Profile: China

General Background

To the east of the Central Asian Republics is China, a single-party communist state, with a rapidly growing economy. China borders Mongolia and Siberia to the north, the Korean peninsula and Japanese islands to the east; Central and Southern Asia to the west; and Southeast Asia to the south. China is also known for its ancient civilization rich in art, religion, and science.

The People's Republic of China (PRC) was established with the cessation of hostilities of the Chinese Civil War on October 1st 1949 under the leadership of Chairman Mao Zedong. China endured a chain of difficult socioeconomic actions such as the Great Leap Forward in the late 1950s and the Cultural Revolution of the 1960s that left the social economic situation in great disorder. However, reform-era actions in the late 1970's put the Chinese economy and military power on a path of increasing parity with other major world powers. The paramount agenda at that time within the PRC was a modernization of the four sectors of agriculture, industry, science and technology, and national defense.¹

Deng Xiaoping, the prominent political leader of the post-Mao China, concentrated on market-oriented economy expansion in the late 1970's. As a result, the economic output expanded fourfold by 2000² and the living standards of the Chinese population were significantly enhanced; however political suppression on its citizens still remains unchanged.³

The Influence of Chinese Economic Growth on Central Asian Countries

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Caption: above:
Map of the Caucasus and Central Asia.
Created: Washington, D.C.
US Central Intelligence Agency, 2009.
From the Map Collections of the Geography and Map Division of the Library of Congress

The Chinese Economy

The Chinese economy has been undergoing radical changes and reforms shifting from a centrally planned to a socialist market economy system since 1978. These reforms include price stability, market liberalization, fiscal decentralization, creating a diversified banking system, stock markets development, increased autonomy for state enterprises, increased private sectors, and an open door policy for the trade and investment. Most significantly, China relaxed its restraints on foreign trade once it entered to the World Trade Organization in 2001.⁴

The Chinese economy ranked third in the world after the USA and Japan in 2000. The average GDP growth rate of the Chinese economy from 1987 to 2001 was 9.4% which is greater than the 3.3% recorded by the world economy. Recent years Foreign Direct Investment (FDI) inflow to China has increased as well.⁵ In 2002 the FDI of China reached US$53 billion and in 2003 it was $54 billion regardless of Severe Acute Respiratory Syndrome (SARS) (UNCTAD, 2004). It increased by 64% and reached $84 billion in 2007.⁶

China's 2008 exports were $1.465 trillion. Machinery and equipment, textiles and clothing, footwear, toys, mineral fuels, iron and steel represent China's major exports. The U.S., Hong Kong, Japan, South Korea and Germany are the major trading export-partners. Chinese imports in 2008 totaled $1.156 trillion and consisted of machinery and equipment, oil and mineral fuels, plastics, metal ores, and organic chemicals. Japan, South Korea, Taiwan, U.S., Germany are China's major trading import-partners.⁷

Two developments that have impacted the Chinese economy are the rising multi-polarity of other states and regional integration. There are a number of economic challenges that Chinese leaders face starting from maintaining the high growth rate, managing the rural workforce; advancing the finance system, reforming the state-owned enterprises, promoting an effective, productive private sector, instituting a social security system, addressing environmental issues, reducing corruption and economic crimes, recovering scientific and education development, sustaining international cooperation, and changing the role of the government in economic system. The result of economic growth can cause serious environmental disasters such as air pollution, soil erosion, and arable land loses. As a response, the government's 11th five-year plan (from 2006 to 2010) focuses on cutting energy consumption per unit of GDP by 20% and decreasing pollutants by 10% by 2010. These considerable steps to conserve energy and protect the environment are to be accomplished by implementing new tax policy regulations.⁸

Environmental issues stemming from Chinese economic growth have led to inflation, leading to higher prices on oil and grains on global markets and, within China, on some foods and surplus liquidity in the banking system in 2007. Some economists anticipated the slow economic growth in 2008 and 2009 despite the strict measures taken by the government, because of the weak external demand for Chinese exports.⁹

Foreign Economic Relations:
Policy Responses to the Global Financial Crisis

After five years of double-digit growth, during the first three quarters of 2008 the Chinese economic growth slowed down to 9.9%. The Chinese Communist Party (CCP) forecasted GDP growth of 8% in 2009 while the predictions of other international organizations were lower.¹⁰ On the other hand, the World Bank quarterly update report from June 2009 forecast GDP growth for 2009 of 7.2 %.¹¹ As a response to the global financial recession, China now focuses on domestic consumption rather than exporting in order to make China less dependent on foreign exports.¹²

China has also attempted to sustain its GDP growth using diplomacy during bilateral talks with Japan, America, the EU, South Korea and the Third World. Many policy researchers support further integration of China into the global economy with the idea that it might promote faster recovery from the recession and help improve international trade given that China is a major economic player in the Global Market Community, with foreign currency reserves of almost $2 trillion, up by $700 billion in 2008.¹³

Economic growth is the chief Chinese strategy to attack poverty even though growth can cause imbalance and inequality. To counteract these recessionary effects, a stimulus package of 4 trillion Yuan (16% of 2007 China's nominal GDP) for public social spending was initiated, directed at construction and associated industries, job creation, and social sustainability which were necessary receptive re-distributive devices and policies for protecting the socially vulnerable layers of population.¹⁴

Haruhiko Kuroda, the President of the Asian Development Bank (ADB), has offered a succinct analysis of how China has coped with the global economic crisis when he noted that the strength of the Chinese banking system was one of the reasons China's economy did not suffer drastic consequences from the global financial crisis. Mr. Kuroda also mentioned that, "China is now more elastic to outside shocks than during the Asian recession period." As a result of careful economic policy making, the country accomplished creditable internal monetary consolidation in addition to achieving a sound external financial footing. Indeed, China's accumulative foreign exchange reserve is the largest in the world. Its banking sector is on a well-built basis since the country has worked on reforms to improve its asset quality and capital adequacy. As a result of these financial reforms, China weathered the global financial recession well.¹⁵

Key Economic Figures

Source: 2009 CIA World Fact-book https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html and Country Profile: China. Federal Research Division. Library of Congress. http://lcweb2.loc.gov/frd/cs/profiles/China.pdf [PDF format: 253 KB / 42 pp.] Viewed on December 31, 2010.

  1.Y.Y. Kueh. China's New Industrialization Strategy: Was Chairman Mao Really Necessary? Cheltenham, UK ; Northampton, MA : Edward Elgar, c2008, p 3.

  2. "The Second Long March," The Economist. (December 11, 2008).
http://www.economist.com/opinion/displaystory.cfm?story_id=12758848. Viewed December 30, 2010.

  3. CIA World Fact-Book. (2009).
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html Viewed December 30, 2010.

  4. Karen Halverson Cross. "China's WTO Accession: Economic, Legal, and Political Implications," Boston College International and Comparative Law Review, Vol. 27, No. 2, 2004.
Available at SSRN: http://ssrn.com/abstract=1082546 Viewed December 30, 2010.

  5. "The Second Long March," The Economist. (December 11, 2008).
http://www.economist.com/opinion/displaystory.cfm?story_id=12758848. Viewed on December 30, 2010.

  6. Busakorn Chantasasawat, K. C. Fung, Hitomi Iizaka, Alan Siu. "Foreign Direct Investment in East Asia and Latin America: Is There a People's Republic of China Effect?" American Development Bank Institute (November 2004, Discussion paper No.17).
http://www.iadb.org/laeba/downloads/WP_28_2004.pdf [PDF format: 213 KB / 32 pp.] Viewed on April 18, 2011.

  7. CIA World Fact-Book. (2009).
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html Viewed on December 30, 2010.

  8. Asian Development Bank. Asian Development Outlook (2008)
http://www.adb.org/Documents/Books/ADO/2008?PRC.asp Viewed on December 31, 2010.

  9. Asian Development Bank. Asian Development Outlook (2008).
http://www.adb.org/Documents/Books/ADO/2008/?PRC.asp, Viewed on December 31, 2010.

  10. Marcel Thach. "Financial Crisis 2009: A chance to integrate China into the global economy?" The Henry Jackson Society. (January 5, 2009).
http://www.henryjacksonsociety.org/stories.asp?id=939, Viewed on December 31, 2010.

  11. The World Bank. "China Quarterly Update" (June 2009).
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/CHINAEXTN/... Viewed on December 31, 2010.

  12. Swiss-Chinese Chamber of Commerce. "China: Annual Economic Report." November 2008 (Embassy of Switzerland, 512.0-MAK/FEI/ORP).
http://www.sccc.ch/download/reports/20081110_China_Annual.economic.report.pdf [PDF format: 236 KB / 18 pp.] Viewed on December 30, 2010.

  13. Marcel Thach. "Financial Crisis 2009: A chance to integrate China into the global economy?" The Henry Jackson Society. (January 5, 2009).
http://www.henryjacksonsociety.org/stories.asp?id=939, Viewed on December 31, 2010.

  14. Li Li. "World Bank Report Highlights Need for Continued Reform Efforts in China's Rural Health Sector" The World Bank. (July 23, 2009).
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/CHINAEXTN/0... Viewed on December 31, 2010.

  15. Haruhiko Kuroda. "China's Policy Response to the Global Financial Crisis" Asian Development Bank. (Speech at China Development Forum 2009, March 22, 2009).
http://www.adb.org/news/speeches/chinas-policy-response-global-financial-crisis Viewed on April 12, 2012.