China Case Study

Section One

Background

Key features of China as a nation and an economy

China is one of the biggest countries in the world. It has an area of about 9.6million square kilometres which comprises about 6.5 per cent of the world total land area. Its population of more than one billion accounts for

23 per cent of the world's total population. It is also the largest developing country in the world with an average economic growth of more than 9 percent for the past decade. China has the typical features of dual structure as a developing country with a big population and a weak economic foundation, China is one of the countries having within it the widest gap of the natural and geographic conditions as well as the population and resources distribution in the world. It is also one of the countries with the sharpest discrepancy of development between the urban and rural areas and among different regions.

China is the fourth largest economy in the world, but because it also has the largest population in the world (China's total population exceeds the combined populations of Europe, South America, United States and Japan) the per capita GDP is only USD 1,700, which is below the 100th in the world. China holds only seven per cent of the world's cultivated land and 22 per cent of the world's forested land. The development of agriculture plays a significant role for economic development in China as it needs to feed such a vast population. China also has a very ageing population it is estimated that there will be 170 million retirees by 2020.

Moreover, life expectancy at birth in China has reached seventy-one years, the infant mortality rate has fallen to 26 per 1,000 live births, and the literacy rate of those aged fifteen or above has reached 90 percent. Foreign investments in China continue to increase. Foreign investors poured $10.1billion into China in 2002 and increased it to $63 billion in 2006; China currently has a total of $1 trillion in foreign reserves.

The principal contradiction in the Chinese society remains the one between the ever growing material and cultural needs of the people and the backward social production. Only by focusing on development in the long run can China make a necessary material foundation for the constant improvement of the people's living standard.

Key factors that have influenced China's economic development

Population growth in china

When the People's Republic of China was founded in 1949, it had a population of 540 million. Only five decades later its population is more than 1.2 billion. This unprecedented population increase has created a strong population momentum that is now driving China's population growth despite low levels of fertility. The current population of china is 1,313,973,713, the highest in the world despite the "one child policy" which has been in effect since the 1970s.

Having the highest population in the world hinders the economic development of the country. Measured on a purchasing power parity (PPP) basis, China stands as the second-largest economy in the world after the US, although in per capita terms the country is still lower middle-income and 150 million Chinese fall below international poverty lines. Even though strict measures have been taken to control the population of China and China's economy grew at the rate of 10.9% in the first half of 2006, China still has to provide jobs for unemployed workers as well as new workers entering the market every year.

Analysts estimate China's unemployment rate at 15 percent and it is predicted that an additional 20 million rural workers will lose their jobs as the agricultural sector opens to foreign competition, also China has an ageing population - it is estimated that there will be 170 million retirees by 2020, this will create another burden on the Chinese economy with welfare payments and loss of skill and experience in the workforce.

Change from communist approach to a more capitalistic approach

Since 1949 china's economy has changed from a centrally planned system to a more market- oriented economy that has become a key player in the global economy. China is currently the fourth largest economy in the world and holds the world's largest foreign reserves of $1 trillion. China's rapid economic growth is the result of relaxation of the communist laws of the government in terms of the economy and opening up China's economy to the world. This has led not only an average economic growth of 9 per cent per year but has also led to the reduction of the number under international poverty lines and increase in the per capita income of the people.

It is because of the timely steps taken by the government regarding the removal of the communist approach to the economy that China is currently the third largest trader in the world and is also largest receiver of FDI in the world, receiving $63 billion in foreign investment in 2006. This change has been the turning point in China's economic history and is propelling china towards greater achievements.

Foreign investment

Increase in foreign investment due to the relaxtion of laws by the chinese government is a major factor that has helped China in its economic growth. It started in 1989 with the government introducing regulations designed to encourage foreigners to invest in high-priority sectors and regions.

In 1991, the PRC granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies which invest in selected economic zones or in projects encouraged by the state. It als also authorized foreign banks to open branches in Shanghai and allowed foreign investors to purchase shares of stock in selected economic zone. This has helped China in its economic development by increasing the pace of the growing economy and providing much needed capital inflows to the industriesand the state.

Opening to the global economy remains central to China's development. Foreign-invested enterprises produce about 45% of China's exports, and China continues to attract large investment inflows. In November 2006, China became the world's largest holder of foreign reserves which exceeded $1 trillion.

Section 2

China's economic performance

Economic Growth

China's economy during the last quarter century has changed from a centrally planned system that was