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July 18th, 2002
To Have and Have Not
Sizing Up China's Economy

In 1820, China made up 28.7 percent of the world’s economy – a greater share than the U.S. has today. In December 2001, China joined the World Trade Organization (WTO) an organization that deals with rules of trade between countries. Now that China is a member of the WTO and its leaders have committed to economic reforms, will China regain its preeminence and surpass the U.S. as the world’s largest economy?

Get the facts and decide for yourself. Click through the overviews below to get a sense of China’s economic might. Then, vote in our poll to say what you think it means for China’s economic future.

Economic Sectors: Where does China put its economic muscle?

Economic sectors show countries’ areas of strength and competence. China’s economy was once largely based on agriculture, but now, thanks to electrical parts, clothing and toy manufacturing, its focus is mostly industrial. The United States’ economy, on the other hand, is dominated by services from investment banking to teaching. Will China be able to boost its services sector?

Think you know it all? Keep this in mind…

  • China’s agriculture sector is shrinking: in 1990 it made up 27 percent of the economy; in 2000 that number had dipped to 15 percent.
  • China’s services sector, which increased 7.8 percent in 2000, will continue to grow as restrictions on banking, insurance, telecommunications, and professional services such as accountancy are removed.
  • Does China’s work force have the skills to boost other sectors of the economy? Agriculture may be getting less important, but it still employs 50 percent of China’s work force of 700 million people.
  • China specializes in labor-intensive, low-end products. But it is slowly producing more sophisticated products such as electronics and other light manufactured goods. In 1996, China produced only 4 percent of the world’s desktop computers, but by 2000 that number had increased to 21 percent.
  • The U.S.’ leading exports are high technology manufactured equipment such as airplanes, whereas China’s leading exports are machinery and equipment, electronic parts and textiles.
  • Sources: World Bank, CIA World Factbook 2001, BBC News

Work force: How competitive is China’s work force?

China’s huge work force provides much of the fuel for its economic growth. Over the next few years, this labor pool is expected to increase by an additional 13 million workers each year. But does size outweigh skills?

Think you know it all? Keep this in mind…

  • Fifty percent of China’s labor force works in agriculture, while most U.S. workers are in managerial and professional occupations.
  • China will have to provide jobs for unemployed workers as well as new workers entering the market every year. Analysts estimate China’s unemployment rate at 15 percent – -three times higher than Beijing’s official rate. An additional 20 million rural workers will lose their jobs as the agricultural sector opens to foreign competition.
  • Although China has a young population – -50 percent of the population is under 24 – -Beijing will have to contend with its aging population. It is estimated that there will be 170 million retirees by 2020.
  • China’s literacy rate has increased in the past few years, but its rate of 81.5 percent is still lower than the United States’ 97 percent.
  • In 2000, there were 461,000 engineering graduates in China, more than any in the entire world.
  • Sources: World Bank, BBC News, National Bureau of Statistics of China

Trade: How much does the world want Chinese products?

Even though the United States’ total volume of exports is three times larger than China’s, the U.S. runs a trade deficit of almost $450 billion. China, on the other hand, has a trade surplus. Trade, which often leads to greater foreign investments, jobs and higher quality goods for export, increased by 28 percent in 2000. Will the U.S. be able to maintain its lead?

Think you know it all? Keep this in mind…

  • China’s export growth could be slowing down. In 2001, China’s exports grew by just 6.8 percent, much lower than the 28 percent growth rate in 2000.
  • The United States’ high technology exports are 34 percent of the total manufactured exports, while Chinese high tech products make up only a little over 18 percent of manufactured exports.
  • China’s small trade surplus could be threatened as demands for imported goods such as cars rise in China and as weakness in the global economy continues and exports wane.
  • Sources: World Bank, CIA World Factbook 2001, BBC News

Communications and Infrastructure: How easy is it to get online? How far can you drive?

Telecommunications and infrastructure help determine a country’s preparedness for more varied industries. China’s telecommunications is one of its fastest growing economic sectors. However, it is still heavily controlled by the government. China’s number of roads, railways and airports are paltry in comparison with the U.S. Will China’s telecommunications and infrastructure system hamper its growth?

Think you know it all? Keep this in mind…

  • Although China has fewer landlines, the Chinese have more mobile phones: 120.6 million compared to 120.1 million cell phones in the U.S. But even given the popularity of mobile phones in China, only one in 10 people use a mobile. In the United States, four in 10 Americans have cell phones.
  • Despite Beijing’s Internet restrictions, the number of Chinese Internet users has nearly doubled from 2001. It’s also estimated that Internet subscriptions in China are growing 5 to 6 percent every month. In just four years, 25 percent of the population could have Internet access.
  • China’s official estimates of Internet use put the number of Internet users at 33 million. Neilsen/Net Ratings estimates that there are nearly 57 million people in China who have Web access at home. China would then rank second only to the U.S. for Internet home users.
  • To promote the growth of e-commerce in China, Beijing plans to spend $120 billion to develop information technology industries over the next five years.
  • As automobiles become more popular, China will have to continue to build more roads and maintain its national highways. These roads – known as guodao – are already often hazardous with many blind curves and potholes.
  • Operation of China’s railways was once exclusively handled by the government. Now that the railway system has been opened up to private investments, China could see an increase in railway construction.
  • More than 90 percent of China’s airports are losing money because of their small scale, lack of passenger resources or poor management. But qualified airports and airlines are now encouraged to attract foreign direct investment and initiate public offerings overseas. Private investments will be used to improve equipment, information management, and global distribution systems.
  • Sources: BBC News, People’s Daily

Foreign Direct Investment: Who is investing in China?

Foreign direct investment spurs countries’ economic and productivity growth and leads to diversified exports. Between 1990 and 2000, China’s foreign direct investment increased tenfold. Will China overtake the U.S. to become the country with the most foreign direct investment?

Think you know it all? Keep this in mind…

  • Foreign investments in China continue to increase. In a bid to cash in on China’s entry to the WTO, foreign investors poured $10.1billion into China during the first three months of 2002 alone. This figure represents a 28 percent increase on the same period a year earlier, a rapid pace even by China’s recent standards.
  • Generous tax breaks to attract foreign direct investment into China could end by 2003. Many foreign-owned firms are currently taxed at a preferential rate of just 15 percent, compared with about 33 percent for Chinese owned companies. Under the tax reform, taxes for domestic and foreign firms will likely be unified between the rate of 25 to 30 percent.
  • Source: BBC News

Economic Growth: How fast is China growing?

China has experienced tremendous economic growth since Deng Xiaoping initiated reforms in 1978. Now Beijing aims to maintain economic growth at seven percent for the next five years. But will China be able to keep up with the United States now that the U.S. is expected to come out of a recession?

Think you know it all? Keep this in mind…

  • The United States’ Gross Domestic Product , at $10.21 trillion (2001) is still nearly ten times China’s GDP.
  • China’s huge debt could stifle its economy. According to Crédit Lyonnais, an investment bank, the public debt is six times higher than the official government figure. China’s debt could amount to 140 percent of the Gross Domestic Product, compared with the government’s figure of 23 percent.
  • The average income per person in the United States is more than ten times China’s average income of $3,600. Although China is the sixth largest economy in the world, in terms of GDP per capita, China’s income per person at $871 ranks it among the poorest in the world.
  • China’s government spending is 12.5 percent of the Gross Domestic Product, while the U.S. government spends 17.5 percent.
  • Environmental deterioration such as air pollution and soil erosion threatens to slow down China’s economic growth. Companies could be forced to pay fees, upgrade their equipment or implement other costly changes.
  • Sources: World Bank, CIA World Factbook, BBC News

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