Economic Structure of China

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Since 1949, the Chinese government has been responsible for planning and managing the national economy.  But it was only in 1978 – when Deng Xiaoping introduced capitalist market principles –that the Chinese economy began to show massive growth, averaging 10 percent GDP growth over the last 30 years. During that period the size of the Chinese economy has also grown by roughly 48 times, from $168.367 billion (current prices, US dollars) in 1981 to $8.227 trillion last year.

Economic reforms started with the initial focus on collectivizing agricultural activities in the country. The leaders of the Chinese economy, during the 1970s and 1980s, were trying to change the centre 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 has adopted a slow but steady method in implementing economic reforms. The latest set of reforms, known as the 12th Five-Year Plan, was adopted in March 2011, emphasising continued economic reforms and the need to increase domestic consumption in order to make the economy less dependent on exports in the future.

The Chinese government faces numerous economic challenges, including: (a) reducing its high domestic savings rate and correspondingly low domestic demand; (b) sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation.

Economic Geography

China is the 4th largest country in the world, measuring 9,569,901 sq km. The Chinese economy is better understood as a decentralised collection of several regional economies, with large imbalances between the rural and urban population.

The three wealthiest and most important economic regions are all on the east coast: the Pearl River Delta close to Hong Kong, The Yangtze River Delta surrounding Shanghai and the Bohai Bay region near Beijing. It is the rapid development of these areas that is expected to have the most significant effect on the Asian regional economy as a whole, and Chinese government policy is designed to remove the obstacles to accelerated growth in these wealthier regions.

Over the past two decades however, China has embarked on an ambitious program of expressway network expansion. By facilitating market integration, this program aims both to promote efficiency at the national level and to contribute to the catch-up of lagging inland regions with prosperous Eastern ones.

The consequence of the program saw China’s two major financial centres, Beijing and Shanghai, experience the lowest growth in 2012 – 7.7 percent and 7.5 percent respectively – compared to growth rates of over 13 percent for Tianjin, Chongqing, Guizhou, Yunnan in the more impoverished interior.

Given its vast land area, China is home to large amounts of natural resources. According to some reports, China has deposits of every one of the 150 minerals found so far in the natural world. Of these, more than 20 rank in the forefront of the world. Ranking first in the world, in proven deposits, are 12 minerals: tungsten, antimony, titanium, vanadium, zinc, rare earth, magnesite, pyrite, fluorite, barite, plaster stone and graphite; ranking second and third are six: tin, mercury, asbestos, talcum, coal and molybdenum; and ranking fourth are five: nickel, lead, iron, manganese and the platinum family. China also ranks third in the world in the deposit of 45 important minerals. Additionally, with its vast mountain ranges, China’s hydropower potential is the largest in the world.

China’s Population and Labour Force

China’s population in 2012 was 1.35 trillion – the largest in the world. It also has the world’s largest labour force of 795.4 million, though some estimates place China’s potential labour force – calculated as anyone between the working ages of 15-64 years – to be far higher at 1.004 billion people.

The official unemployment rate for China in 2012, provided by government statistics, was 4.1 percent. However most analysts believe that this does not take into account much of the nation’s rural population. This is also reflected in the fact that China has maintained an unemployment rate of 4 to 4.3 percent over the last ten years, according to government figures.

Some economists say China will face a dwindling pool of young workers in the coming years, as a result of its notorious One-Child Policy. By some estimates, the proportion of Chinese over-60s in the population will rise from the current 11 percent to 28 percent by 2040. The labour pool also shrank by 3.45 million in 2012, the first decline in almost 50 years. But despite a population growth rate of just 0.46 percent – one of the lowest in the world – Chinese officials recently reiterated that the One-Child Policy will remain in place until 2015 at least.

China’s Industry Sectors

State-owned enterprises (SOEs) presently dominate China’s economy – accounting for 46 percent of its industrial output. In 2003, Beijing set up the State-owned Assets Supervision and Administration Commission as a watchdog to expand and strengthen large industrial state enterprises. As a result SOEs have seen their combined assets rise to 28 trillion yuan ($4.56) in 2011 from 7.13 trillion yuan in 2002. Revenues have also soared from 3.36 trillion yuan to 20.2 trillion yuan.

Critics argued that the SOEs are stifling innovation and restricting opportunities for private companies. Though fewer in number than before, as a result of massive state consolidation, today’s SOEs are far more powerful. As of 2012, large state-owned enterprises produced over 50 percent of China’s goods and services and employed over half of the nation’s labour force. 65 of the Chinese SOEs also made it into 2012 Fortune Global 500 list, including State Grid Corporation of China, which operates the country's power grid, and oil companies China National Petroleum Corporation and Sinopec.

Sector wise, manufacturing and industries comprises the largest part of China’s GDP. Despite seeing a 3.3 percentage point drop in 2012, industries still accounted for 45.3 percent of China’s GDP – cementing China’s position as the world leader in gross value of industrial output.

Major industries include mining and ore processing, iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites.

In 2012, China had the 28th fastest industrial production growth rate in the world at 7.9 percent. As of 2011, 46 percent of China's national output continues to go into investments for industrial development – a percentage far higher than any other nation. The machine-building and metallurgical industries have received the highest priority. These two areas alone now account for about 20–30 percent of the total gross value of industrial output.

Nevertheless, despite the dominance of Industries in the composition of China’s GDP, Services is catching up quickly – and may overtake Industries by the end of the year. In 2012, Services accounted for 44.6 percent of China’s GDP, just 0.7 percentage points behind Industries. Comparatively just three years ago, that gap was 8.1 percentage points wide.

China's services output in 2010 ranks third worldwide (after US and Japan), and high power and telecom density has ensured that it has remained on a high-growth trajectory in the long-term. The surge in services also reflects the ongoing rebalancing of Chinese demand away from exports and towards consumption. Because services tend to be labour-intensive, their expansion may also encourage faster job creation, higher wages and greater household spending.

The United Nations Conference on Trade and Development expects the service industry to help lift the world economy. One way China's supporting the services sector is with lower taxes, through the VAT tax reform pilot for service industries. The growing internationalization of the yuan could also advance its financial and banking system. With two stock exchanges (Shanghai Stock Exchange and Shenzhen Stock Exchange), mainland China's stock market has been forecasted to become the world's third largest by 2016.

Finally, Agriculture accounted for 10.1 percent of China’s GDP in 2012. The economic reforms introduced in 1978 saw China de-collectivize agriculture, yielding tremendous gains in production as a result.

Today, China is the world's largest producer of agricultural products - ranking first in the world for rice, wheat, potatoes, sorghum, peanuts, tea, millet, barley, cotton, oilseed, pork, and fish. About 300 million Chinese are employed in the agriculture sector – making up 34.8 percent of the labour force.

Read more about China's economy, including industry information, featured analysis and trade statistics below.