According to ZhengSourcing, China’s economic development since 1978 has been faster than any other country. Since 2010, China is the world’s second largest economy after the US – measured in gross domestic product (GDP) – and within a few years, the Chinese economy is expected to have outgrown the US. But the growth rate has gradually slowed down in the 2010s and a shift is underway to a more consumption-driven, technologically advanced and environmentally sustainable economy.
Measured in purchasing power (PPP), China’s economy was larger than the US already in 2014, according to statistics from the International Monetary Fund. But in terms of GDP per capita, China is still far ahead of Western European countries and the United States, even though poverty in the country has fallen sharply. It is a priority goal of China’s leadership for the country to achieve high income status, today China according to the World Bank is regarded as an upper middle income country.
Countryaah.com: Major imports by China, covering a full list of top products imported by the country and trade value for each product category.
The official line is that China should be a “socialist market economy”. But the state still has a strong role in the economy and controls several areas that are deemed to be important for the country, including the banking sector, energy and telecommunications. At the same time, the private sector of the economy has grown in recent years and today private companies contribute almost two-thirds of GDP and four-fifths of employment. Foreign companies have also been increasingly introduced into the Chinese market.
Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including CHN which represents the country of China. Check findjobdescriptions to learn more about China.
Financial crisis
A growing export industry, supported by foreign investment, has been the main driver of China’s economic expansion. The development has been particularly intense in China’s coastal provinces and in the southern provinces of Guangdong, Fujian and Hainan. This has led to large differences in wage workers’ incomes between different countries and to tensions between coastal regions and provinces inland and in the west. The government has prioritized attempts to open the Western provinces to private investment to get growth there.
In 2008, the rapid growth rate slowed down due to the global financial crisis. Chinese export companies noted a sharp decline in demand. From autumn 2008, China’s management implemented a comprehensive stimulus package to stop the slowdown in the economy. For example, nearly $ 600 billion over a two-year period would be used for new railways and other infrastructure. Through the measures, China was able to avert more serious consequences of the crisis.
But the years of focus on rapid economic growth with strong investments, extensive lending and export targeting have created structural weaknesses in the economy such as increased indebtedness, overcapacity and inefficiency, while the country’s environment has had to pay a high price (see also Industry and Natural Resources and Energy).
New reforms
Although the state-controlled companies have become smaller and the profitability of some of them increased through privatizations and mergers, many continue to be a burden to the Chinese economy. Favorable loans from the state banks have kept inefficient state giants, while private small companies have often been forced to seek loans from loan sharks and from so-called shadow banks. The banking sector has at times had problems with “bad” loans that the state companies were unable to pay interest on or repay. On several occasions, the government has been able to prevent capital to prevent banks from imposing capital on the banks, while at the same time tightening lending rules. During the 2010s, many local governments in the country had incurred high debts that they found difficult to finance.
From the second half of the 2010s, reforms were initiated that the economy would be largely driven by domestic consumption and become less export-oriented, while market forces were also given more leeway. However, stimulating increasing consumption has not proved to be so easy, as lack of trust in the welfare system means that the Chinese often spend money for future use. The government has contrasted with measures to increase employment and give residents more money in the wallet through increased wages, lower taxes and investments in social insurance.
Growth is falling
China’s management also does not want growth to be emphasized in the same way as before. It is considered more important that growth is sustainable, that it is in harmony with the environment and that it does not consume as much energy and is therefore less expensive. At the same time, economic growth must not be too low, as it can hit the financial sector and lead to social unrest. In 2019, GDP grew by just over 6 percent, which was significantly lower than the figures of over 10 percent reported in the first decade of the 2000s. But growth remained within the targets agreed by the decision makers and the fact is that many other countries would feel more than satisfied if their economies grew at the same rate.
But China’s economic challenges remain great. The Chinese workforce has reached its highest number and those of working age will gradually decrease as the population ages and there will be more to support. In addition, wage levels have risen during the second half of the 2010, which has led some foreign companies to move to new low-wage countries. Continued challenges in the real estate sector also exist, despite the government putting great effort into controlling housing costs and property speculation.
At the turn of the decade, the government also had to take steps to deal with the consequences of the outbreak of a new coronavirus in the country. The new corona virus, which first spread in the city of Wuhan in Hubei Province and then across other parts of China in late 2019 and early 2020, had major repercussions on the economy. The closure of factories and companies when quarantine rules began to apply to limit the spread of infection affected both the service sector and the manufacturing industry. Exports fell by just over 17 percent during the first two months of 2020 and retail sales fell by 20 percent. From March, the situation had improved somewhat as companies reopened and people could return to their jobs. The central bank promised that affected companies would have access to cheaper loans.
