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Home > Country Profiles > China

Country Profiles

Economy and Trade

China is the world’s second-largest economy after the United States, although in per-capita terms it remains low-to-middle income. Until 1978, China had a centrally planned economy and was largely closed to the outside world. In the 1990s, the government restructured China’s state-owned enterprises, and encouraged foreign investment. Following World Trade Organization (WTO) membership in December 2001, the process of “lifting the bamboo curtain” accelerated, and China is now the world’s leading exporter of electronics, textiles, and other manufactured goods. It has a massive current account surplus. In February 2010, China officially overtook Germany to become the world’s leading exporter overall. Chinese exports amounted to US$1.2 trillion in 2009, while German exports totaled US$1.1 trillion. Despite the rapid growth of the economy, poverty remains widespread, particularly in rural areas, with large numbers of people living on less than US$1 a day.

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Economic Policy over 12 Months

In 2008, the government was confident that it would continue to be able to grow GDP by in excess of 10% per year through the “pillar” of export-led growth. However, by October 2008, the country’s leadership acknowledged that this goal would be impossible owing to reduced global demand for Chinese exports.

The government of prime minister Wen Jiabao has since sought to rebalance the economy away from exports and toward domestic consumer demand. In 2009, the government unveiled a massive fiscal stimulus program to support the economy, increasing public spending by 24%. In 2010, the government once again announced an expansionary budget with spending restricted to a more modest 11.4% increase, taking total spending to ¥8.45 trillion. However, by April 2010, with inflation starting to make itself felt, the government began to wind down the stimulus program begun in 2009, fearing that the economy was overheating.

In March 2011, China announced the latest of its five-year plans, this one running through the period from 2011 to 2015. The aim is to achieve a more balanced approach to growth and development, with some shift of emphasis away from an export-driven economy towards encouraging domestic consumption. Both environmental protection and energy conservation are identified as key investment objectives. China has the world’s second-largest installation of wind energy after the United States, and is specifically looking for non-fossil fuels to meet 15% of the country’s fuel requirements by the end of the five-year plan. In addition, some US$600 billion has been committed in the plan to growing sectors such as information technology and scientific research and innovation. Chinese environment minister Zhou Shengxian has warned against pursuing “unsustainable economic growth” and wants his ministry to be able to assess the environmental impact of future development projects.

Although rising inflation has been a considerable concern for the Chinese authorities through 2011, China Business News cites a forecast from China’s Bank of Communications that China’s CPI could fall to 4% by the end of 2011, leaving a year-on-year average rate of 5.5%. The 4% CPI forecast was also given by the International Monetary Fund in its July 2011 comprehensive report on China. The country faces continuing imported inflation as crude oil prices are likely to stay high, and commodity prices, including food commodities, were still at inflated levels by mid-2011.

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Economic Performance over 12 Months

China has ridden out the economic downturn far better than Europe or the United States, although the slump in the United States and Europe hurt its export sector, causing factory closures and job losses in the first half of 2009.

Economic growth fell from 13% in 2007 to 9% in 2008. By the fourth quarter of 2008, it had fallen again, this time to 6.8%. The slowdown was also, paradoxically, partly brought on by earlier government measures intended to prevent the economy from overheating.

However, the economy regained strength in the second half of 2009 and in the first quarter of 2010 it expanded by a stellar 11.9%—the fastest annual growth rate since 2007. The annualized 11.9% growth in GDP compares with 6.2% in the first quarter of 2009, when China was in the grips of the global recession. It is also an improvement on the 10.7% growth posted in the fourth quarter of 2009, the fastest growth since 2007. By mid-2011 China was reporting growth of 9.5%.

Concern continues in the United States that China’s currency is pegged at too low a rate, giving the country an unfair advantage. Alongside its GDP figures, China released data in March showing that retail sales rose 18% from a year earlier and that factory output similarly rose 18.1%.

Much of the growth is down to China’s massive government stimulus measures—but consumer spending is also a major factor. Indeed, during the year ending March 2010, China contributed twice as much to global consumer demand as the United States, an economy that is several times larger. For the first time in six years, China has also begun to import more than it exports.

However, the figures on economic growth have increased fears that China’s economy is overheating. Data showed that urban property prices in March 2010 grew at their fastest rate in over four years. Cheap and plentiful loans are helping to push up housing prices and raising fears of a bubble.

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Support for Inward Investment and Imports

There are several inward investment agencies, which are able to offer assistance as part of a one-stop shop approach. The Beijing government said in March 2009 that it would accelerate reforms of the administrative procedures for the examination and approval of foreign direct investment projects. In particular, the government said it would give greater autonomy to local authorities, and to economic and technological development zones, in weighing up individual proposals.

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Tax Exemptions

The central government will consider allocating additional incentives to inward investors’ fields including high technology, biotechnology, and renewable energy. Local government authorities are already competing vigorously with each other to attract investment, and foreign investors tend to be offered a range of incentives to encourage them to locate in a particular province.

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Statistics

GDP growth: 9.5% (official, 2011)

GDP per capita: US$7,600 (2010 est.)

CPI: 4% (IMF, 2011 est.)

Key interest rate: 3.25% (end 2010 est.)

Exchange rate versus US dollar: ¥6.7852 (2010)*

Unemployment: 4.3% (official, September 2009 est.)†

FDI: US$658.1 billion (end 2010 est.)

Current account deficit/surplus: US$305.4 billion (2010 est.)

Population: 1,336,718,015 (July 2011 est.)

* Renminbi

† Up to 9% if rural areas are included

Source: CIA World Factbook except where stated

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Further reading on China

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