Chinese Economy
Beginning in late 1978, the Chinese leadership has been reforming the economy from a Soviet-style centrally planned economy to a more market-oriented economy that is still within a rigid political framework under Party control. The reforms replaced collectivization of Chinese agriculture with privatization of farmlands, increased the responsibility of local authorities and industry managers, allowed a wide variety of small-scale enterprises to flourish, and promoted foreign investment. Price controls were also relaxed. These changes resulted in mainland China's shift from a planned economy to a mixed economy.
China became a member of the World Trade Organization in 2001. Chinaâ's accession into the World Trade Organization (WTO) was a goal achieved after nearly fifteen years of exhausting negotiations carrying many legal, political and social implications for all parties. China was finally able to convince WTO members that without China, the WTO is only partially a worldwide trade organization. The road to the signature of the final agreement of accession was long, but these difficulties pale in comparison to the problems that have not yet been tackled in terms of achieving real implementation of its provisions throughout the territory of the People's Republic of China (PRC). China's accession surely presents the world trading system with opportunities, but also poses the challenge of integrating a market with strong structural, behavioural and cultural constraints.
The government emphasizes personal income and consumption by introducing new management systems to help increase productivity. The government also focuses on foreign trade as a major vehicle for economic growth, which led to 5 Special Economic Zones (SEZ: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan Province) where investment laws are relaxed so as to attract foreign capital. Since the 1990s, SEZs and similar concepts have been expanded to major Chinese cities, including Shanghai and Beijing. The result has been a 6-fold increase of GDP since 1978. Chinese economic development is among the fastest in the world, and has been growing at an average annual GDP rate of 9.4% for the past 25 years. At the end of 2005, the PRC became the fourth largest economy in the world by exchange rate, and the second largest in the world after the United States by purchasing power parity at US$8,158 trillion. But with its large population this still gives an average GDP per person of only an estimated US$8,000 (2006), about 1/5th that of the United States.
Mainland China has a reputation as being a low-cost manufacturer, which caused notable disputes in global markets. This is largely because Chinese corporations can produce many products far more cheaply than other parts of Asia or Latin America, and because expensive products produced in developed countries like the United States are in large part uncompetitive compared to European or Asian goods. Another factor is the unfavorable exchange rate between the Chinese yuan and the United States dollar to which it was pegged.
On July 21, 2005 the People's Bank of China announced that it would move to a floating peg, allowing its currency to move against the United States dollar by 0.5% (effective 18 May 2007, which was earlier 0.3%) a day, while 3% a day against other currencies. Many high-tech American companies have difficulty exporting to China because of U.S. federal government restrictions, which exacerbated the trade gap between the PRC and the US, widespread software piracy and illegal copying of intellectual property (a major US export), and perceived low quality of US goods. On the other hand, China runs a trade deficit with Taiwan and South Korea, importing more from those nations than exports. China runs a large but diminishing trade surplus with Japan (slight deficit if Hong Kong is included).
There has been a significant rise in the Chinese standard of living in recent years. Today, a rapidly declining 10 percent of the Chinese population is below the poverty line. 90.9% of the population is literate, compared to 20% in 1950. The life expectancy in China is the third highest in East Asia, after Japan and South Korea. There is a large wealth disparity between the coastal regions and the remainder of the country. To counter this potentially destabilizing problem, the government has initiated the China Western Development strategy (2000), the Revitalize Northeast China initiative (2003), and the Rise of Central China policy (2004), which are all aimed at helping the interior of China to catch up.
China is undergoing major reforms in its financial sector, which has been plagued by nonperforming loans made in the 1980s and early 1990s to inefficient state-owned enterprises. The government has spent five years and more than US$400 billion cleaning bad loans off the books of the big four state-owned banks, helping prepare them to become shareholder corporations. By the end of 2006, China had restructured three of its four largest banks and listed them publicly. China's largest bank, the Industrial and Commercial Bank of China (ICBC) in October 2006 raised US$21.6 billion in the world's largest initial public offering (IPO) in history. ICBC is now the world's second largest bank in market value, after only Citibank. These highly successful IPOs have helped ease the government's burden and spur further structural reforms in China's nascent banking industry.