelectric power that will enable the region to lower its dependence on coal, thus lessening air pollution.

The United States and China have been engaged in an active program of bilateral environmental cooperation since the mid-1990s, with an emphasis on clean energy technology and the design of effective environmental policy. While both governments view this cooperation positively, China has often compared the U.S. program, which lacks a foreign assistance component, with those of Japan and several European Union (EU) countries that include generous levels of aid.

Science and Technology
Science and technology have always preoccupied Chinas leaders; indeed, China's leading technocrats--both Jiang and Zhu were trained as electric power engineers--have a great reverence for science. Deng called it "the first productive force." Distortions in the economy and society created by party rule have severely hurt Chinese science, according to some Chinese science policy experts. The Chinese Academy of Sciences, modeled on the Soviet system, puts much of China's greatest scientific talent in a large, under-funded apparatus that remains largely isolated from industry, although the reforms of the past decade have begun to address this problem.

Chinese science strategists see China's greatest opportunities in newly emerging fields such as biotechnology and computers where there is still a chance for China to become a significant player. Most Chinese students who went abroad have not returned, but they have built a dense network of transpacific contacts that will greatly facilitate U.S.-China scientific cooperation in coming years. The United States is often held up as the standard of modernity in China. Indeed, photos of the Space Shuttle often appear in Chinese advertisements as a symbol of advanced technology. China's small but growing space program, which may put a man in space within a few years, is a focus of national pride.

The U.S.-China Science and Technology Agreement remains the framework for bilateral cooperation in this field. A 5-year agreement to extend the S&T Agreement was signed in April 2001. There are currently over 30 active protocols under the Agreement, covering cooperation in areas such as marine conservation, renewable energy, and health. Japan and the European Union also have high profile science and technology cooperative relationships with China.

Trade and Investment
According to IMF statistics, China's global trade totaled $454 billion in 2000; the trade surplus stood at $20 billion. China's primary trading partners include Japan, the EU, the United States, South Korea, Hong Kong, and Taiwan. According to U.S. statistics, China had a trade surplus with the U.S. of $83 billion in 2000.

China is taking steps to decentralize its foreign trading system and integrate itself into the world trading system. In November 1991, China joined the Asia Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation in the economic, trade, investment, and technology spheres. China served as APEC chair in 2001, and Shanghai hosted the annual APEC leaders meeting in October.

China formally joined the WTO in December 2001. Accession marks the end of a 16 year long cycle of negotiations. As part of this far-reaching trade liberalization agreement, China agreed to lower tariffs and abolish market impediments after it joins the WTO. 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 will drop from 31% to 14% in 2004 and on industrial products from 25% to 9% by 2005. The agreement also opens up new opportunities for U.S. providers of services like banking, insurance, and telecommunications.

Export growth continues to be a major component supporting China's rapid economic growth. To increase exports, China has pursued policies such as fostering the rapid development of foreign-invested factories, which assemble imported components into consumer goods for export and liberalizing trading rights.

The United States 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 strict testing and standards requirements for some imported products. In addition, nontransparency in the regulatory process makes it difficult for businesses to plan for changes in the domestic market structure.

Foreign Investment
Foreign investment stalled in late 1989 in the aftermath of Tiananmen. In response, the government introduced legislation and regulations designed to encourage foreigners to invest in high-priority sectors and regions.

In 1990, 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, China granted more preferential tax treatment for wholly foreign-owned businesses 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 transportation. China 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. China revised significantly its laws on Wholly Foreign-Owned Enterprises and China Foreign Equity Joint Ventures in 2000 and 2001, easing export performance and domestic content requirements. In 2000, China received nearly $41 billion in foreign direct investment.

Opening to the outside remains central to China's development. Foreign-invested enterprises produce about 45% of China's exports, and China continues to attract large investment inflows. For the past 8 years, China has been the world's second-largest recipient of foreign direct investment after the United States. Foreign exchange reserves totaled about $165 billion in 2000.
 

GDP: purchasing power parity - $4.5 trillion (2000 est.)
GDP - real growth rate: 7% (1999 est.), 8% (2000 est.)
GDP - per capita: purchasing power parity - $3,600 (2000 est.)
GDP - composition by sector:
agriculture:  15%
industry:  50%
services:  35% (2000 est.)
Population below poverty line: 10% (1999 est.)
Household income or consumption by percentage share:
lowest 10%: 2.4%
highest 10%: 30.4% (1998)
Inflation rate (consumer prices): -1.3% (1999 est.), 0.4% (2000 est.)
Labor force: 700 million (1998 est.)
Labor force - by occupation: agriculture 50%, industry 24%, services 26% (1998)
Unemployment rate: urban unemployment roughly 10%; substantial unemployment and underemployment in rural areas (2000 est.)
Industries: iron and steel, coal, machine building, armaments, textiles and apparel, petroleum, cement, chemical fertilizers, footwear, toys, food processing, automobiles, consumer electronics, telecommunications
Industrial production growth rate: 8.8% (1999 est.), 10% (2000 est.)
Electricity - production: 1.173 trillion kWh (1999)
Electricity - production by source:
fossil fuel:  79.82%
hydro:  18.98%
nuclear:  1.2%
other:  0.01% (1999)
Electricity - consumption: 1.084 trillion kWh (1999)
Electricity - exports: 7.2 billion kWh (1999)
Electricity - imports: 90 million kWh (1999)
Agriculture - products: rice, wheat, potatoes, sorghum, peanuts, tea, millet, barley, cotton, oilseed; pork; fish
Exports: $194.9 billion (f.o.b., 1999), $232 billion (f.o.b., 2000)
Exports - commodities: machinery and equipment; textiles and clothing, footwear, toys and sporting goods; mineral fuels, chemicals
Exports - partners: US 21%, Hong Kong 18%, Japan 17%, South Korea, Germany, Netherlands, UK, Singapore, Taiwan (2000)
Imports: $197 billion (f.o.b., 2000)
Imports - commodities: machinery and equipment, mineral fuels, plastics, iron and steel, chemicals
Imports - partners: Japan 18%, Taiwan 11%, US 10%, South Korea 10%, Germany, Hong Kong, Russia, Malaysia (2000)
Debt - external: $159 billion (1998 est.), $162 billion (2000 est.)
Currency: yuan (CNY)

SOURCES: The World Factbook, U.S. Department of State

Mother Earth Travel > Country Index > China Map Economy History