Since the late 1970s China has moved from a closed, centrally planned
system to a more market-oriented one that plays a major global role - in
2010 China became the world's largest exporter. Reforms began with the
phasing out of collectivized agriculture, and expanded to include the
gradual liberalization of prices, fiscal decentralization, increased
autonomy for state enterprises, creation of a diversified banking
system, development of stock markets, rapid growth of the private
sector, and opening to foreign trade and investment. China has
implemented reforms in a gradualist fashion. In recent years, China has
renewed its support for state-owned enterprises in sectors it considers
important to "economic security," explicitly looking to foster globally
competitive national champions. After keeping its currency tightly
linked to the US dollar for years, in July 2005 China revalued its
currency by 2.1% against the US dollar and moved to an exchange rate
system that references a basket of currencies. From mid 2005 to late
2008 cumulative appreciation of the renminbi against the US dollar was
more than 20%, but the exchange rate remained virtually pegged to the
dollar from the onset of the global financial crisis until June 2010,
when Beijing allowed resumption of a gradual appreciation.
Economic development has progressed further in coastal provinces than
in the interior, and by 2011 more than 250 million migrant workers and
their dependents had relocated to urban areas to find work. One
consequence of population control policy is that China is now one of the
most rapidly aging countries in the world. Deterioration in the
environment - notably air pollution, soil erosion, and the steady fall
of the water table, especially in the North - is another long-term
problem. China continues to lose arable land because of erosion and
economic development. The Chinese government is seeking to add energy
production capacity from sources other than coal and oil, focusing on
nuclear and alternative energy development. In 2010-11, China faced high
inflation resulting largely from its credit-fueled stimulus program.
Some tightening measures appear to have controlled inflation, but GDP
growth consequently slowed to near 9% for 2011. An economic slowdown in
Europe is expected to further drag Chinese growth in 2012.
The restructuring of the economy and resulting efficiency gains have
contributed to a more than tenfold increase in GDP since 1978. Measured
on a purchasing power parity (PPP) basis that adjusts for price
differences, China in 2010 stood as the second-largest economy in the
world after the US, having surpassed Japan in 2001. The dollar values of
China's agricultural and industrial output each exceed those of the US;
China is second to the US in the value of services it produces. Still,
per capita income is below the world average. The Chinese government
faces numerous economic challenges, including: (a) reducing its high
domestic savings rate and correspondingly low domestic demand; (b)
sustaining adequate job growth for tens of millions of migrants and new
entrants to the work force; (c) reducing corruption and other economic
crimes; and (d) containing environmental damage and social strife
related to the economy's rapid transformation.
Debt overhang from the stimulus program, particularly among local
governments, and a property price bubble challenge policy makers
currently. The government's 12th Five-Year Plan, adopted in March 2011,
emphasizes continued economic reforms and the need to increase domestic
consumption in order to make the economy less dependent on exports in
the future. However, China has made only marginal progress toward these
rebalancing goals.
