China's economy held the line on growth in 1999, mainly with government assistance, as the economy continues to suffer from the effects of massive, and accelerating, restructuring. The coming year could see some improvement, though the economy is likely to remain under stress as the restructuring intensifies over the next three to five years.
Large-scale job loss and gluts of consumer goods are still dampening demand, but deflation has begun to flatten out. Recovery in the rest of Asia helped keep exports strong, though foreign investment dipped (see Trade and Foreign Direct Investment).
China's preparations to enter the World Trade Organization (WTO) will accelerate the pace of the toughest reforms yet in agriculture, the state-owned sector, and banking, among others. Economic performance depends in large part on how well China implements these reforms and on non-state sector growth. Foreign firms are also likely to see these reforms as crucial, as WTO implementation is deeply entwined with these issues.
OVERALL ECONOMIC PERFORMANCE IN 1999
GDP China's GDP grew slightly more than 7 percent in 1999, thanks only to the government's ongoing stimulus program. With other Asian countries recovering, China's probable WTO accession this year, and a new drive to boost the private sector, however, both the Chinese government and outside analysts predict slightly stronger growth-around 7.5 percent-in 2000.
Investment Investment in fixed assets rose 7.8 percent in 1999, and is expected to increase by another 7.8 percent in 2000. Much of the investment came from the government's stimulus plan.
Prices Consumer and retail prices fell throughout 1999. Overcapacity in many industries was chiefly responsible for the 27-month deflation, but slack demand caused by consumer worry about job security and education and health costs also played a role. Many economists believe that the worst is past, and that deflation will wane in 2000.
Monetary policy China's impressive money-supply growth rates continued in 1999. Deflation-fighting efforts included the issuance of more than *200 billion ($24.16 billion) in new currency last year; the institution in November of a tax on individual savings deposits; and another round of interest rate cuts. The government also increased its reliance on open-market operations in 1999, after suspending operations through mid-1998. This could be the year Beijing further relaxes its control over loan interest rates.
Financial reforms China stepped up the pace of financial reform in 1999 and this pace is likely to continue in 2000. A few of the more high-profile moves included: establishing asset-management companies to relieve the four state banks of their bad loans; slightly loosening restrictions on foreign participation in commercial banking; granting domestic insurance firms the ability to invest in closed-end securities funds; and expanding the number of listed investment funds.
The government's budget woes Government revenue, while rising of late, is still falling far short of the budget's requirements. Though the State Administration of Taxation reported that total revenue was up 13.4 percent in 1999, tax evasion remains a serious problem. The government has already issued billions of RMB in Treasury bonds both to help recapitalize the ailing banks and to stimulate the suffering economy, and more such outlays will be necessary before either recovers.
Foreign currency and the value of the RMB China's foreign-currency reserves reached $154.68 billion at the end of 1999, up 6.7 percent. Most analysts expect that the RMB's value will remain relatively stable this year.
Agriculture Falling agricultural prices, due to bumper harvests, were responsible for the small rise in rural incomes of only 4 percent in 1999. This was less than half of the average urban income, which rose more than 9 percent. Rural poverty is likely to be exacerbated when China joins the WTO-an additional 9.6 million farm workers are expected to lose their jobs as a result of China opening its agricultural markets.
SOE reform With many of the smaller and more inefficient SOEs already closed, the government now has to tackle the behemoths, the country's largest employers. The number of laid-off SOE workers is expected to hit 12 million this year.
The non-state sector China has made several moves to encourage the non-state sector in recent months. As China prepares to enter the WTO, private firms may gain more opportunities to participate in the capital markets. Parts of the service sector may also be deregulated.
Employment In 1999, urban registered unemployment was 3.1 percent. Official unemployment figures do not include the rural population, the floating population, or the millions who are technically unemployed, but still on SOE payrolls. Independent analysts estimate that when these populations are included, China's unemployment rate reaches double digits.
SCENARIOS FOR 2000
WTO preparations aside, the PRC economy is facing several years of high unemployment, stubborn overcapacity, industrial and agricultural restructuring, and slower growth than that of the early 1990s. The prospect of WTO membership gives the country's leaders an added impetus to implement reforms. Implementation will be difficult, and will almost certainly meet resistance, especially at the local level. Nevertheless, reform will progress, if slowly, and China will continue on its path to full integration with the world economy.
Introduction Marketization of China's Economy
1999 is both the 4th year of the Ninth 5-Year Plan and the beginning of making the Tenth 5-Year Plan.
Laobor Markets
The marketization of China's labor is estimated to reach 45% by the end of the Ninth 5-Year Plan, reach 65% by the end of the Tenth 5-Year Plan, and from mid-transition to late-transition
Banks
The marketization of China's capital is 45% by end of the Ninth 5-Year Plan, and 60% by end of the Tenth 5-Year Plan, from mid-transition to late-transition.
Production
The degree of marketization of production will reach 60% by end of the Ninth 5-Year Plan, 75% by end of the Tenth 5-Year Plan, and thereby turn from late transition to a relatively mature market economy.
Controls
The marketization of China's prices may reach 65% by end of the Ninth 5-Year Plan and 75% by end of the Tenth 5-Year Plan, approaching a mature market economy.
Analysis
The general degree of marketization of China's economy cannot be over 50% when summing up the previous analysis of the marketization degree of labor, capital, production, and prices, and taking into consideration the huge government interference on economic activities in China:
Question 1
Concerning the first question, since it is publicly recognized that developed countries have mature market economies, their degree of marketization can be confirmed to surpass 80%.
Question 2
Concerning the second question, the author believes that before the reform and opening up, i.e., before 1978, China's marketization degree could not have exceeded 15% and was a non-market economy. This is because before reform and opening up, labor basically did not move and was not a commodity.
Question 3
Concerning the third question, one should confirm that China's current marketization degree is still low and must be raised.
Question4
International scholars in general believe that China is still a country in transition and should not be considered a market economy, but maybe it can be considered a semi-market economy.
Introduction The Course of Economic Development
Along with the coming of 2000, the PRC had undergone a glorious yet tortuous course of 50 years, amid great changes in Chinese society.
Economic Restructuring
The Third Plenary Session of the CPC 11th Central Committee, held in 1978, made the decision to shift the policy stress to socialist modernization, and implement the strategic decision on reform and opening to the outside world.
Establishment of the Diversified-Ownership Economy
Before the introduction of the policies of reform and opening to the outside world, China had a unitary public ownership economy, which lacked vitality.
The Trend Toward a Coordinated Economic Structure
Since 1978, China has adopted a series of policies and measures giving priority to the development of light industry, expanding the import of top-quality consumer goods, strengthening the construction of basic industry and facilities, and devoting major efforts to developing tertiary industry, so as to make China's economic structure more coordinated, optimized and balanced.
Introduction The Socialist Market Economy
Since 1978, along with the dismantling of the planned economy system and the deepening of the reform of the economic system, commodity, capital, labor service and technology markets have appeared one after the other in China.
Capital Market
Since the reform and opening began, China has continuously expanded the capital market by improving the credit and loan mechanism, and developing stock and state debt markets.
Commodity Market
In order to extend the regulatory function of the market, the state has gradually reduced the categories of products for planned production, eliminated the restriction that enterprises were only allowed to engage in production but not in business operation, and abolished the practice of the state fixing commodity prices.
Price Reform
Before the reform and opening was introduced, most commodities on the Chinese market were priced by the state. But since the start of the reform and opening, along with the expansion of the commodity market scale and the change of the relations between commodity supply and demand, the state has carried out price reform step by step and according to plan.
9.1% Surge Epitomizes Sound Growth of Chinese Economy(2004-01-21)
Li Deshui, head of the Chinese National Bureau of Statistics (NBS), said in Beijing Tuesday that China had overcome the impact of the Asian financial crisis thanks to the substantial measures it had taken to fight both inflation and deflation over the past decade.
Wuhan Economy
Wuhan has been the trade and commodity center in China. It is called the cross of nine provinces. It is also one of the earliest cities that can develop industries. Now, Wuhan has been formed as a comprehensive industry base with complete kinds. Mainly, there is metallurgy, machinery, textile and food. And also, light industry, chemistry, electron and building materials are in the certain level.
Beijing Economy
Beijing, China's economic center, fulfilled a GNP of 217 billion yuan in 1999, which is a growth of 10 percent over last year. Its financial revenue grew 22.8 percent, higher than the average percentage increases.
Shanghai Economy
Shanghai is the biggest port in China and it is a center of technique, trade, finance, information and culture. And also it is one of the biggest cities in the world and a famous international port.
Shenyang Economy
Shenyang is the industrial base with complete kinds. And among them, the machinery industry is the main part.
Hangzhou Economy
Hangzhou is not only the famous tourist place, but also an industrial city with complete kinds and major in light industry.
Chongqing Economy
In China, the economy in the eastern part is developed. And the resources in the western part are abundant.
Fuzhou Economy
The climate in Fuzhou is mild, and the soil is fertile. There are a lot of rivers in Fuzhou, and the four seasons here are all beautiful. So Fuzhou is called the land of flowers, fruits and fish. The mineral resources are abundant. Among them, the reserve of Yela Stone is in the first place in China. The resources of forests, aquatic products and electron are abundant too. Fuzhou is the important industrial base in Fujian Province. The output value here can occupy 1/5 of the total output.
Guilin Economy
The ground of Guilin mainly is red soil. It is good for planting crops in arid land and growing fruits and trees. The suburbs are sandy soil and paddy fields. And it is good for growing vegetables and grains.
Lhasa Economy
The natural condition of Lhasa is great. Agriculture and husbandry are developed. Mainly, people plant highland barley, winter wheat and rape in Lhasa. The resources of water conservancy, ground heat, solar energy and mine are abundant. Yangbajing ground heat is listed as the major experiment by our country.
China's Economy
China's economy held the line on growth in 1999, mainly with government assistance, as the economy continues to suffer from the effects of massive, and accelerating, restructuring. The coming year could see some improvement, though the economy is likely to remain under stress as the restructuring intensifies over the next three to five years.
Chengdu Economy
Chengdu is the central city in the southwestern part in China. In Chengdu the economy is prosperous, the science and culture are developed. It is one of the cities in China's plan.
Kunming Economy
The mineral resources and the reserves in Kunming are abundant. Mainly, there is P, iron, coal, salt, quartz sand, Si-alga and so on. Among them, P mine is the most famous one, the total reserves are 4.6 billion tons.
Guangzhou Economy
The natural conditions in Guangzhou are advantage and the products' resources are abundant. The main grain crop is paddy rice, and also there is maize, wheat, sweet potatoes and so on.
Tianjin Economy
Tianjin is the important heavy industrial city in China's coast. It is also the modern industrial base that has strong basis and complete kinds.
Introduction Economic Growth in the PRC
Since the implementation of the Open Door Policy and economic reforms, economic growth in the PRC has been rapid. Graph 1 depicts economic growth in the PRC since the 1950s, and presents a corresponding view of Australia's economic growth patterns.
China's Economy After 1978 (circa 1992)
After its defeat of the Nationalists in 1949, the PRC faced the immediate problem of rebuilding an economy that had been ravaged by civil war and Japanese aggression.
The PRC's Industry Structure
Domestically, modernisation and economic growth has been the focus of the reformist policies introduced by Deng Xiaoping, and in attempting to achieve this, the leadership has implemented the Four Modernisations Programme that lays special emphasis on the fields of agriculture, industry, education, science and technology, and defence.
International Trade After 1978
After the PRC government adopted the open door policy in 1978, its foreign trade grew rapidly as exports rose to promote economic growth and pay for the increased volume of imports.
Direction of Trade
China's distribution of foreign trade is focused primarily upon the Capitalist countries. Obviously, this is because it is mainly the Capitalist countries that have the funds and technology which China needs for its industrialisation - the most notable examples being Japan, the US and Hong Kong. Along the way to industrialisation, the PRC has established trading contacts with most countries - regardless of ideology.
The PRC's Financial System
The PRC's financial system is highly regulated and relatively underdeveloped, but has recently begun to expand rapidly as monetary policy becomes integral to its overall economic policy. As a result, banks are becoming more important to the PRC's economy by providing increasingly more finance to enterprises for investment, seeking deposits from the public to mop up excess liquidity, and lending money to the government.
Exchange Rates
The PRC has a dual currency system. The value of the local currency - Renminbi (RMB or Yuan)- is fixed by the People's Bank of China on the basis of movements in a mixed basket of the currencies of its major trading partners. The RMB is non-convertible, and its export is prohibited without official permission. Purchases of imported goods are permitted only in special stores in exchange for foreign exchange certificates (FECs).
Savings and Investment in the PRC
One of the most prominent characteristics of the PRC's economy has been its people's high propensity to save. This has occurred more as a result of a lack of consumer goods than a genuine desire to save, however. During the 1980s average gross domestic saving as a percent of GDP was 32.5% - higher than any other country in Asia - and during its peak in 1990, gross domestic saving in the PRC reached 39.2%. Coupled with this as been a high propensity for the government and TVEs to reinvest in capital construction projects.
Foreign Investment
The PRC's 'Four Modernisations' programme has resulted in an effort to attract foreign investment and the promotion of joint ventures with foreign enterprises and governments.
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