Due to the introduction and implementation of free market reforms and the opening of its economy to foreign trade in 1979, China’s economy has seen substantial growth. The country’s creation and initiation of reforms over the years, has resulted in efficiency gains that have contributed significantly to the country’s GDP. The implantation of the economic reforms commenced with the discontinuation of collective farming whereby farmers operated similarly to a joint enterprise (Central Intelligence Agency, 2016). It eventually resulted in the expansion of the economy to include the provision and increase in autonomy for state enterprises, expansion of the country’s private, development of stock markets and the initiation of a modern banking system, and opening to foreign trade and investment. (Central Intelligence Agency, 2016) In 2010, China was recognized as the largest exporter on a global scale and in 2016, it was listed as the country with the largest economy in the world. In addition, the central government provided farmers with the opportunity to sell parts of their crop by issuing price and ownership incentives. The government also established four special economic zones along which sought to increase exports and imports as well as to attract foreign investment. This resulted an increase in an averaged 10% real annual GDP growth rate from 1976 through to 2016, which rendered China the major global economic power with the world’s largest economy, based on its purchasing power parity. By drawing on the leading indicators such as GDP and its components, as well as inflation rates, this report seeks to layout and discuss the current state of China’s economy.
The rapid growth of China’s economy is due to two major factors: increased productivity growth and capital investment on a larger scale (Congressional Research Service 2017: p.7). These factors have resulted in increases in efficiency (referred to as productivity gains) and in turn, increased output as well, which resulted in an increase in resources for additional investment opportunities. This was due to the reallocation of resources to more productive uses; specifically, the trade, employment and agriculture sectors which were previously under the control of the country’s government. Last year, the GDP per capita was recorded as 8,123.161 – an increase from 7,683.502 and 8,609.212 in 2014 and 2015 respectively. The country’s GDP purchasing power parity amounted to $21.29 trillion in 2016, ranking it in first place against other countries like the EU and USA whose GDP PPP was $19.97 trillion and $18.57 trillion respectively (Central Intelligence Agency, 2016). The country’s GDP per capita (PPP) was $5,534.702. In the first three quarters of 2016, the economy experienced a 6.7% growth, despite the crash in China’s stock market and the sudden depreciation of the currency, (the Yuan), as well as a 6.3% growth in its per capita disposable income. Currently, China’s economy has entered a slowdown phase due to significant growth rates over the years up to 2010 (10.4% growth rate of real GDP) and is currently in the process of shifting towards a different model of development and growth. The slowdown in China’s growth rate was due to the substantial decrease in the construction and manufacturing sectors, the main driving forces of the growth of the country’s economy, due to overcapacity.
The unemployment rate in China, which only accounts for urban, registered residents and not migrant and rural workers, remained stagnant at 3.95% in the third quarter of 2017, which was a 0.02% decrease from the rate at the end of the first quarter and a 0.07% decrease from the rate in July of 2016. Despite the gradual slowdown of the economy, the country has managed to stabilize unemployment rates and the government has successfully solicited job growth via the creation of 13.14 million new urban jobs in 2016, and 10.97 million jobs in China from January to September this year – a growth amounting to 300,000 in comparison to 2016, all while actively maintaining the unemployment rates below 4.5%. However, some sectors in the country are being faced with some challenges: in the Northern industrial centers of the country, employees have issued numerous complaints of underemployment and being underpaid, due to the eradication of formerly well-paying jobs during the restructuring of the country’s economy. Furthermore, 50% of a million workers in the steel and coal sectors, due to capacity cuts, will need to be resettled. Though manufacturing companies are cutting jobs, the expansion of the services sector has increased demand for labor.
In January, there was an increase in the inflationary pressures due to the significant surge in the producer price inflation. The National Bureau of Statistics (NBS) of China reported a 6.9% increase in the PPI from the previous year (Scutt, 2017). Additionally, there was a 1.7% year on year increase in consumer prices in November of 2017 and the slowdown of consumer prices, which was due to the further decrease in the cost of food whereas the cost of non-food continued to experience significant increases: prices for food dropped – pork -9.0% from -10.1% and fresh fruits 3.7% from -0.70%. The prices of non-food items, on the other hand, increased at slower rates for categories such as healthcare 7.0% from 7.2% and recreation 2.0% from 2.3% (Trading Economics, 2017).
Due to good global trade conditions and China’s “accession to the World Trade Organization in December 2001, the country has experienced an astonishing growth of 26.9% annually in the exportation of goods and services during the 2002-2008 period” (Focus Economics, 2017). In 2016, China had seven (its largest) trading partners based on total trade, such as South Korea, the US, Hong Kong, and Japan, to name a few. China maintained large trade surpluses of $272 billion with Hong Kong, $251 billion with the US and had large trade imbalances of $99 billion with Taiwan (Morrison, 2017, p. 23). China’s major imports comprise of mineral fuels, nuclear reactors, boilers and machinery. As a result of the low-costs of labor, a significant percentage of the country’s imports is “comprised of parts and components that are assembled into finished products, such as consumer electronic products and computers, and then exported” (Morrison, 2017, p. 24).
The introduction of the 13th Five-Year Plan (2016-2020), which was ratified by the National People’s Congress (NPC) in March of 2016, which ‘seeks to address China’s “unbalanced, uncoordinated, and unsustainable growth” and create a “moderately prosperous society in all respects” through innovative, coordinated, green, open, and inclusive growth’ (U.S.-China Economic Security Review Commission 2017, p.3). The government, via the 13th Five-Year Plan (FYP), seeks to achieve the target of 6.5% average growth annually in order to create a “moderately prosperous society” by the year 2020, making economic growth the country’s central focus (Koleski, p. 24). The success of the government’s efforts to address the country’s economic/structural challenges through the implementation of the 13th FYP, is dependent on the government’s ability to make difficult decisions such as political tradeoffs and to attract a new source of financial support from the private sector (Koleski, p. 3). According to the U.S.-China Economic and Security Review Commission, the implementation of this plan could result in an increase in domestic consumption as well as economic growth driven by the market. The failure of this plan will further prolong the country’s economic stagnation and have adverse effects on its economic growth on a global scale (Koleski, p. 3). Overall, the economic model of China is undergoing major restructuring. Though the former policies that were introduced to produce rapid economic growth at all costs were successful, they entailed a significant number of costs such as overcapacity in the manufacturing and construction industries, imbalances within the economy and the dissemination of income inequality. Though China has one of the world’s fastest growing major economy with growth rates averaging 10%, according to the IMF, the economy will continue to slow down as its population ages and wages increase.