BASIC ECONOMIC INFORMATION ON CHINA
Front of a 100 yuan banknote The Chinese economy grew 9.2 percent in 2011, compared with 10.4 percent in 2010. China accounted for about one quarter of global growth in 2011 but its market was too small to offset poor US and European demand to boost the global economy. GDP for China in 2010 was $5.88 trillion ahead of Japan’s $5.45 billion. GDP in China was $4.91 trillion in 2009, compared to $14 trillion in the United States. Per capita GDP in China is one seventh that of the United States. [Source: AP, Wall Street Journal]
In 2003 Goldman Sachs predicted the Chinese economy would take the U.S. economy in 2041. In 2011 it reckoned the milestone would take place in 2027. Some think it might happen as early as 2018. China is the world's fourth-biggest country in geographic size and has the planet's biggest population, at 1.34 billion. GDP in China rose from $390 billion in 1990 to $1.3 trillion in 2001 to $3.6 trillion in 2008. China has the world's second-biggest trading volume. It contributed 19 percent of global economic growth in 2010 and 24 percent in 2011.
It will take China sometime to catch up with the United States in terms of wealth. In 2050, it is estimated that incomes in China will still about half those of the United States. Per capita income in China in 2008 was $2,369, putting it 132nd place internationally, ahead of Cape Verde and behind Guatemala. Per capita income in the United States is $46,040.
China has the fastest growing major economy. It has been that way for more than a decade and is expected to remain that way for the next 5 to 10 years. In the mid 2000s, China passed France, Italy and Britain to become the world’s forth largest economy and passed Germany as the world third largest economy in 2007. China’s GNP quintupled between 1990 and 2001 when it reached $1.3 trillion, smaller than the $4.3 trillion GDP of Japan but larger than the $737 billion in the 10 Southeast Asian members of ASEAN. Economic output reached $2.3 trillion in 2005 and $2.7 trillion in 2006 ($2.054 per person), compared to $13.2 trillion in 2006 ($43,950 per person) in the United States.
The per capita GDP in China is $3,300 in 2008, one 14th of the $46,0000 per person output in United States, and was projected to reach $3,600 in 2009. The per capita GDP in Beijing is reached $10,000 in 2009 for the first time.In 2008, output per person in China was $2,500 compared to on the United States.
A poll conducted by the Pew Research Center before the 2008 Olympics found that 82 percent of the Chinese interviewed were satisfied with the national economy, up from 52 percent in 2002. On the International Monetary Fund’s Economic Outlook Database China ranks 109th between Swaziland and Morocco (2008). In the international competitiveness ranking in 2007 China ranked 15th. The United States ranked 1st; Singapore was 2nd; Japan was 24th.
Websites and Resources
Back of a 100 yuan banknote Statistics: China’s National Bureau of Statistics stats.gov.cn/english ; Chinability Blog chinability.com/ ; Nationmaster nationmaster.com ; Money Chinese Coinage Website www.charm.ru ; Chinese Money in the 20th Century PaulNoll.com ; Chinese Banknotes chinatoday.com
Good Websites and Sources on Economics in China: Wikipedia article on the Economy of China Wikipedia ; Asian Development Bank adb.org/PRC ; World Bank China worldbank.org ; International Monetary Fund (IMF) on China imf.org/external/country/CHN ; China Economic Information Office cei.gov.cn ; ; U.S. Commerce Department’s Office of China Economic Area (OCEA) export.gov/china
Economic News The Economist on China economist.com ; China Economic Net en.ce.cn ; China Economic Review chinaeconomicreview.com ; Far East Economic Review feer.com ; Economic and Business News Related to China jlmpacificepoch.com ; China Daily Coverage of Economic Issues chinadaily.com.cn ; Financial Times China ft.com/world/asiapacific/china ; China Perspective thechinaperspective.com ; China Economics Blog china-economics-blog.blogspot.com ; Economic Policy: OECD Economic Survey of China, 2005 PDF file oecd.org/dataoecd ; Book: Frontiers of Economics in China, A Collection of Papers http://www.springer.com/economics/journal/11459 ; McKeever Institute’s Economoc Policy Analysis mkeever.com ; Council of Foreign Relations www.cfr.org
Links in this Website: BASIC ECONOMIC INFORMATION ON CHINA Factsanddetails.com/China ; MACROECONOMICS AND ECONOMIC POLICY IN CHINA Factsanddetails.com/China ; THE YUAN, FOREIGN RESERVES AND SOVEREIGN WEALTH FUNDS IN CHINA Factsanddetails.com/China ; CHINESE REGIONAL ECONOMICS Factsanddetails.com/China
China Surpasses Japan as the World’s No. 2 Economy
In the April-June quarter of 2010, China surpassed Japan as the world’s second largest economy, as it chalked up $1.337 trillion of GDP in that period compared to $1.288 trillion for Japan according to Japanese government statistics. The meaning of it all kept pundits busy. Japan’s per capita income is still 10 times higher than that of China and the Chinese government still has great challenges ahead of it and many obstacles such as pollution, income disparities and unhappy have-nots to overcome.
In terms of GDP China overtook Britain and France in 2005 and Germany in 2007. In 2009, China surpassed Germany to become the world’s largest exporter.
Explaining his interpretation of how Japan became No.3 William Pesek of Bloomberg wrote: “In China you have 1.3 billion people working hard to circumvent government regulations to make a quick yuan. Japan has 126 million complaining about how the government isn’t fixing their lives.”
In 2007 China surpassed Germany to become the world 3rd largest economy. Goldman Sachs predicts that China will surpass the United States and become the world’s largest economy in 2027and will be twice as large as the American economy in 2050 as domestic demand really begins to kick in. Price Waterhouse Cooper has predicted that China could surpass the United States as early as 2020. The Carnegie Endowment far International Peace predicted that it would occur by 2035. Goldman Sachs economist Jim O’Neil has predicted that China will eclipse the United States as the world’s No.1 economy in 2027.
Characteristics of the Chinese Economy
front of old 5 yuan banknote China has managed to combine Communist ideology and free-for-all capitalism in its rawest form to create whet the government calls a “socialist market” through using Chinese traditions to justify its authoritarian hold of the government and control of free market forces.
China is essentially a developing country with some characteristics of a developed one and is simultaneously experiencing industrial and information age revolutions. While the majority of the population toil on peasant farmstead, information age research centers are opening up and factories are producing advanced electronics.
Many economists feel that anything less than 8 percent growth is like a recession in China because of the need to create jobs and support the growing labor market. Eight percent growth is regarded as the minimum for maintaining social stability.
Yale’s Stephen Roach wrote in the Christian Science Monitor, “Services account for just 43 percent of Chinese GDP---well below global norms. Services are an important piece of China’s pro-consumption strategy---especially large-scale transactions-based industries such as distribution (wholesale and retail), domestic transportation, supply-chain logistics, and hospitality and leisure. Over the next five years, the services share of Chinese GDP could rise above the currently targeted four-percentage-point increase. This is a labor-intensive, resource-efficient, environmentally-friendly growth recipe---precisely what China needs in the next phase of its development.
About 80 percent of working Chinese are employed by private sector, but private business only gets 20 percent of bank loans according to MIT’s Yasheng Huang. China's leaders have promised repeatedly to support entrepreneurs who create most of its new jobs and wealth. But most bank lending still goes to state companies and Beijing's huge stimulus in response to the 2008 crisis set back reforms by pouring money into government industry while thousands of private companies went bankrupt.
Japanese Sinolgist Mineo Nakajama told Time, "China is like a movie set. It looks wonderful, but it's all illusion." Under the surface there are problems like real estate bubble, industrial over capacity, rampant corruption, debt-ridden banks and companies.
back of old 5 yuan banknote The currency of China is called the yuan, Renminbi (RMB), or kuai. One yuan is divided into 10 jiao or mao (fen, or cents are no longer used). Tiananmen Square is pictured on every note of Chinese currency. Mao Zedong is pictured on 100 yuan banknotes. Sun Yat-sen is on others. In the old days the yuan used by ordinary Chinese had images of factories and happy rural workers while those used by foreign tourists looked like "cigarettes coupons from the 1950s” and had images of scenic areas on one side and instructions how to use them on the other.
In April 2008 the yuan rose past 7 to the dollar for the first time since the fixed exchange rate ended in 2006. It broke the 7.5 to the dollar mark in October 2007. The yuan rose around 9 percent in 2007 and 4,4 percent in the first three months of 2008. The exchange rate for the yuan was 7.97 in 2006, 8.19 in 2005, 8.27 in 2002., 2003 and 2004.
Counterfeit currency shows up in ATM machines and pay packets.
Economic Statistics for China
front of old 2 yuan banknote Gross Domestic Product (GDP): $4.91 trillion in 2009. Composition by sector: agriculture 11.7 percent; industry, including construction: 48.9 percent; services: 39.8 percent.
Per capita income (GNP per person): $2,369 to $3,300 in 2008. Estimates vary widely. In 2007 the World Bank estimated per capita GDP to be $7,000 but planned to lower this estimate by 40 percent. The CIA Factbook lists a figure of $1,740 for 2007. In any case China has managed to double its per capita outcome in 10 years, compared to 34 years in Japan.
Growth and Inflation rates: See Below
The unemployment rate in China was 4.9 percent in February 2010 and 4.2 percent in urban areas in 2005. These figures are dubious validity. There is a lot of unemployment and underemployment in rural areas. See Labor
Savings Rate: 49.7 percent of GDP, the highest in the world.
Suspect Economic Statistics for China
back of old 2 yuan banknote Some of the statistics that are released by Beijing are highly suspect and unreliable. Foreign companies that do business in China don’t trust Chinese statistic, especially on the local level, and do their own basic research before investing. China has a long tradition of quota fudging. Growth figures are sometimes wildly inflated because output of small- and medium-size companies is grossly overestimated. Even so some economists believe that true growth figures are actually a couple percentage points below the ones that are listed.
Some have wondered if the results from the 2010 census are accurate. A common concern among Chinese (and non Chinese) is that official figures are fudged to create a false sense of optimism. Guo Ying, a 31-year-old office worker in Beijing, told AP, "The final result might not be true and therefore it would be meaningless. Some figures are said to be found through investigation, but is that true? A lot of people have their doubts. Figures like the CPI (consumer price index), the GDP, do they reflect the real situation? Many people are skeptical."
John Lee wrote in Newsweek, “It is hard to judge China’s state-led economy. The government’s actions lie hidden beneath hundreds of tonnes of secrecy, and beyond easy measurement. China’s quarterly growth statistics are often “policy-engineered” and after they are released China analysts immediately begin second-guessing them. One how the figures are arrived he said, “Every quarter, the National Bureau of Statistics goes through the same ritual. Statistics come in from all over the country. The provinces compile them with impossible speed?around two weeks, or three times as fast as many developed economies with much more efficient processes of data collection.[Source: John Lee, Newsweek, July 30, 2010, Lee is a foreign-policy research fellow at the center for Independent Studies and a visiting fellow at the Hudson Institute in Washington, D.C. He is the author of “Will China Fail?” ]
The NBS sorts through them, “consults” with senior CCP officials, applies a mysterious methodology to trim them into shape, and then spits out a figure that is uncannily well aligned with the targets set by political masters in Beijing. After several years, provincial historical data is tediously retrieved and analyzed by Chinese economists, and official figures are revised. Significant discrepancies are discovered and condemned, ending with Beijing promising to meticulously address the “structural flaws” in the statistical gathering process.
The official numbers are derived from reporting by local officials. These officials have massive incentives to tell Beijing what it wants to hear as regards hitting central targets---whether it be breakneck growth or an engineered slowdown. It is the basis for their promotion. While the upside for dishonesty is obvious, there is usually little downside, as it’s unlikely they will be caught, let alone punished, for fudging figures.
Dodgy accounting practices, according to John Makin, in a piece for the American Enterprise thinktank include counting goods as sold when they leave factories, not when they are actually bought by consumers, and counting bank loans towards GDP as soon as they are disbursed, even if companies hoard the cash or use the money to buy shares.
Dodgy statistics is not in itself the most serious problem. In China’s state-dominated approach, the incapacity to effectively govern such a vast country is the real and pressing issue. The common Western view of “market socialism” as a ruthlessly efficient system, when it comes to top-down policy implementation, ignores the reality that proper verification of any official number is almost impossible. Seeking truth from facts is a wise and pragmatic piece of advice for reforming China. But getting the facts first could be the hard part.
To beef up statistics, government accountants add the income from single collectively-owned pig to five villagers instead of just one; and cadres borrow goats from neighboring villages so their villages look more affluent than they really are when inspectors come buy. Looking after a cow for day gives a person a right to claim that as an asset. Selling any amount of produce is recorded as profit. In some cases these statistics make villages where people are hungry and poor seem like bustling income earners.
Cigarette makers have paid employees with cigarettes to boost production figures. Fish catch statistics coming out of China are sometimes inflated. In 1999, for example, China reported that it caught about 83 million tons of fish. The true figure was about 69 million tons. The over estimates gave the impression that worldwide fish populations were holding steady when in fact they were declining.
Sometimes economic data and statistics are made up to suit propaganda needs, a tradition that dates back to the Mao era, when making the party happy was the primary concern. In many cases accountants are under specific orders to create rosy scenarios and statistics reflect government-ordered targets and quotas not reality. Local officials inflate go along with the schemes because they worry they will be demoted if they don’t.
See Economic Power
Growth in China
front of 2 jiao banknote Growth has averaged over 10 percent for the last 30 years. It was 9.4 percent between 1978 and 1995. It was 11.2 percent between 1990 and 1998 and 11.2 percent between 1990 and 1998 and just under 10 percent between 1999 and 2007.
Growth rate: 11.4 percent n 2007; 11.1 percent n 2006; 10.2 percent in 2005, 10.1 percent in 2004; 9.1 percent in 2003; 6.7 on 1999; 7.8 in 1998; 8.8 percent in 1997; 9.6 in 1996; 10.5 percent in 1995; 12.6 percent in 1994; 13.5 percent in 1993; 14.2 percent in 1992; 9.2 percent in 1991; 3.8 percent in 1990.
Growth was 10.3 percent in 2010. Growth 9.7 percent in the first quarter of 2011 and 9.5 percent in the second quarter of 2011.
Many economists feel that anything less than 8 percent growth is like a recession in China because of the need to create jobs and support the growing labor market. Eight percent growth is regarded as the minimum for maintaining social stability. Economists also say that China could grow at a rate of 8 to 10 percent for some years by simply adopting known technologies and ending obvious inefficiency.
Suspect Growth Statistics for China
back of 2 jiao banknote Lewis Thurow an economist at MIT is very skeptical about China’s growth figures. He argues that if anything they reflect the growth rate in the cities but not the countryside where two thirds of China’s population lives. Even government figures indicate that growth in China’s rural areas is minimal. If the double digits growth rates were true then China’s cities wold have to have a 33 percent growth rate.
Thurow also points to electricity consumption as an indicator of China’s suspect statistics. Growth rates can be ascertained by electric consumption rates because almost all forms of production require electricity. Because of inefficiencies electric consumption rates always exceed growth rates. But that is not true in China, where many provinces post economic growth rates that are higher than electricity consumption.
Based on statistics on electricity consumption rates and rural growth Thurow concluded that growth rates in China are between 5 and 6 percent not 10 and 11 percent. The 10 percent to 11 percent is the growth rate in the cities.
Economics and Life in China
Richard Komaiko wrote in the Asia Times, “Westerners often focus myopically on the growth rate of China's gross domestic product (GDP), which is roughly 9 percent per year. While this is an important indicator of prosperity, it must be considered in tandem with other important metrics, such as inflation and the increasing cost of residential real estate. China's consumer price index rose 5 percent in the first quarter of 2011. This means that the effective real growth rate in GDP was only 4 percent . On top of that, the cost of real estate in many cities is growing at 20 percent per year. Considering these numbers, put yourself in the shoes of the average recent college graduate in a city like Shanghai. [Source: Richard Komaiko, Asia Times May 25, 2011]
“You make a decent income, but you can't afford to make a down payment on a piece of real estate, so you rent for a few years. But because the price of real estate is growing many times faster as the overall economy, the longer you wait, the less you can afford to buy. And in Chinese culture, if you can't afford a home, you can't start a family, and so forth.”
Inflation in China
China has traditionally been very cheap. In the 1980s, one could pay 16 cents to be admitted into a public bath which provided a piece of soap, a towel and a bed. After the Deng economic reforms began taking hold in the 1980s it began increasing. Consumer inflation rose 17.5 percent in 1989; 3 percent 1991; 5 percent 1992; 13 percent 1993; 27 percent in 1994. The price of many basic foods and grains increased 60 percent in the early 1990s.
Inflation was running at 5 percent and 6 percent in the 2000s with prices for things like textiles, cell phones and cars falling while those for gasoline and food rose. The government has used price controls to keep inflation in check. In 2005 as some inflation pressures were easing there was discussion of lifting price controls.
In recent years high inflation has been painful to average Chinese. Soaring prices for pork, vegetables and other staples have authorities worried about the potential for social unrest. So has a property bubble that has put home ownership out of reach of millions, exacerbating the gulf between rich and poor. The poor suffer the most. Poor families spend up to half their incomes on food and are hard hit by high price rises. Businesses, meanwhile, have to cope with rising labor costs, energy shortages and higher borrowing costs.
The Chinese government is fearful of high inflation. Through China’s history major social upheavals and unrest have occurred when prices were high and people took to the streets to protest. High prices was one of the main forces behind the Tiananmen square protests in 1989.
High inflation endangers China’s status as the low-cost workshop for the world. It also limits China's ability to offset slowdowns by launching new stimulus packages. If the government’s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses---whether multinationals like General Electric or copper miners in Chile---that have been counting on China for growth.
Food prices account for a third of the consumer price index used to measure inflation. “Actual numbers are worse than officially reported,” Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington, told the New York Times. Chinese and Western economists say that the index understates the true extent of inflation because of methodology problems. The National Bureau of Statistics has said that it is trying to improve the index.
High Inflation in China in 2010 and 2011
Inflation rose 5.1 percent in November 2010, the first time it exceed 5 percent in two years. This was on the heels of a 4.4 percent rise in October and followed by a 4.6 percent rise in December . The government anticipated price increases and took measures boost supplies of goods whose supplies were reduced by summer floods and winter cold napes but the measures took sem tie to kick in and prices were higher than had been hoped.
Consumer price inflation was 5.4 percent in the first three months of 2011. Many experts believe the true figure is higher. In January food prices rose 10.3 percent, with a 34.8 percent rise increase in fresh fruit prices and a 20.2 percent rise in the price of eggs. Inflation remained relatively high despite a series of government measures including three recent interest-rate increases. "Inflation is like a tiger; once it gets free, it is difficult to put back in the cage," Premier Wen said.
Consumer price inflation eased slightly to 5.3 percent in April on the back of a 11.5 percent in food cost and was well above the government target of 4 percent. Inflation reached a 34-month high of 5.5 percent in May 2011 driven by 11.7 percent food costs, which had increased due to demand exceeding supply and the affects of drought, floods and other weather-related problems on crops. McDonald’s raised the prices of its hamburgers and drinks by 10 percent.
Inflation was up 6.4 percent, , with food prices up 14.4 percent, in June 2011, rising further to 6.5 percent (a 37 month high) , with food prices up 14.8 percent , in July, then dropped to 6.2 percent, with food prices up 14.8 percent, in August. Crop damaged attributed to heavy rains and summer floods contributed to the high prices.
Analysts have said that current price hikes are much more serious than those seen in previous years, with the cost of everything from land to labor to raw materials all climbing. “Inflation pressures are far more stubborn this time because structural inflation is a much bigger problem than it was at any time in the last decade,” Ben Simpfendorfer, managing director of economic consultancy firm China Insider, told AFP.
GDP Per Capita in China
The GDP per head numbers vary according to the source. According to the IMF China has a per capita income in 2009 of $6,546, just above Ukraine and just below Namibia. According to the World Bank it had a GDP per capita of $3,700 just ahead of Albania but behind more than 100 other countries. According to the 2010 Chinese census, per capita GDP reached a respectable $4,300. Per capita annual income estimates in 2011 of $7,600 placed China below Angola and Albania.
China's GDP per capita, adjusted by purchasing power parity, reached $7,517 in 2010, according to the International Monetary Fund. That's up from $250 in 1980.
Urban capita incomes are nearly three times as high incomes in countryside according to data released by China’s National Bureau of Statistics. In the large cities the gap is even more extreme. In 2008, Beijing’s per capita GDP was $9,085 while Shanghai’s was $10,529 in 2009.
Foreign Reserves in China
Image Sources: 1, 2) Nolls China website http://www.paulnoll.com/China/index.html ; 3), 4), 5), 6), 7), 8) China Today
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.
© 2008 Jeffrey Hays
Last updated April 2012