Prior to 1979, China, under the leadership of Chairman Mao Zedong, maintained a centrally planned, or command, economy. A large share of the country’s economic output was directed and controlled by the state, which set production goals, controlled prices, and allocated resources throughout most of the economy.
Historically, China was the largest economy in 1820 accounting for an estimated 32.9% of global GDP and by 2030, China’s economy could be 30%--larger than that of US.
From 1979 (when economic reforms) began) to 2011, China’s real GDP grew at an average annual rate of nearly 10%. On average, China has been able to double the size of its economy in real terms every 8 years. Chinese leader deng Xio ping is the architect of China’s modern reforms.
From 1980 to 2011, real GDP grew 19-fold in real terms, real per capita GDP increased 14-fold, and an estimated 500 million people were raised out of extreme poverty (IMF project that China’s real GDP will grow by 7.8% in 2012. From 2013 to 2017, the IMF projects that China’s GDP will grow by 8.5%.
China is now the world’s second largest economy and possesses the potential to become largest economy of world within few years.
China is the largest merchandise exporter, second largest merchandise importer, second largest destination of foreign direct investment, largest manufacturer, largest holder of foreign exchange reserves and largest creditor nation. Chinese merchandise exports rose from $14 billion in 1979 to $ 1.9 trillion in 2011, while merchandise imports over this period grew from $ 16 billion to $ 1.7 trillion.
China’s gross saving as percentage of GDP stood 54% in 2010 and is among the highest saving rate in the world.
According to UNCTAD, China was the world’s second largest destination for FDI flows in 2011 after the US. 56% of China’s outbound FDI in 2011 was in Greenfield projects such as new plants and business facilitation and 44% involved mergers and acquisitions.
Hong Kong was reported as the largest source of FDI flows to China in 2011 (63.9% of total), followed by Taiwan, Japan, Singapore, and the United States.
445,244 foreign-invested enterprises were registered in China in 2010 employing 55.2 million in 2011. FIE’s China accounted for 52.4% of China’s exports and 49.6% of its imports
1979-Special economic zones were established to cater FDI, boosting exports & importing high technology products into China.
Decentralization stated in economic policy making in several sectors especially trade encouraging free market principles.
Trade incentives were given in many coastal regions & cities were designated as open cities and development zones.
Removing trade barriers encouraged greater competition & attracted FDI inflows
Two main factors:
Large scale capital investment and
Rapid productivity growth
Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. The improvements to productivity were caused largely by a reallocation of resources to more productive uses, especially Agriculture, Trade and Services by private entrepreneurs which were largely benefitted due to invasion of new technology & processes that came from FDI.
China’s share of global GDP on Purchasing Power Parity (PPP) basis rose from 3.7% in 1990 to 14.3% in 2011 and by 2030, China’s economy could be 30%larger than that of US. China per capita in 2011 was $ 8650. In 2000, China initiated a new “Go Global” strategy allowing Chinese firms to invest overseas. On September 2007, China Investment Corporation (CIC) was launched with $ 200 billion fund.
One key factor for this move was to utilize massive accumulation of foreign exchange reserves and secondly to obtain natural resources, such as oil & minerals.
China overtook Germany in 2009 to become the world’s largest merchandise exporter and the second-largest importer. China’s share of global exports nearly tripled from 2000 to 2012, rising from 3.9% to 11.5% in 2000 to 10.4% in 2011.The World Bank projects this figure could increase to 20% by 2030.
Merchandise Trade surpluses, large scale foreign investment, and large purchases of foreign currencies to maintain its exchange rate with the dollar and other currencies have enabled China to become by far the world’s largest holder of foreign exchange reserves at$ 3.29 trillion at the end of September 2012.
The estimated trade surplus in 2012 is $ 212 billion.
China’s largest export markets are EU 27, US, Hong Kong and Asian (10 counties).
China’s largest source of import are EU 27, Japan, ASEAN and South Korea.