The Economy of China

GDP

The current total GDP of China is (in US$)6.05 trillion, which has resulted in China's economy to be the Second-largest in the world which over took Japan's in 2010. In the past 30 years China's economy has been growing exponentially which is can be see evident in this graph:  

This diagram shows that the main factor that has been pushing China's GDP up has been through the high amount of investment the government has occurred in China instead of the usual stereotypical view that exports were the main reason for pushing China's growth rate up.
The average growth rate in GDP in China has been 9.91% From 1979 until 2010, reaching an historical high of 15.2% in 1984 and a record low of 3.8% in 1990.
In recent years China's economic growth has slowed down with fears that if China's rapid rate of expansion stops then China could face an economic crash in the country.

Population

In China the state follow an anti-natal policy, called China's One Child Policy. This was introduced in the 1978 in an attempt to control China's rising population, which was causing economic, social and environmental problems in China. The Chinese government went about enforcing this new policy by providing financial perks to couples who have one child, this involved getting children into high nurseries and giving financial support to help pay for school supplies and clothing. More extreme measures having put in place and carried out in China where women have been sterilized to make them infertile and have no more children. In China couples prefer to have boys instead of girls due to the view that boys will provide for them when they become old, whereas girls will usually go and help their husbands' parents instead of her own, this has caused their to be a population inbalence between males and females. Boys in China are called little emperors. This view in China has been used as a reason for why couples try and have more than one child.

Recent studies have shown that China's population is turning from having a youthful population structure into an aging population structure. this has been estimated to occur by 2050, there are potential problems with this as it will cause China's working population to decrease and therefore cause prodution to drop, causing China's GDP to fall. China's governement are in talks about dropping their one-child population due to it's big success of preventing between 250-300 milion people.

Imports & Exports

China joined the World Trade Organisation (WTO) in 2001, which greatly benefitted coastal cities, especially in the southeast. 

In 2010, China exports totalled $1.194 trillion, down from $1.429 trillion in 2008. It’s main exports are electrical goods and other machinery, including data processing equipment, textiles, iron and steel and medical equipment. The main places China export to are the US (17.7%), Hong Kong (13.3%), Japan (8.1%), South Korea (5.2%) and Germany (4.1%).

In 2010, China imports totaled $921.5 billion, down from $1.131 trillionin 2008. It's main imports are electrical components, oil and mineral fuels, medical equipment, metal ores, plastics and organic chemilcals. The main places China import from are Japan (13.3%), South Korea (9.9%), US (7.2%) and Germany (4.9%). 

50 Facts about China's Economy

• In China there are about 30 billion square feet of space in construction only in the commercial property sector.

• Fixed investment is forecast to reach 60 percent of Chinese gross domestic product in 2010, up from around 50 percent in 2009.

• China's credit boom has increased bank lending by more than 6 trillion Yuan in the period between December 2008 and June 2009 

• In the beginning of 2009 the six-month futures price for oil was US$ 20 higher than the spot price. Investors faced huge losses unless spot prices rose. A wide gap between spot and futures prices increased inventory demand and the gap between spot and futures demand flattened the price curve and limited losses for financial investors.

• The international media has been following reports of record commodity imports by China. The surge is being portrayed as reflecting China's recovering economy. Indeed, the international financial market is portraying China's perceived recovery as a harbinger for global recovery. It is a major factor pushing up stock prices around the world. 

•  Numerous Chinese steel mills simultaneously want to buy ore to sustain production so their governments can report higher GDP rates, even if higher GDP is money-losing. China's steel industry is structured to hurt China's best interests.

• As steel demand collapsed in the fourth quarter 2008 and first quarter 2009, steel prices fell sharply. That should have led to a collapse in ore demand. But the bank lending surge armed Chinese ore distributors, giving them money for speculating and stocking up.

• Even though China is the biggest buyer of iron ore by far, it has had no power in price setting. The global recession should have benefited China. Instead, the lending surge worsened China's position by financing Chinese speculative demand.

• Since September 2008, the tough economy and easy credit conditions encouraged many companies to try profiting from asset appreciation. They borrowed money and put it into the stock market. This speculation spread to Hong Kong.

•  In China, borrowing money for asset market speculation is not restricted to private companies. State-owned enterprises appear to be lending money to private companies at high interest rates, i.e. loan sharking, using money borrowed at low rates from state-owned banks.

• As China’s economy weakened in late 2008, private lenders began demanding money back from distressed private companies. Loans from state-owned enterprises may have kept many private companies from going bankrupt. It has served to re-channel bank lending into cash for individuals and businesses that were in the lending business. This money may have flowed into asset markets

• China's growth model is based on government-led investment and foreign enterprise-led export. As exports grew in the past, the government channeled income into investment to support more export growth. Now that the global economy is weak and China's exports are not coming back to 2007 levels, there will be no income growth to support investment growth.

• In May 2009, the question of whether China is presenting a too rosy growth picture came from nor other than the International Energy Agency. The IEA said Beijing’s official 6.1% on-year growth in first-quarter gross domestic product didn’t tally with a 3.5% drop in China’s oil demand in the quarter and also cited “inordinately weak” electricity demand. The IEA floated the possibility that Real GDP data aren’t accurate and shouldn’t be taken at face value.

•  Money Supply in China is growing at a Record 30%.

• China’s banking regulator plans to slow new lending to between 7 trillion Yuan and 8 trillion Yuan in 2010.

• The Chinese economic miracle can be broadly split in to three periods. In the 1980’s, the first stage was unleashed by modest reforms by Deng Xiapoing. The second stage concentrated on rationalization of labor that saw a proliferation of light industries. The third stage has been focused on expansion of heavy industries and infrastructure. In all of the three stages there was a central role for investment as a driver of economic growth. The dependence of Chinese growth on investment is unsustainable.

• The gradual increase in China’s investment ratio that started in 1998 has now reached unstable levels. Capital spending has become the dominant growth driver and GFCF (Gross Fixed Capital Formation) accounted for 70% of China’s growth in 2008 and 90% in 2009.

• The ratio of GFCF to GDP exceeded 50% in 2009 which is well above the highest GFCF to GDP ratio in any Asian country in their mid 1990s boom.

• The largest period any country maintained GFCF to GDP in excess of 33% was nine years, China is now at its thirteenth year.

• Since the throw out the first decade of the 21st century, domestic credit in China has expanded 50% more than GDP.

• In 2009, China’s trade balance had by shrunk 20% and Foreign Direct Investment (FDI) had  fallen by 18%.
• China’s government debt is vastly understated. Not included in the public debt are liabilities of the local governments which are estimated at $680bn. A large part of loans extended this year (approximately $350bn) went to finance public infrastructure projects guaranteed by local governments. In total, these off balance sheet liabilities are equal to $1.7tn, which would bring China’s public debt to GDP ratio up to 62%, at a level comparable with Western average. The argument that China can afford capex spending at high levels for a long time since the government has low levels of debt is a myth.

• China’s position as the world’s largest aluminum producer is astonishing since it lacks the surplus of cheap energy that is typical of specialized aluminum exporting nations.

• China currently producers 500mn tons of steel, more than the EU, Japan, the U.S, and Russia combined. China has capacity to produce 660mn tones per year and still there are 60mn tones of steel capacity currently under construction.

• China’s per capita production of steel is approximately equal to the EU average and higher than the U.S

• Currently there are 250mn vehicles in the USA versus 43mn in China, yet China has already a comparable size of highways.

• In total there are 600,000 bridges in the USA, of which 450,000 are in use, there are 500,000 bridges in China, and 15,000 are built every year. The USA has five times more rivers than China.

• In 2009, investments into railway in China where up almost 70%.

• 37 out of 44 airports built between 2005 and 2010 have been built in sparsely populated west China.

• China is already at a very advanced stage of industrialisation, even on a per capita basis. Room for further capacity expansion is extremely limited.

• After 2009, it will be hard for investment to grow a further 30% in 2010. Even if investment growth will be 10%, if exports don't rise sharply consumption will need to rise by 25% for GDP to reach 10% as expected. Such growth rates were not seen even at the peak of Japan’s boom in the 1960’s or the United States boom in the 1950’s.

• Since 1978, real growth in private consumption in China has almost always been lower than the overall growth of the economy.

• In China, the ratio of GDP to household income has declined by 20% in the years 1999-2008. The emerging middle class is a myth.

Type of Economy

China has a very unique economy where it has been a Command economy over the past century. This is where the state decides what to produce and how to produce it, resulting in the public sector to be very big while the private sector is very small or non existent. However in China the government is moving away from this and is currently a Transitional economy developing into a mixed economy due to privatisation occurring in most state owned industries and due to China opening up it's trade with western countries. Although there are still many aspects of the economy being a Command economy that is evident through many state owned businesses like the cigarette industry and the Chinese pharmaceutical companies still existing, which make up for a large proportion of China's economy where internationally cigarette companies like British American Tobacco which are not allowed to enter the market. 

China's economy has recently been describe by the economist as a"State Capitalist" economy which is growing in the BRIC countries.

Government Rules and Legislation

The government type in China is a Communist state with it's capital being Beijing. The ruling party in China is called the People's Republic of China. The chief of state in China is President HU Jinato who has been in office since the 15th March 2003. The President and Vice President are elected by the National People's congress for a five-year term (eligible for a second term); elections were last held on the 15th-17th March 2008 and are next to be held in mid-March 2013. 

The practises of the Chinese Government in recent years has been in reforming legislation, in order to encourage an increase in overseas investment, increasing budget allocations, enhancing enforcement inspection and upgrading management and service, extending the scope of social coverage and increasing the number people in access of social security. Since 2009 the government has gone on to implement and improve the reform measures and to achieve the goal of having the whole population under the social insurance system, which includes a pension and health care system. The government wishes to achieve this by 2020.

The laws and legislation that are in place in China are, China's one-child policy, which is in place to reduce the birth rate in China and overall their population. China has strict commercial laws 

Joint Venture

In China most joint ventures are equity joint ventures, although some investors establish a cooperative joint venture which is similar in many respects to an equity venture. Some of the most successful joint ventures in China in recent times have been between Danone, a French food giant, acquired a 51% stake in Wahaha Beverage, a Chinese firm, in 1996 and HSBC in 2004, when it acquired a 19.9% stake in the smallest bank in China, the Bank if Communications. These foreign businesses have bought with them to China a source of capital, knowledge, access to international markets and jobs. While the Chinese partners have provided the foreign businesses with access to cheap labour, local regulatory knowledge and access to what used to relatively unimportant to domestic markets. 

Economic Factors

China's inflation rate under the consumer price index (CPI) as of May 2012 went up by 3.0 percent year-on-year. The prices grew by 3.0 percent in cities and 2.9 percent in rural areas. The food prices went up by 6.4 percent, while the non-food prices increased by 1.4 percent. The prices of consumer goods went up by 3.6 percent and the prices of services grew by 1.7 percent. 

Their interest rate was last recorded at 6.31% which is just below the average of the past 16 years where it has been 6.4%

The urban unemployment rate in China was last reported at 4.1 percent in the first quarter of 2012. However historically, from 2002 until 2012, China Unemployment Rate averaged 4.15 Percent reaching an all time high of 4.3 Percent in December of 2003 and a record low of 3.9 Percent in September of 2002. 

There are 26 types of taxes which can be split up into 8 categories:
Turnover taxes- these are based on the 

Top risks for China's potential economic collapse  

Why China is on the road to becoming the world's largest economy