In 2010, China’s GDP growth was 10.456 percent, totaling US$ 5,745.13 billion, and is expected to increase 11.79 percent in 2011 to US$ 6,422.28 Billion. Forecasts for 2015 predict China’s GDP to reach US$ 9,982.08 billion, growing 10-12 percent per year between 2010 and 2015.
China's economy is huge and expanding rapidly. In the last 30 years, the rate of Chinese economic growth has been almost miraculous, averaging 8 percent growth in Gross Domestic Product (GDP) per annum. The economy has grown more than 10 times during that period, with Chinese GDP reaching 3.42 trillion US dollars in 2007. China already has the biggest economy after the United States and most analysts predict China will become the largest economy in the world this century.
China’s population in 2010 was 1.341 billion, and its expected to grow to 1.375 billion in 2015. In 2010, China’s unemployment rate stood at only 4.1 percent, decreasing 4.65 percent from the previous year and expected to decrease further to 4 percent in 2011. Forecasts for 2015 predict China’s unemployment rate to remain at 4 percent between 2011 to 2015.
However, there are still inequalities in the income of the Chinese people. The per capita income of China is only about 2,000 US dollars, which is fairly poor against global standards.
Economic reforms started in China in the 70s and 80s with the initial focus on collectivizing agricultural activities in the country. The leaders of the Chinese economy, at that point in time, were trying to change the center of agriculture from farming to household activities. The reforms also extended to the liberalization of prices, in a gradual manner. The process of fiscal decentralization soon followed.
As part of the reforms, more independence was granted to business enterprises that were owned by the state government. This meant government officials at local levels and managers of various plants had more authority than before.
This led to the creation of a number of various types of privately held enterprises within the services sector, as well as the light manufacturing sectors. The banking system was also diversified, and Chinese stock markets started to develop and grow as economic reforms in China took hold.
China grew at a rapid pace as a result of these reforms and opened its economy to the world for trade and direct foreign investment.
China has adopted a slow but steady method in implementing economic reforms. It has also sold the equity of some of its major Chinese state banks to overseas companies and bond markets. In recent years, China's role in international trade has also increased.
The Chinese economy, in a state of autarky since the days of Mao Zedong experienced some radical transformations after Deng Xiaoping took over in 1978. From being an excessively centrally planned economy it matured to a more open economy from his time and is now the growth engine for the world economy for the past ten years. Driven by rapid economic growth and rising incomes, the standard of living has risen and consumer goods such as cars and television sets which were once reserved for the elite are now within the grasp of the common man. Between 1978 and 2002, the amount of goods passing through Chinese ports had increased ten fold and the number of foreign visitors to the country had crossed over a million.
China, the fourth largest country in terms of size after Russia, Canada and the USA is now the world’s second largest economy after the USA if adjusted for differences in cost of living (purchasing power parity differences) although it is only about 10% of the US economy in dollar terms. Tremendous comparative advantage in terms of cheap labour and low production costs has given Chinese goods an edge over others in the world markets.
Data for the past three years reveal that the country has been maintaining a high growth rate in the GDP of around 8% to 10% annually. The upward trend in the country’s GDP, GNI as well as the per capita GDP reaching a high of around $1700 in 2005 has been continually maintained throughout the year 2006.
Increase in merchandise trade showed the tremendous growth in the country’s exports in the recent years. China has also been successful in stabilizing inflation rates after it reached a high of around 7% in 2004. The rise in Chinese worker’s remittances from abroad gas also contributed to a growth in the country’s GNI.
One of the defining features for the Chinese economy came on the 11th of December, 2001 when it became a member of the World Trade Organization or WTO. The Chinese accession to the WTO meant that Chinese economy opened up more to the rest of the world and its trade with Japan and the ASEAN nations (Association of South-East Asian Nations) increased rapidly. China drastically reduced its tariff rates from 16.7% in 2001 to 12% in 2002 and significant steps for reducing the number of items on its import license or quota which was 300 in 2002 are presently underway. Notably, India’s exports to China quadrupled from less than 1% in 1995 to more 4.5% in 2003. With more free movement of goods and services in the area, China’s neighbours were exposed to a much larger market which had a substantial effect on the reduction of production costs. This also resulted in greater flow of foreign investment to China. China had attracted Foreign Direct Investment (FDI) to the tune of US $ 44 billion in 2001 and the corresponding figure for 2002 rose to $52.7 billion.
As a measure of its sheer growth in the global economic Diaspora, the contribution of China as a part of the global economy has increased from 11% in 2000 to over13% in 2004 which in turn, dwarfs the share of the economies of Japan, France and the UK.The share of the country in world trade has grown even more rapidly. China’s share of world exports was at around 6% in 2003 from the level of 4% in 2000 with the corresponding figure for imports rising from 3.6% to 5.7% between 2000 and 2003.
The Chinese economy is currently facing one peculiar problem in the decline of its employable workforce in the recent years. With the government able to keep its population growth at 0.6% successfully adopting the 'One Child Plan', the government fears that old age pensions and other benefits will put a severe strain on the country’s growing national output. One of the other emerging problems for the Chinese economy is its continuing reliance towards a largely fixed exchange rate system. This certainly makes counter-inflationary monetary policies less flexible. So this issue with the possible restructuring and reform of the banking system could make the Chinese economy even stronger.
But growth with inequality and questions whether the Chinese economy will be able to sustain this rapid growth seem to be unceasing. With the booming development of the coastal cities coexisting with the hard, poor life still prevalent in the rural areas, the trickle down effect of globalization has been negligible. Between 1988 and 1995, China experienced the highest ever growths in income inequality ever monitored by the World Bank. Per capita urban incomes were 2.2 times higher than in rural households in 1990 which increased to 2.6 in 1999 and further to 2.8 in 2000. This has mainly been ascribed to rural unemployed not being able to find jobs owing to their lack of technical skills and education. With illiteracy falling in the second half of the 1990’s, the growth of 'human capital' is set to increase.
In the event of a general slowdown of the US economy with a sluggish growth in the Asian powerhouse Japan too, it remains to be seen whether the Chinese economic boom will burst like a bubble in the long run. With the Chinese Stocks facing bullish growth in the event of relative socio-economic stability in the Chinese economy, China is sure to become the investor’s choice in the next decade.
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