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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 Enterprise s 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. Fighting Poverty: Findings and Lessons from China’s Success (World Bank). Retrieved August 10, 2006. 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 System s 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. BACKGROUND trend from 1952 to 2005.]] 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- Capitalist s, and imposed base-less charges that allowed the government to punish capitalists with severe fines.Spence, Jonathan D. {Link without Title} (1991). The Search for Modern China. WW Norton & Company publishing. ISBN 0393307808 In 1952, gross industrial output of China was estimated at 34,900 million yuan3 in current prices. That works out to almost 3% world share then and 1.5 times that of the output of Japan or India in absolute terms (not per capita). Current GDP per capita grew a paltry 17% in the Sixties, 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 Deficit s. 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 Enterprise s, 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 Import s. 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." Deng Xiaoping on BUILD SOCIALISM WITH CHINESE CHARACTERISTICS on June 30, 1984 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, Bank ing, Price Setting , and labor systems. 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 Zone s (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 Rate s, 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. Analysts express optimism about Chinese shares (from Xinhuanet.com, with source from ''Shanghai Daily'') In December 2005, China's National Bureau of Statistics http://www.stats.gov.cn/english/"China's National Bureau of Statistics "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."Rise of a New Power," ''U.S. News and World Report'' June 20, 2005 It would then overtake the United States by 2040 to become the world's largest economy.John Bryan Starr. ''Understanding China: A Guide to China's Economy, History and Political Structure.'' 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) {Link without Title} 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. CHALLENGES 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 Pension s. 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. Over-heating 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 Chinese 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.4 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.5 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:6 "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." http://www.bls.gov/news.release/ximpim.nr0.htm U.S. Import and Export Price Indexes, July, 2007 AGRICULTURE See Also: Agriculture in China , year 2005. Y-axis : Production in Metric ton.]] Main agricultural products: Rice , Wheat , Potato es, Sorghum , Peanut s, 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, 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, Fertilizer s, 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. {Link without Title} 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."Rise in China’s Pork Prices Signals End to Cheap Output" article by Keith Bradsher in the New York Times , June 8, 2007 INDUSTRY China Ranks Third worldwide in factory output. Main industries: Iron and Steel , Coal , Machinery , Armaments , Textiles and Apparel , Petroleum , Cement , Chemical , Footwear , Toy s, Food Processing , Automobile s, Consumer Electronics , Telecommunications , Information Technology . Industrial production growth rate: 12.6% (2002 est.) 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. LABOUR 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. Vice-Premier Li Xiannian's speech, published in Hong Kong newspaper ''Ming Pao'' on June 14, 1979. 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 October 13, 2006] TRADE AND SERVICES
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 2006.7. 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 8. 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 Tariff s 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. | |||
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