Overview of the Chinese economy
The past five years have witnessed profound changes in China’s social and economic development:
From 2001-2005, China’s GDP averaged a growth of 9.5%. In 2005 its GDP reached more than US$ 2.2 trillion, ranking fourth in the world. The proportions of added value of the primary, secondary, and tertiary industries in GDP were 12.4, 47.3, and 40.3% respectively. The consumption structure has been upgraded and the Engel’s co-efficient of urban and rural people have dropped sharply. The country’s quality of living standards has been upgraded to a new level. China’s human development index in 2003 was 0.755, ranking 85th among the 177 countries included in the index. Its human poverty index ranked 27th among the 103 developing countries and regions. The government continues its efforts to rebalance the economy, attempting to make growth less dependent on exports and investment while introducing measures to boost consumption.
China’s re-evaluation of its Yuan against the US dollar in July 2005 was a significant step toward more currency flexibility and reducing the country’s reliance on exports. The Yuan now floats against a basket of currencies, appreciating in value. As a result, China enjoys cheaper imports at the expense of more expensive exports, which in time may lead Chinese manufacturers to focus more on quality and efficient production. In line with this moderation of China’s export sector, GDP growth is expected to cool slightly in the next few years, down to 7.6% in 2010, but with domestic consumption being boosted. China’s economy should reach US$ 3.45 trillion in 2010, with per capita GDP up to US$ 2,547.
Since reform and opening in 1979, China’s economy has gradually restructured to phase-out state-owned enterprises and to include a rapidly growing private sector as well as increased foreign trade and investment. The service sector has shown the largest growth, attaining 40% of GDP in 2006, up from 24% in 1978. Industry, with manufacturing and construction as the main drivers of growth, accounts for about 48% of GDP.
The contribution of the agricultural sector, excluding mining, to GDP has been declining consistently since the growth of urban and industrial centres began. Agriculture currently employs 45% of China’s labour force, but generates only 12% of its GDP. Tax burdens, small natural endowments, and unprofitable crops have hindered rural development. Recently however, production of fruit and vegetables, rather than cereals, has risen substantially due to China’s comparative advantage in labour-intensive crop production.
The industrial sector, particularly manufacturing and construction, continues to grow at a tremendous pace. Fuelled by domestic demand and export growth, industrial output grew by 17.1% in 2004. Seven industries made up the majority of the industrial growth. These included electronic and telecommunication products, transportation equipment manufacturing, chemical products, fabrics and apparel, machinery and metallurgical industries.
The most significant economic transformation has been the development of small and medium enterprises (SMEs), which include the former township and village enterprises as well as millions of private companies. 99% of all Chinese enterprises are SMEs, generating approximately 60% of the country’s industrial production, 60% of the export value, and 60% of GDP. State-owned enterprisesare slowly phasing out as China heads towards a more market-oriented development path, and a great number of the workers they formerly employed have been absorbed by SMEs. SMEs have hired about 75% of the urban labour force and most of those migrating from the countryside to urban areas. Despite the growing importance of SMEs, a considerable bottleneck for further development exists due to a lack of specifically targeted instruments and promotional structures, an absence of skilled workers, a low-level of technology, and a lack of information concerning access to new markets.
