Economy of People’s Republic of China
The most populated country in the world with population over 1.38 milliard1 in year 2016. Second the biggest country in the world considering the territory (more than 9 million square kilometers). Second biggest world economy, which GDP in 2015 year was estimated by International Monetary Fund 11,38 billion2 American dollars. In last 30 years, the fastest growing economy with average pace 10%. That is how in few sentences we can characterize the Middle Kingdom. There is no doubts that we should take into consideration the main reasons and implications for the numeral data.
To fully understand the numbers it is highly recommended to go deeper into the history of Chinese economy and notice that before the year 1979 it has been centrally planned looking up to the Russian one. The aim of this strategy was to make Chinese economy completely self-sufficient. In the year 1979 came into life crucial reforms which gave a permission for foreign investments. However, most of the enterprises has been still in the ownership of the government. In late 80s and 90s partial privatization came into life as well. Some of the so called State Owned Enterprises has been finally privatized. The control of prizes and other protectionism tools has been in some part diminished, a private sector was giving the 70% of GDP.
As it has been mentioned earlier China is the second biggest economy in the world when it comes to the nominal GDP and the biggest one in the world when it comes to the purchasing power parity (International Monetary Fund3 ). It is worth mentioning that the Chinese deny this fact4.
To comprehend the structure of Chinese GDP we need to notice5 that it comprise of 48, 4% services, 42.7% industry and 8.9% agriculture (data for the year 2015). But… 80% of GDP in year 2010 PKB has been attained by the private sector, in which was hired over 80% of all workforce6. The inflation level on 2015 was 1, 4%. The unemployment rate for the same year was 4, 05%.
Peoples Republic of China is definitely an important player on global market, participation in WTO in year 2001 has definitely a huge influence on it. China belongs also to APEC (Asia-Pacific Economic Cooperation) and to G-20. This country has also a great deal of trade agreements with Australia, Canada, ASEAN (Association of South-East Nations), Switzerland and Pakistan. Considering what International Monetary Fund claims, in year 2014 China was on the 77th place due to nominal GDP per capita and 8th9 considering purchasing parity power per capita. The picture above presents growth of China in comparison to the growth of US in the years 1990-2008.
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Source : International Monetary Found [w] http://www.business-in-guangzhou.com/wp-content/uploads/2013/01/Chinas-rapid-growth-in-economy.jpg
The fact that the Middle Kingdom has joined World Trade Organizations has led to decrease the enormous number of regulations and limits connected to foreign investments. The law became less and less strict. (No one says that now law for FDI is no strict and complicated, but it is nothing like it was years before). Till the late 90s the most popular form of FDI were the offices which had only the representative function (Representative Offices- RO) or the copartnerships with Chinese partners. Those points stem from the fact that profiting in any why by foreign company was at that time illegal.
However, after China joined World Trade Organization the ‘better days’ for the West and not only came. At this day and age most of the companies choose the form Wholly Foreign Owned Enterprise (WFOE), which leaves all of the decision process in the hands of foreign investor. Thanks to this way of investment the risk connected to cooperation with Chinese partner has been eliminated.
What is more, to continue the thought of phenomenon of Chinese Economy we need to notice the following, sometimes surprising statistics7.
1. In year 2007 China has built apartments for 19 million citizens migrating to cities. In the same year more than 8 million cars has been produced. Construction of 17 airports has been finished and tens of thousands kilometers of railways, tunnels, bridges and highways has been built as well.
2. In year 2006 the Middle Kingdom has took over Japanese, second biggest in the world automobile market.
3. The number of mobile phone users in year 2007 was more than 300 million, which is twice as much as the number of people owning the mobile in United States at the same time.
4. 650 million8 of people has been using Internet in year 2015. 40% of them has been spending for this activity more than 21 hours a week. A huge amount of time while using Internet Chinese spent on… shopping, on the second place it is watching video movies. More than 40% of all Chinese consumers is buying their grocery online (for comparison in US it is only 10%). It is quite common to buy daily products such as oat meal of oranges via the application. One of the reason of such a popularity of internet shopping is that it is extremely fast in comparison to other places in the world. Most of the products you can receive within 24 hours.
5. Railway traffic in China represents 25% of railway traffic in the whole world.
6. Until the year 2020 subway in Beijing is going to have 561 kilometers and is likely to become the longest subway system in the world. For comparison, now, Warsaw subway line has 6,1km, and all the subways in Warsaw together have the length of 29,2 kilometers9.
It is of vital importance to take into consideration the main goal of the current president of China- Xi Jinping. He assumes that the People’s Republic of China till year 2021 (100 anniversary of setting up the Communist Party) will become moderately prosperous society, and till the year 2049 will became fully developed country. (100 anniversary of setting up The People’s Republic of China). What is even more, words of the president outline a crucially important attribute of Chinese economy, which is- long-term planning. It is typical for East-Asian economies and definitely differentiate them from the western style economies. Undoubtedly, extremely rare we notice in western economies precise goals and plans looking more than 30 years forward. What is more, it is vital to notice that this long-term strategy has its roots in the multiannual Chinese tradition and philosophy. And politics stem from the tradition and philosophy. The role of Confucianism has to be noticed not only on cultural and spiritual sphere but in politics and business as well.
Considering Chinese Economy, it is crucial to notice the existence of quite common steps undertaken in this market, which are often criticized by western media. For example the infringement of intellectual property rights (undoubtedly connected with Confucian philosophy). Widespread protectionism and advantage of local entrepreneurs make it hard to enter the market for foreign investors and often keeps in away from business development. We also need to mention the western accusation of setting up the Oligopoly by Communist Party. The fact is that, 98% of financial institutions in 2006 year belonged to the Government.10. What is more, a great deal of credits given by banks comes to the State Owned Enterprises (around 75%)11. At the same time, there is no doubts that we need to notice a huge progress since 1998. In the mentioned year the number of loans which was given to private sector was estimated for less than 1%12.
We cannot forget that People’s Republic of China has the biggest in the world Savings Rate towards GDP which is 40%13. Here comes the question? Why is it so high? Of course the issue is quite complex, but I would like to outline quite peculiar one. While studying a diversity of researches on savings in People’s Republic of China one of them took into consideration Chinese language. The reason for such a high amount was explained in quite interesting way. The question asked was: Why Chinese no matter how rich or how poor they are they have the high savings rate (to their income), and why so many Americans who live in such a high standard life (often beyond their means) have very little savings? It is important to know that in Chinese language in present tense we say ‘ I am ‘ or ‘ I have’ when we want to say ‘I will be’ ‘I will have’ in Chinese it still be the same as ‘I am’ ‘I have’- the form of the verb does not change. It leads to the conclusion and what you have today, you have it tomorrow. Who you are today, you are the same tomorrow. In this way we notice that for Chinese in some way, the things they have today they also have tomorrow. That is why, we may notice an enormous difference on the attitude to life and business in the different places in the world.
2 International Monetary Fund http://www.imf.org/external/pubs/ft/weo/2015/02/weodata/weorept.aspx?pr.x=35&pr.y=18&sy=2012&ey=2019&sort=country&ds=.&br=1&c=924&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a
3 International Monetary Fund, Report for Selected Countries and Subjects, 04.2012.
4 China denies being word’s No.1 economy, 20.01.2015, http:news.xinhuanet.com/english.china/2015-01/20/c_133933504.html
5 GDP- composition by sector and origin, CIA, World Factbook, https://www.cia.gov/library/publications/the-word-factbook/fields/2012.html
6 Yin X ., Fudan School of Economics.
7 Zhang H., Baker G. , Think Like Chinese, The Federation Press, Sydney, 2008, p. 28.
8 Lau A., Chi J., Gong F., Li L., Liao N., China’s iConsumer 2015: A growing appetite for choice and change, China’s Insights On-the-Go, McKinsley & Company p. 2-6.
10 Chui i Lewis, Reforming China’s State Owned Enterprises and Banks, 2006, p. 206.
11 Ibidiem p. 11.
12 X. Yin , Fudan School of Economics.