Economics, trade, politics and infrastructure of China

This section provides you with recent information on China’s: economic performance; economic prospects; trade and investments; politics and international relations; and infrastructure.

Economic performance

Following the economic reforms of 1978 under Deng Xiaoping, the People’s Republic of China (PRC) has gradually transformed from a centrally planned economy to one of the world’s fastest-growing economies and currently the world’s largest exporter and importer. China is considered an upper middle-income country and ‘services’ contribute just over half of the nominal GDP, followed by industry, while the share of agriculture is far more limited at 8,21% in 2017 (CIA Factbook). Since 2010 China’s economic growth has been slowing down. Despite this, in 2017 GDP increased by 6.8% (IMF, 2018). Domestic consumption and services has been the main growth engine, followed by investment. Exports, also, increased in 2017 by 11.4% in US dollar terms, and imports by 16.4%, reversing declines in 2015 and 2016 (ADB, 2018). The main exports are electromechanical products and labour-intensive products like clothing and apparel. The USA, EU and east and southeast neighbouring countries are the main export partners. Electronic equipment; mineral fuels and oil; and iron ore and scrap are important imports, traded by the EU and the neighbouring countries (ASEAN members, Japan and South Korea). Inflation has increased to 2.5% in 2018, but still remains in levels that ensure macroeconomic stability. The trade surplus decreased from 7.1% in 2016 to 4.5 in 2017 (ADB, 2018), the main reasons being an increasingly strong domestic demand and the uncertainty in global trade markets. The World Economic Forum Global Competitiveness Report ranks China 1st in domestic market size, foreign market size and GDP (PPP) in 2017-2018.

Economic Outlook

China has experienced a slowdown in its previously rapid growth rate since the start of the Global Recession, mainly due to the decrease of global demand. Nonetheless, for 2018 the EUI has revised its forecast for real GDP growth in 2018 to 6.7%, from 6.4%, considerably higher than any developed country and among the highest in the East Asian Pacific region. In regard to China’s future prospects, many analysts remain skeptical pinpointing the growing total debt of the country, due to the expansionary economic policy pursued by the Chinese government, which could have a negative impact on both growth and overall productivity (IMF, 2018, Bloomberg, 2018). Another potential threat for the Chinese economy is the increasing potential of full scale global trade war. Since June 1, 2018, the Trump administration imposed a 25% tariff on imports of steel and 10% on aluminium, considering the further introduction of tariffs with a focus on China. On the contrary, Chinese officials have up to this moment reacted soberly, although retaliatory tariffs were imposed against US products, such as pork and wine (BBC, 2018), embarking a series of measures and plans for the reduction of protectionist policies and tariffs in a large array of imports (Bloomberg, 2018). Tariffs are also considered to be cut on processed foods such as aquaculture and fishing products and mineral water, from 15.2% to 6.9% according to the New York Times).

It is expected that the Chinese economy will continue to slow down, from its current growth rate of almost 7%. Growth rates of 6.5% and 6.3% are likely in 2016 and 2017 respectively (ADB, 2016). The main drivers of this deterioration are reduced investments and the policy towards foreign investment, next to the short-term effect of contemporary structural reforms. Drivers of economic growth continue to be consumption and the service sector, despite efforts to reform the financial sector and open the capital account to maintain social and financial stability. Exports are expected to slightly increase, while imports are expected to be lower in 2016 but higher in 2017. After 2017 economic growth might stabilize and increase afterwards.

Key indicators

(2017)

Population

1.379 billion

Capital

Beijing

Currency

Renminbi

Time zone

China Standard Time (UTC+6)

GDP at market prices

$ 14.09 trillion (2018)

Real GDP growth rate

6.4%

GDP per capita

US$ 8,123.1 (2018)

Doing business In Index*

78 out of 190 (2018)

Corruption Index**

77 out of 180

Source: WorldBank (2016)
* doingbusiness.org
** transparency.org

Trade and investments

China is the second largest economy in the world in terms of nominal GDP, after the USA (third if the EU is considered as a whole) and the largest economy by purchasing power parity (PPP), according to the IMF (2018). Benefiting vastly by its abundant, cheap and high skilled labour force, but also by largely supportive economic policy towards investments, China has managed to be a magnet for investments and trade. The Chinese economy is of the largest hosts of foreign direct investments with the bulk of them coming from developed countries (UNCTAD). Most FDIs are concentrated in the manufacturing sector and technology industries. In a global context characterized by turbulence over the future of trade relations, China still manages a trade surplus and while public investments have increased, public debt remains in sustainable levels. Although product market is highly diversified,  the main exports of China concern electrical machinery, such as mobile phones and other parts of telephone sets, other machinery and mechanical appliances, such as computers and last but not least, furniture items, such as lambs, seats etc. Consequently, the two first export categories mentioned, represent around 43% of the total export value. Agricultural exports amount to 3.5% of the total value of export, with exports of fisheries and aquaculture being the most important agricultural export in relation to their value (around 18% of total agricultural exports). The United States are by far the biggest market for Chinese products, absorbing absorbs over 19% of all exports.  It is followed by the EU market (16.5%), the Japanese market (6%) and the South Korean one (4.5%). According to the World Bank’s Doing Business 2018, China ranks 78th among the 190 countries that were surveyed, lagging far behind other major economies such as the USA (6TH) or Japan (34th) or other Asian tigers such as South Korea (4th) and Taiwan (15th). The OECD and other international organizations and observers expect a slight slowdown of the Chinese economy in 2018-19, pinpointing the insecurity in trade relations and the high levels of private as burdens for the current and future prospects of the country. Nevertheless, the increasing public investments, the transformation of China to a consumption led economy and the further liberalization of China’s market economy is expected to have a positive effect.

Politics and international relations

After a long civil war the Chinese Communist Party (CCP) founded the People’s Republic of China in 1949 as a one-party socialist state. CCP dominates state and society in China. The senior decision making organ is the Standing Committee of the Central Political Bureau of the CCP (Politburo), comprised of 7 members. In respect, the Standing Committee controls the National People’s Congress and the Military Affairs Commission, which controls the armed forces. Xi Jinping is the current president, general secretary of the CCP and chairman of the Central Military Commission. In March 2018 the National People’s Congress removed the term limits for the offices of the presidency and vice-presidency, enhancing the powers of Xi Jinping and reaffirming the central role of the CCP. The National People’s Congress serves as the legislative body of country and is currently comprised of 2,980 members. The State Council is the executive branch of the country and its Premier serves as the Head of the State. Li Keqiang is currently the Premier. The country is divided into 23 provinces, 5 autonomous regions and 4 municipalities, the leadership of which is appointed by the party. The judicial system of China is based on Civil law and it does not constitute an independent branch institution, but an administrative branch of the state. The Supreme People’s Court is the highest level of court. The current Chinese policy operating under the ambitious reform plan of Jinping focuses more on economic liberalization and sustainable growth, instead of solely economic development. Along with continuing political control, social priorities, such as environmental degradation, corruption and rapidly widening inequalities of wealth, gain importance. The growth target in the 13th Five-Year Plan (2016-2020) is set around 6.5% per year, reflecting focus on the upgrading the quality of growth, while still pursuing the objective of achieving a “moderately prosperous society” by 2020 (World Bank, 2018). China is a member of numerous formal and informal multilateral organizations, including the World Trade Organisation (WTO) since 2001 and was granted a transition period that ended in 2006. China is also a member of the Asia-Pacific Economic Cooperation (APEC), BRICS (Brazil, Russia, India, China and South Africa), the Shanghai Cooperation Organization (SCO), the Bangladesh–China–India–Myanmar Forum for Regional Cooperation (BCIM) and the G-20.

Infrastructure

The coastline of China is spanning over 14,500 km, from with many natural harbors and docks. In total there are 35 large port and more than 2,000 minor ones (river and sea together), of which 130 ports are open to foreign shipping. The most important seaports are Dalian, Ningbo, Qingdao, Qinhuangdao, Shanghai, Shenzhen, Tianjin. According to the CIA Factbook, China boasts the 7 out of 10 largest container ports in the world, with Shanghai being the busiest one. In addition, China has the longest navigable waterways in the world, which has enormously benefited economic activity in inland China. In this regard, the two longest rivers in Asia, the Yangtze River and Huang He River, are situated in China. Other major rivers are the Xi, Mekong, Brahmaputra and Amur. Guangzhou (Kanton) is the biggest river port in the country. In addition, China has the longest navigable waterways in the world, which has enormously benefited economic activity with inland China. The quality of the Chinese port infrastructure is high but still lagging behind in respect to most OECD countries (World Bank, 2017). The World Economic Forum Global Competitiveness report ranked China 27th out 137 in 2017-2018. In regard to overall infrastructure the report ranks China as 47th, while the Chinese government continuously expands investments in infrastructure. Impressively, China has managed to remain the world’s largest investor in infrastructure from 1992-2011 (McKinsey, 2013). Nonetheless, for the country to grow sustainably, the Global Infrastructure Outlook forecasts a need for $28 trillion in infrastructure investment for the period 2016-2040.

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