In the 1990s, the Chinese economy continued to grow at a rapid pace, at about 9.5%, accompanied by a rapidly increasing inflation, which reached over 20 percent in 1994. The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.
The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht (due to lack of foreign currency to support its fixed exchange rate), cutting its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time,
Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. Indonesia, South Korea and Thailand were the countries most affected by the crisis. Hong Kong, Malaysia, Laos and the Philippines were also hurt by the slump.
China, Taiwan, Singapore, Brunei and Vietnam were less affected, although all suffered from a loss of demand and confidence throughout the region. Foreign debt-to-GDP ratios rose from 100% to 167% in the four large Association of Southeast Asian Nations (ASEAN) economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea, the ratios rose from 13 to 21% and then as high as 40%, while the other northern newly industrialized countries fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise.
The Asian financial crisis affected China at the margin, mainly through decreased foreign direct investment and a sharp drop in the growth of its exports. However, China had huge reserves, a currency that was not freely convertible, and capital inflows that consisted overwhelmingly of long-term investment.
During the 15th National Communist Party Congress that met in September 1997, President Jiang Zemin announced plans to sell, merge, or close the vast majority of SOEs in his call for increased “non-public ownership” (feigongyou or privatization.) The 9th National People’s Congress endorsed the plans at its March 1998 session. In 2000, China claimed success in its three year effort to make the majority of large state owned enterprises (SOEs) profitable.
2000-2010:Following the Chinese Communist Party’s Third Plenum, held in October 2003, Chinese legislators unveiled several proposed amendments to the state constitution. One of the most significant was a proposal to provide protection for private property rights. Legislators also indicated there would be a new emphasis on certain aspects of overall government economic policy, including efforts to reduce unemployment (now in the 8–10% range in urban areas), to rebalance income distribution between urban and rural regions, and to maintain economic growth while protecting the environment and improving social equity. The National People’s Congress approved the amendments when it met in March 2004. On March 2006, the National People’s Congress approved the 11th Five-Year Program.
The plan called for a relatively conservative 45% increase in GDP and a 20% reduction in energy intensity (energy consumption per unit of GDP) by 2010. China’s economy grew at an average rate of 10% per year during the period 1990–2004, the highest growth rate in the world. China’s GDP grew 10.0% in 2003, 10.1%, in 2004, and even faster 10.4% in 2005 despite attempts by the government to cool the economy.
China’s total trade in 2010 surpassed $2.97 trillion, making China the world’s second-largest trading nation after the U.S. Such high growth is necessary if China is to generate the 15 million jobs needed annually. On January 14, 2009, as confirmed by the World Bank the NBS published the revised figures for 2007 fiscal year in which growth happened at 13 percent instead of 11.9 percent (provisional figures). China’s gross domestic product stood at US$3.38 trillion while Germany’s GDP was USD $3.32 trillion for 2007. This made China the world’s third largest economy by gross domestic product. Based on these figures, in 2007 China recorded its fastest growth since 1994 when the GDP grew by 13.1 percent.
China launched its Economic Stimulus Plan to specifically deal with the Global financial crisis of 2008–2009. It has primarily focused on increasing affordable housing, easing credit restrictions for mortgage and SMEs, lower taxes such as those on real estate sales and commodities, pumping more public investment into infrastructure development, such as the rail network, roads and ports. By the end of 2009 it appeared that the Chinese economy was showing signs of recovery. At the 2009 Economic Work Conference in December ‘managing inflation expectations’ was added to the list of economic objectives, suggesting a strong economic upturn and a desire to take steps to manage it.
2010-Present:In 2010, China’s GDP was valued at $5.87 trillion, surpassed Japan’s $5.47 trillion, and became the world’s second largest economy after the U.S. China could become the world’s largest economy (by nominal GDP) sometime as early as 2020. US
The Institute of Economic Research of Renmin University of China has conducted several studies and released several reports regarding China’s economy. “Under the influences of 2009’s stimulus policies, the spread of the economic bubble and implementation of the “12th Five-Year Plan”, China was at a key stage of steering the economic recovery to stable growth. While prices increased steadily, China’s GDP went back to the high-level growth rate and its economic structure gradually became market-oriented. The World Bank’s chief economist Justin Lin in 2011 stated that China, which became the world’s second largest economy in 2010, may become the world’s largest economy in 2030, overtaking the United States, if current trends continue.
Challenges include income inequality and pollution. The Standard Chartered Bank in a 2011 report suggested that China may become the world’s largest economy in 2020. James Wolfensohn, former World Bank president, estimated in 2010 that by 2030 two-thirds of the world’s middle class will live in China.[ In 2011, the IMF predicted that China’s GDP (purchasing power parity adjusted) would overtake that of the United States in 2016. The state favours state-owned enterprises despite lower productivity; this crowds out competition, in a phenomenon known as Guo jin min tui.
Government Role:since 1949 the government, under socialist political and economic system, has been responsible for planning and managing the national economy. In the early 1950s, the foreign trade system was monopolized by the state. Nearly all the domestic enterprises were state-owned and the government had set the prices for key commodities, controlled the level and general distribution of investment funds, determined output targets for major enterprises and branches, allocated energy resources, set wage levels and employment targets, operated the wholesale and retail networks, and steered the financial policy and banking system. In the countryside from the mid-1950s, the government established cropping patterns, set the level of prices, and fixed output targets for all major crops.
Since 1978 when economic reforms were instituted, the government’s role in the economy has lessened by a great degree. Industrial output by state enterprises slowly declined, although a few strategic industries, such as the aerospace industry have today remained predominantly state-owned. While the role of the government in managing the economy has been reduced and the role of both private enterprise and market forces increased, the government maintains a major role in the urban economy. With its policies on such issues as agricultural procurement the government also retains a major influence on rural sector performance.
The State Constitution of 1982 specified that the state is to guide the country’s economic development by making broad decisions on economic priorities and policies, and that the State Council, which exercises executive control, was to direct its subordinate bodies in preparing and implementing the national economic plan and the state budget.
A major portion of the government system (bureaucracy) is devoted to managing the economy in a top-down chain of command with all but a few of the more than 100 ministries, commissions, administrations, bureaus, academies, and corporations under the State Council being concerned with economic matters. Each significant economic sector is supervised by one or more of these organizations, which includes the People’s Bank of China, National Development and Reform Commission, Ministry of Finance, and the ministries of agriculture; coal industry; commerce; communications;
education; light industry; metallurgical industry; petroleum industry; railways; textile industry; and water resources and electric power. Several aspects of the economy are administered by specialized departments under the State Council, including the National Bureau of Statistics, Civil Aviation Administration of China, and the tourism bureau. Each of the economic organizations under the State Council directs the units under its jurisdiction through subordinate offices at the provincial and local levels. Key national projects
The “West-to-East Electricity Transmission”, the “West-to-East Gas Transmission”, and the “South–North Water Transfer Project” are the government’s three key strategic projects, aimed at realigning overall economic development and achieving rational distribution of national resources across China.
The “West-to-East Electricity Transmission” project is in full swing, involving hydropower and coal resources in western China and the construction of new power transmission channels to deliver electricity to the east. The southern power grid line, transmitting three million kW from Guizhou to Guangdong, was completed in September 2004. The “West-to-East Gas Transmission” project includes a 4,000 km trunk pipeline running through 10 provinces, autonomous regions or municipalities, conveying natural gas to cities in northern and eastern China
. This was finished in October 2004 and has a design capacity of 12 billion cu m per year. Construction of the “South-to-North Water Diversion” project was officially launched on 27 December 2002 and completion of Phase I is scheduled for 2010; this will relieve serious water shortfall in northern China and realize a rational distribution of the water resources of the Yangtze, Yellow, Huaihe, and Haihe river valleys.
State-owned enterprisesAs of 2012 large state-owned enterprises (SOEs) were the backbone of China’s economy producing over 50% of its goods and services and employing over half of the workers in China. 65 of the Chinese companies in the 2012 Fortune Global 500 list, were state-owned, including State Grid Corporation of China, which operates the country’s power grid, and China National Petroleum Corporation and Sinopec, oil companies.
Profits of the largest state-owned enterprises were much greater than the largest firms in the private sector which were largely small and medium sized businesses. Reform efforts, spurred by problems with corruption at some firms, were focused on splitting state-owned firms or creating competing state-owned firms rather than privatization which is politically unacceptable to the ruling party.
Firms attempting to maintain their position such as the State Grid point out the advantages of monopoly, using examples of disorganization such as the 2012 India blackouts. As of 2011, 35% of business activity and 43% of profits in the People’s Republic of China resulted from companies in which the state owned a majority interest. Liberal critics, such as The New York Times, allege that China’s state-owned companies are a vehicle for corruption by the families of ruling party leaders who have sometimes amassed fortunes while managing them. Development:
China adopts the “five-year-plan” strategy for economic development. The Twelfth Five-Year Plan (2011–2015) is currently being implemented. Like Japan and South Korea before it, for nearly 30 years China has indeed been growing, thrusting its citizens into prosperity and its goods across the world. Between 1978 and 2005, China’s per capita GDP had grown from $153 to $1284, while its current account surplus had increased over twelve-fold between 1982 and 2004, from $5.7 billion to $71 billion. During this time, China had also become an industrial powerhouse, moving beyond initial successes in low-wage sectors like clothing and footwear to the increasingly sophisticated production of computers, pharmaceuticals, and automobiles.
GDP$7.30 trillion (nominal: 2nd; 2011)$11.30 trillion (PPP: 2nd; 2011)
GDP growth7.4% (Q3, 2012)
GDP per capita$5,414 (nominal: 90th; 2011)$8,382 (PPP: 90th; 2011)
GDP by sectoragriculture: 10.1%, industry: 46.8%, services: 43.1% (2011est.) Inflation (CPI)1.7% (October 2012)
Average gross salary$457 monthly (2010)
Main industriesworld leader in gross value of industrial output; 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