Download China`s Economic Awakening China, the world`s most populous

China’s Economic Awakening
China, the world’s most populous country with 1.3 billion people, has also the world’s fastestgrowing economy. During the early 1980s China began to dismantle collective farming and gradually
started economic reforms such as price liberalization, fiscal decentralization, and the foundation of a
diversified banking system that led to rapid growth of the non-state sector. As a result, a quarter of a
century later, China is a country bustling with economic activity. It has become one of the world’s top
exporter, the most sought-after destination of foreign investment and one of the greatest competitors in
international markets. The restructuring of the Chinese economy has led to a more than tenfold increase in
GDP since 1978. Measured on a purchasing power parity basis, China in 2006 was the second-largest
economy in the world after the US. In current dollars, China is the fourth largest economy after the United
States, Japan, and Germany. Figure 1 shows the growth rate of real GDP in China, the United States, and
15 members of the EU (the Euro members plus UK, Sweden and Denmark). The growth of Chinese
output of goods and services has been persistently higher than in the industrially developed economies.
These gains show the spectacular transformation of the Chinese economy during the last two and a half
decades and its potential for growth in the near future.
This success is even more striking if we take into account the fact that China is a developing country.
As such, its Gross National Income per capita is only $2000 at current exchange rates; however, China
has one of the longest life expectancy at birth in the developing world with an average of 72 years, low
child malnutrition (only 8% of children under 5) and high literacy rate (91%). Its economic
transformation for the last two decades reduced poverty by 422 million people, but despite this
accomplishment China is still home to 18% of the world’s poor: About 150 million Chinese live on less
than $1 a day. China’s income inequality has risen from 28% in 1981 to 41% in 2005. Economic
development has been more rapid in coastal areas than in the interior, and there are large income
disparities between these two regions.
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Notwithstanding the rapid expansion of China’s industrial sector, just about 41% of the population in
2006 lived in urban areas. In the same year only 24% and 31% of the labor force worked in industry and
services respectively, while agriculture employed 45% of the total labor force. From the point of view of
each sector’s share of GDP, industry contributed 48.4% to total output, services 39.9% and agriculture
11.7%. The percentage of agricultural products relative to GDP is relatively large compared to advanced
industrialized nations, where agriculture represents between 1-4% of total output. However as China has
been building up its industrial capacity, the percentage of the agricultural output relative to GDP has been
decreasing from 27.1% in 1986 to 11.7% in 2006. For the same period, industry and services went up
from 44% and 28.9% respectively in 1986.
This fast-growing nation has increased the world demand for energy. China is the world’s biggest
producer and consumer of coal and the largest oil consumer after the US. Thus Chinese imports of fuel
and energy rose from $504 million in 1986 to $89,002 million in 2006! Despite its high imports, China
has had trade surpluses since the early 1990s and, in 2006, had the largest current account surplus in the
world, nearly $180 billion. About 40% of Chinese exports go to the US. In the second quarter of 2007, the
US bought $76,651million worth of goods from China. The European Union trade statistics reveal
equally impressive results. China is the second major import partner of the Union after the US and the
fourth major export partner. China’s real GDP grew last year by almost 10%, an extraordinary figure
compared to the low rates of growth observed in the EU and the US (Figure 1). Thus China has become
not only the most important supplier of cheap goods to OECD countries but also the most attractive
market for their exports. However, as Figure 2 reveals China is more successful in its trade relations with
the US. Since 1998 the US trade deficit with China has been not only the largest among US top trading
partners but also persistently rising.
The question that remains to be answered is whether or not China’s enormous transformation could
set an example for other developing countries to follow or whether it is a unique historical event.
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