China’s Economy - A Quick Overview for Business Students

 Many A Level Business Students have been challenged to develop their understanding of the Chinese economy in the context of developments in emerging markets. In this blog entry, we'll provide an overview of the key economic indicators for China. Later blog entries will take a look at some important specific economic issues such as foreign direct investment, population change, urbanisation, international trade and key industrial sectors.

Set out in the table below are some key economic indicators for the Chinese economy:

Source: HSBC Global Economic Review and IMF World Economic Outlook

Some key points for business students to consider:

China’s global economic influence and power is unmistakable. That said, the Chinese economy is now in a slowdown phase and in the process of moving towards a different model of growth and development.

In terms of economic growth measured by GDP, China has achieved an average growth rate of 9.8% pa since 1978 – effectively the start of the market based reforms in the Chinese economy

Rapid and sustained growth in China has lifted over 660 million people (or one-tenth of the world’s population) out of abject poverty. The rate of China's economic growth is illustrated in the chart below. China GDP growth is the blue line - as you can see, consistently and substantially higher than developed economies like the USA and UK.

View a larger version of this chart

Growth is now slowing down and a lower target rate of growth of 7 per cent has been set

A growth rate of around 7 per cent is likely to be China’s ‘new normal’ rate for the next few years

Capital investment (particularly in infrastructure) and exports have been the foundations for Chinese economic growth and development but the Chinese economy has now reached an important turning point. For growth to be sustained China needs to achieve a re-balancing of her economy

The extent of China's investment in infrastructure is illustrated in the following chart:

View a larger version of this chart

It is expected that China will rely less on exports of low to medium value manufactured products. Instead, Chinese industries and businesses will move up value chains to produce and sell products with a high-knowledge and high-technology component.

As the Chinese economy matures, this will driving more growth from household spending (consumption) on goods and services.

Sustainability has become an essential part of China’s development strategy, as has the need to address the pressures that come from rising inequalities of income and wealth.

Success in improving sustainability through low carbon innovation and other technological breakthroughs can provide China with new sources of external demand as Chinese businesses export products and licence technology in green industries

China remains a Communist state dominated by the Chinese Communist Party but it is also an increasingly open economy where trade accounts for over seventy per cent of GDP