The Economy of China
The People’s Republic of China is a country located in East Asia and is the world’s most populous nation. It spans five time zones and borders fourteen countries on land. Its economy is dominated by industrial and construction sectors, with exports to East and Southeast Asia making up 46.8% of its GDP.
Industry and construction account for 46.8% of China’s GDP
The service sector has grown rapidly in recent decades, doubling in size from one percent of GDP in 1995 to nearly half a trillion dollars in 2012. This sector comprises transport and storage, retail trades, finance and real estate, and hotel and catering services. Although the service sector accounts for a smaller share of GDP than the industry sector, it does represent more than half of the economy.
China’s GDP is composed of three broader sectors, primary industry and secondary industry. The primary industry sector accounts for 10% of GDP, while the secondary and tertiary industries make up the majority of the remaining 46%. China is the world’s largest manufacturer of industrial output, and is a leading producer of telecommunications equipment, consumer products, and industrial machinery.
In addition to the manufacturing industry, the real estate sector accounts for a significant share of China’s economy. Real estate development and construction accounts for about 20% of fixed assets. Because these sectors are crucial to China’s economy, policymakers often fall back on real estate investment when facing economic slowdowns.
While the manufacturing sector has been an important part of the economy for decades, the proportion of this sector in the GDP has fallen in recent years. Moreover, the country’s services sector has increased much faster than its agricultural sector, which made up just 1% of the country’s total GDP. As a result, the country has become the biggest exporter of goods and services in the world and the second largest importer of goods.
Exports to East and Southeast Asia
As the economies of East and Southeast Asia integrate, China is increasingly the principal export market for all. While Japan remains the largest economy in East Asia, its market is far more closed than China’s. China’s trade with other countries in the region is growing by orders of magnitude. This fact has led to increased competition among Chinese exporters.
China’s “charm offensive” has been designed to downplay territorial disputes and focus on expanding trade relationships with Southeast Asia. This approach is seen as an effective means of leveraging economic and political ties. This initiative includes cooperation with ASEAN member states such as Burma, Indonesia, Philippines, Singapore, and Thailand. China is also beginning to develop bilateral security relationships with these countries.
The rapid increase in trade between China and ASEAN is evident from tables 1 and 2. Since the start of 2000, China’s exports to ASEAN countries increased by 220.0 percent and 29.3% from 2000 to 2005, which is about twice the rate of overall exports. In addition, China’s imports from ASEAN countries increased from 9.8% to 11.4% in the same period.
The expansion in the region has resulted in the signing of a memorandum of understanding on cross-border transport and a plan to coordinate hydroelectric projects in the river system. China is also expanding its transportation connections to East and Southeast Asia, with new road construction south of the Yunnan capital Kunming, and air routes between Chiang Mai and Jinghong.
In addition to ASEAN, China has forged ties with various countries in the region, reducing barriers to trade and fostering regional institutions. It signed a free trade agreement with the Association of Southeast Asian Nations in 2002 and negotiated bilateral free trade pacts with other members. By 2015, China plans to implement the South Asian Free Trade Area, which would provide free trade with the entire region.
Trade with developed countries
As part of the global economy, China has made great strides in promoting its foreign economic relations. This is largely through the promotion of trade, imports, and foreign capital, all of which are crucial for the country’s development. As part of the efforts to develop international trade, China has reformed its systems for control of imports and exports. Previously, Chinese import and export controls were centralized and determined by the country’s balance of trade and foreign exchange reserves. From the early 1980s until the mid-1980s, China restricted its imports as it focused on expanding its exports and buying equipment from abroad. But in the late 1980s, the Chinese government decentralized the management of foreign trade, and a large rise in imports resulted.
Foreign trade has been an important part of the Chinese economy since the mid-1960s. During this time, Germany was the second largest supplier of industrial goods to China, followed by Japan. During this period, China shopped widely for industrial purchases, and concluded trade deals with nearly all of the countries of Western Europe. In 1986, foreign trade made up about 18 percent of China’s overall trade, and imports outnumbered exports by a margin of three to one.
In recent years, China has seen its trade surplus increase significantly, reaching more than $218 billion. That’s about 8 percent of GDP, and is the highest level in nearly four decades. China’s trade surplus has historically been offset by a trade deficit with the rest of Asia. This is a cause for concern for some Asian economies, since exports to China have been the primary driver of recent economic growth in these nations.
Developing countries have long served as a significant market for Chinese agricultural and light industrial products. In 1986, developing countries accounted for fifteen percent of China’s exports and eight percent of its imports. Today, China is increasingly investing and trading with African countries in order to secure strategic natural resources.
Growth in global trade
China’s growth in global trade will likely slow in the next five years. The country’s share of global trade is forecast to fall by 50% by 2022. Previously, China was the world’s largest exporter, but that dominance may be at its peak. China’s economy is highly-developed, with an ever-improving business environment and a large market.
China’s growth in global trade has been boosted by its efforts to diversify its market. The Belt and Road Initiative (BRI) has encouraged Chinese enterprises to expand to other markets. In 2015, BRI trade accounted for 29.7 percent of total global trade. In addition, trade between China and ASEAN continued to expand quickly.
Growth in China’s foreign trade has been driven by private enterprises. Private enterprises have surpassed foreign-invested enterprises as the largest foreign trade entity in the country. In 2021, the proportion of private enterprises in China’s global trade will grow from 47.6 percent to 49.6 percent. This change reflects the improved international competitiveness of Chinese enterprises and capital. It also embodies the effect of reform aimed at allowing market forces to determine resources and allocation.
The global growth of trade in goods and services has increased by nearly half from 2010 to 2021. China’s growth in trade in services has increased by 112.9 percent over the same period, outpacing the US, Japan, and Germany. This represents a tremendous expansion for the country’s exports.
China’s accession to the World Trade Organization (WTO) has allowed GVCs to tap into the nation’s manufacturing powerhouse. It took fifteen years to fully integrate with the multilateral trading system. During this period, China’s share of global trade increased, but remained below its full potential. However, in the last three years, the emergence of global value chains has made China the world’s manufacturing powerhouse.
The International Institute for Applied Systems Analysis (IIASA) has created a projection of China’s population growth. In the year 2029, the country’s population will peak at 1.46 billion people. However, in all other scenarios, the number of people in China will decline. This will create significant pressure on Beijing to boost incentives for couples to have more children.
The government is worried about the population growth in China. In the 1950s, the country’s population was only 544 million. However, in the 1960s, the number was 654 million and in 1970, it was at 822 million. As a result, the Chinese government took measures to slow the population growth. It launched a birth control campaign under the slogan “Late, long, few”. However, this campaign did not work as well as the government had hoped.
The population growth in China is expected to slow down by 2020. The cost of raising a child in China is increasing. In 2005, a study estimated the cost of raising a child at 490,000 yuan. In 2020, that number will reach 1.99 million yuan, or about 255,000 euros.
China’s elderly population has increased in recent decades. The country’s elderly population now accounts for almost 14% of the population. By 2050, this percentage will increase to 23 percent of the total population. This will put China on par with many of the developed countries. China’s elderly population will also face challenges in health care, pensions, and labor shortages.
While China’s population growth has slowed in the past 50 years, its one-child policy is still holding back its economic growth. In fact, the country’s birth rate is below the replacement rate of 2.1. As a result, China is likely to face a severe labor shortage within the next 20 years. China’s economy will remain largely manufacturing-based. Furthermore, the rise of the elderly has pushed up life expectancy in China and posed a substantial burden on the welfare system.