Economy

 

Nominal GDP from 1952 to 2005.

From its founding in 1949 to late 1978, the People's Republic of China was a Soviet-style centrally planned economy. Private businesses and capitalism were suppressed. To propel the country towards a modern, industrialized communist society, Mao Zedong instituted the Great Leap Forward which is now widely seen – both within the PRC and outside – as a major economic failure and a great humanitarian disaster. His death and the end of the Cultural Revolution allowed Deng Xiaoping and the new Chinese leadership to reform the economy and move to a market-oriented mixed economy under one-party rule. Collectivization of the agriculture was dismantled and farmlands were privatized to increase productivity. A wide variety of small-scale enterprises were allowed to flourish while the government relaxed price controls and promoted foreign investment. Foreign trade was focused upon as a major vehicle of growth, which led to the creation of Special Economic Zones (SEZs) first in Shenzhen (near Hong Kong) and then in other Chinese cities. Inefficient state-owned enterprises (SOEs) were restructured by introducing western-style management system and the unprofitable ones were closed, resulting in massive job losses.

 

Shanghai Stock Exchange building at Shanghai's Pudong financial district

Since economic liberalization began in 1978, the PRC's investment- and export-ledeconomy has grown 70 times bigger and is among the fastest growing in the world.⁷³ It now has the world's third largest nominal GDP at 30 trillion yuan (US$4.4 trillion), although its per capita income of US$3,300 is still low and puts the PRC behind roughly a hundred countries.The primary, secondary, and tertiary industries contributed 11.3%, 48.6%, and 40.1% respectively to the total economy. If PPP is taken into account, the PRC's economy is second only to the US at US$7 trillion corresponding to US$5,300 per capita. The PRC is the fourth most visited country in the world with 49.6 million inbound international visitors in 2006.⁷⁶ It is a member of the WTO and is the world's third largest trading power behind the US and Germany with a total international trade of US$2.56 trillion - US$1.43 trillion in exports (#2) and US$1.13 trillion in imports (#3). Its foreign exchange reserves have reached US$1.9 trillion, making it the world's largest.It is among the world's favorite destination for FDI, attracting more than US$80 billion in 2007 alone. The PRC's success has been primarily due to manufacturing as a low-cost producer. This is attributed to a combination of cheap labor, good infrastructure, medium level of technology and skill, relatively high productivity, favorable government policy, and some say, an undervalued exchange rate. The latter has been blamed for the PRC's bulging trade surplus (US$262.7 billion in 2007) and has become a major source of dispute between the PRC and its major trading partners – the US, EU, and Japan – despite the yuan having been de-pegged and risen in value by 20% against the US dollar since 2005.

 

In 1978, Deng Xiaoping initiated the PRC's market-oriented reforms.

The state still dominates in strategic "pillar" industries (such as energy and heavy industries), but private enterprise (30 million private businesses)now accounts for approximately 70% of China's national output, up from 1% in 1978. Its stock market in Shanghai (SSE) is raising record amounts of IPOs and its benchmark Shanghai Composite index has doubled since 2005. SSE's market capitalization reached US$3 trillion in 2007 and is the world's fifth largest exchange. China now ranks 34^th in the Global Competitiveness Index.Twenty nine Chinese companies made the list in the 2008 Fortune Global 500. Measured on market capitalization, 3 out of 10 of the world's most valuable companies are in China including #2-PetroChina, #5-China Mobile (world's most valuable telecommunications company), and #6-Industrial and Commercial Bank of China (world's most valuable bank).

Although still relatively poor by the world's standard, the PRC's rapid growth managed to pull hundreds of millions of its people out of poverty since 1978. Today, about 10% of the Chinese population (down from 64% in 1978) live below the poverty line of US$1 per day (PPP) while life expectancy has dramatically increased to 73 years. More than 90% of the population is relatively literate, compared to 20% in 1950.Urban unemployment declined to 4 percent in China by the end of 2007 (true overall unemployment might be higher at around 10%). Its middle class population (defined as those earning more than $2 per day⁸⁹) has now reached 80-150 million.China's retail market is worth RMB8921 billion (US$1302 billion) in 2007 and growing at 16.8% annually.⁹² It is also now the world's third biggest consumer of luxury goods with 12% of the global share.

The PRC's growth has been uneven when comparing different geographic regions and rural and urban areas. The urban-rural income gap is getting wider in the PRC with a Gini coefficient of 46.9%. Development has also been mainly concentrated in the eastern coastal regions while the remainder of the country are left behind. To counter this, the government has promoted development in the western, northeastern, and central regions of China. The economy is also highly energy-intensive and inefficient – it uses 20%-100% more energy than OECD countries for many industrial processes.It has now become the world's second largest energy consumer behind the US but relies on coal to supply about 70% of its energy needs.Coupled with a lax environmental regulation, this has led to a massive water and air pollution (China has 20 of the world's 30 most polluted cities). Consequently, the government has promised to use more renewable energy with a target of 10% of total energy use by 2010 and 30% by 2050.