In , China was the second-largest exporter of semifinished and steel products after the EU at Concerns have been raised over the past few years over the effects of increased global steel production despite falling global steel demand. Many analysts contend that China's steel industry is heavily supported by government entities at the central and local government level through low-cost credit and subsidies. These enable many Chinese steel firms to operate, even when they are unprofitable and heavily in debt—these are termed by some as "zombies.
One study by Renmin University estimated that half of Chinese steel firms were "zombie enterprises. In February , the Chinese government announced plans to shut million to million metric tons of crude steel capacity over the next five years and cut , jobs. China's banking system is largely dominated by state-owned or state-controlled banks.
According to one analyst, the mangers of China's state banks are drawn from the ranks of the Chinese Communist Party cadre system, which "enables the party and government leaderships to exert influence over bank lending. As indicated in Figure 19 , China's combined household, corporate, and government debt levels as a percentage of GDP as of mid are comparable to those of the United States and South Korea and lower than those of Japan and the European Union.
However, China's debt levels in both dollars and as a percentage of GDP have risen sharply within a relatively short time, which, some have speculated, could spark an economic crisis in China in the future. Several observers have warned that China's credit growth may be too extensive and could undermine future growth by sharply boosting debt levels, causing overcapacity in many industrials especially extending credit to firms that are unprofitable to keep them operating , contributing to bubbles such as in real estate , and reducing productivity by proving preferential treatment to SOEs and other government-supported entities.
Local government debt is viewed as a big problem in China, largely because of the potential impact it could have on the Chinese banking system. During the beginning of the global financial slowdown, many Chinese subnational government entities borrowed extensively to help stimulate local economies, especially by supporting infrastructure projects.
Efforts have been made over the past few years by the central government to restructure local government debt and restrict local government borrowing, with mixed success, according to some press reports, because of pressures on local governments to maintain rapid economic growth. Many economists blame China's closed capital account for much of China's debt problems. The Chinese government has maintained restrictions on capital inflows and outflows for many years, in part to control the exchange of its currency, the renminbi RMB , against the dollar and other currencies in order to boost exports.
Many argue the Chinese government's restrictions on capital flows have greatly distorted financial markets in China, preventing the most efficient use of capital, such as overinvestment in some sectors such as real estate and underinvestment in others such as services. China's economic growth model has emphasized the growth of heavy industry in China, much of which is energy-intensive and high polluting.
The level of pollution in China continues to worsen, posing serious health risks to the population. The Chinese government often disregards its own environmental laws in order to promote rapid economic growth.
China's environmental challenges are illustrated by the following incidents and reports. The Chinese government has indicated that it is taking steps to reduce energy consumption, boost enforcement of environmental laws and regulations, reduce coal usage by expanding the use of cleaner fuels such as natural gas to general power, and relocate high-polluting factories away from large urban areas, although such efforts have had mixed results on the overall level of pollution in China.
The relative lack of the rule of law in China has led to widespread government corruption, financial speculation, and misallocation of investment funds.
In many cases, government "connections," not market forces, are the main determinant of successful firms in China. The relative lack of the rule of law and widespread government corruption in China limit competition and undermine the efficient allocation of goods and services in the economy. The Chinese government's anticorruption watchdog reported that , officials were found guilty of corruption in China has reportedly sought cooperation with the United States to obtain extradition of alleged corrupt officials who have fled to the United States.
Some analysts contend that President's Xi anticorruption drive is more about consolidating his own political than instituting reforms. The meeting focused on the need to enhance the rule of law in China, but emphasized the leading role of the Communist Party in the legal system. China maintains a weak and relatively decentralized government structure to regulate economic activity in China. Laws and regulations often go unenforced or are ignored by local government officials.
As a result, many firms cut corners in order to maximize profits. This has led to a proliferation of unsafe food and consumer products being sold in China or exported abroad. Lack of government enforcement of food safety laws led to a massive recall of melamine-tainted infant milk formula that reportedly killed at least four children and sickened 53, others in Transparency International's Corruption Perception Index for ranked China 79 th out of countries and territories, up from 72 nd in Many economists contend that China's demographic policies, particularly its one-child policy first implemented in , are beginning to have a significant impact on the Chinese economy.
For example, according to a McKinsey Global Institute study, China's fertility rate fell from about 5. The existence of a large and underemployed labor force was a significant factor in China's rapid economic growth when economic reforms were first introduced. Such a large labor force meant that firms in China had access to a nearly endless supply of low-cost labor, which helped enable many firms to become more profitable, which in turn led them to boost investment and production.
Some economists contend that China is beginning to lose this labor advantage. According to the Chinese government, the size of its working age population ages 16 to 59 peaked at million in , but then fell for seven consecutive years to million in The Chinese government projects that its working age population will drop to million by and to million by If these projections prove accurate, the Chines working age population could drop by million individuals The one-child policy has also resulted in a rapidly aging society in China.
China's Hukou household registration system also poses challenges to the government. First introduced in , the Chinese Hukou household registration system is a categorization of its citizens based on both their place of residence and eligibility for certain socioeconomic benefits.
Hukou is issued through a registration process administered by local authorities and solidified into inheritable social identities. The Chinese government imposed the system with the purpose of regulating population distribution, especially in regard to cities. Since economic reforms were begun in , hundreds of millions of people have been allowed to leave their home towns to work in urban areas, such as Shanghai.
This forces such workers to save a very high level of their income to pay for these services. Due to China's desire to increase the urbanization of its population, combat demographic disparities, and boost domestic consumption, the Chinese government is currently considering implementing new reforms to the Hukou system.
President Xi's report to the 19 th Party Congress in November stated that socialism with Chinese characteristics had entered a new era. He stated that China would work to become a "moderately prosperous society in all respects" by Major goals include boosting living standards for poor and rural people, addressing income disparities e.
We will work faster to build China into a manufacturer of quality and develop advanced manufacturing, promote further integration of the internet, big data, and artificial intelligence with the real economy, and foster new growth areas and drivers of growth in medium-high end consumption, innovation-driven development, the green and low-carbon economy, the sharing economy, modern supply chains, and human capital services.
We will support traditional industries in upgrading themselves and accelerate development of modern service industries to elevate them to international standards. We will move Chinese industries up to the medium-high end of the global value chain, and foster a number of world-class advanced manufacturing clusters. The report indicated that China would continue to pursue trade and investment reforms, noting the following:.
We will adopt policies to promote high-standard liberalization and facilitation of trade and investment; we will implement the system of pre-establishment national treatment plus a negative list across the board, significantly ease market access, further open the service sector, and protect the legitimate rights and interests of foreign investors. All businesses registered in China will be treated equally.
However, the report emphasized the continued importance of the state sector and the government's continued role in various economic sectors:. We will improve the systems for managing different types of state assets, and reform the system of authorized operation of state capital.
In the state-owned sector, we will step up improved distribution, structural adjustment, and strategic reorganization. We will work to see that state assets maintain and increase their value; we will support state capital in becoming stronger, doing better, and growing bigger, and take effective measures to prevent the loss of state assets. We will further reform of state-owned enterprises, develop mixed-ownership economic entities, and turn Chinese enterprises into world-class, globally competitive firms.
The Belt and Road Initiative calls for joint contribution and it has a clear focus, which is to promote infrastructure construction and connectivity, strengthen coordination on economic policies, enhance complementarity of development strategies and boost interconnected development to achieve common prosperity. This initiative is from China, but it belongs to the world.
It is rooted in history, but it is oriented toward the future. It focuses on the Asian, European and African continents, but it is open to all partners. I am confident that the launch of the Belt and Road Initiative will create a broader and more dynamic platform for Asia-Pacific cooperation. Infrastructure development is in fact only one of BRI's five components which include strengthened regional political cooperation, unimpeded trade, financial integration and people-to-people exchanges.
Taken together, BRI's different components serve Beijing's vision for regional integration under its helm. It is a top-level design for which the central government has mobilized the country's political, diplomatic, intellectual, economic and financial resources. It is mainly conceived as a response to the most pressing internal and external economic and strategic challenges faced by China, and as an instrument at the service of the PRC's vision for itself as the uncontested leading power in the region in the coming decades.
As such, it is a grand strategy. Many aspects of the BRI initiative remain unclear, including which and how many countries will participate, how much China will spend to finance the initiative, and what projects will fall under the BRI.
For example, the government's China Belt and Road Portal currently lists profiles of 70 countries on its website. The initiative could provide a big boost to China's economy and soft power image. China hopes to gain a better return on its foreign exchange reserves, create new overseas business opportunities for Chinese firms, create new markets for industries currently experiencing overcapacity, and stimulate economic development in poorer regions of China.
Secretary of State Rex Tillerson criticized certain aspects of Belt and Road initiative in remarks made in October We have watched the activities and actions of others in the region, in particular China, and the financing mechanisms it brings to many of these countries which result in saddling them with enormous levels of debt.
They don't often create the jobs, which infrastructure projects should be tremendous job creators in these economies, but too often, foreign workers are brought in to execute these infrastructure projects.
Financing is structured in a way that makes it very difficult for them to obtain future financing, and oftentimes has very subtle triggers in the financing that results in financing default and the conversion of debt to equity. China has undertaken other major financial initiatives as well. The new bank aims to fund infrastructure projects in developing countries.
The "Made in China " initiative, announced in , is one of several recently announced ambitious projects aimed at increasing the competitiveness of Chinese industries, fostering Chinese brands, boosting innovation, and reducing China's reliance on foreign technology by making China a major or dominant global manufacturer of various technologies.
An updated version of the plan released in January said China aimed to become the world's leading manufacturer of telecommunication, railway, and electrical power equipment by , and that China's robotics, high-end automation, and new energy vehicles industries would globally rank second or third by In an interview on November 3, , U.
Trade Representative Robert Lighthizer stated that China's Made in China initiative was "a very, very serious challenge, not just to us, but to Europe, Japan and the global trading system. China's rapid economic growth and emergence as a major economic power have given China's leadership increased confidence in its economic model. Many believe the key challenges for the United States are to convince China that 1 it has a stake in maintaining the international trading system, which is largely responsible for its economic rise, and should take a more active leadership role in maintaining that system; and 2 further economic and trade reforms are the surest way for China to grow and modernize its economy.
Lowering trade and investment barriers would boost competition in China, lower costs for consumers, increase economic efficiency, and spur innovation. However, many U. IP-intensive firms. Opinions differ as to the most effective way to deal with China on major economic issues. Some support a policy of engagement with China using various forums. Others support a somewhat mixed policy of using engagement when possible, coupled with a more aggressive use of the WTO dispute settlement procedures to address China's unfair trade policies.
While China's financial support of infrastructure projects in numerous countries could produce positive economic results, U. Implementation of the reforms began in Some companies use China as part of their global supply chain for manufactured parts, which are then exported and assembled elsewhere. Other firms have shifted the production of finished products from other countries mainly in Asia to China; they import parts and materials into China for final assembly.
Trade Issues , by Wayne M. Purchasing power parities are a method used to measure and compare the economic data of other countries expressed in U. That method adjusts the data to reflect differences in prices across countries. This method is discussed in more detail later in the report. This reference appears to have meant that it did not matter whether an economic policy was considered to be "capitalist" or "socialist," what really mattered was whether that policy would boost the economy and living standards.
Many analysts contend that Deng's push to implement economic reforms was largely motivated by a belief that they would boost economic growth and thus strengthen the power of the Chinese Communist Party.
China's economic growth slowed significantly followed the aftermath of the Tiananmen massacre that occurred in June Several countries, including the United States, imposed trade sanctions against China, and Chinese economic reforms were essentially put on hold. China's real GDP growth rate fell from In , economic reforms were restarted and foreign sanctions against China were reduced or removed, and real GDP grew by 9. Japan was able to become a high-income economy, but since the mids, its economic growth has been relatively stagnant.
The classifications are determined by per capita income ranges the thresholds of which are adjusted annually. These include low-income economies, lower-middle-income economies, upper-middle-income countries, and high-income countries. PPP data reflect what the value of China's goods and services would be if they were sold in the United States.
Industrial output is defined by the Chinese government as the total volume of final industrial products produced and industrial services provided during a given period. Source: China Statistical Yearbook.
The composition of Chinese FDI sectors has changed over the past few years. In addition, some Chinese investors might be using these locations to shift funds overseas in order to re-invest in China to take advantage of preferential investment policies this practice is often referred to as "round-tipping". Thus, the actual level of FDI in China may be overstated. China's largest U. This includes electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles.
The nature of China's SOEs has become increasing complex. Many SOEs appear to be run like private companies. For example, and a number of SOEs have made initial public offerings in China's stock markets and those in other countries including the United States , although the Chinese government is usually the largest shareholder.
It is not clear to what extent the Chinese government attempts to influence decisions made by the SOE's which have become shareholding companies. Inside U. Trade, China Trade Extra, U. Bloomberg News, China Expects 1. Bejkovsky, Ing. This leaves China facing two major challenges. One is financial: how to deal with the unsustainable debts of many local governments and state-owned enterprises SOEs.
Fortunately, the solutions here are obvious. Local-government debts can be shifted to the central government, or bank loans can be written off and banks recapitalized. The second, more profound challenge relates to the real economy: how to redeploy workers and capital from the industrial sectors facing overcapacity and the most overbuilt cities.
This imperative is sometimes denied. Hundreds of millions of people, it is said, have yet to migrate to cities, where they will demand housing. Far from being on the cusp of a wave of urbanization, China is within years of its completion. Even if urbanization did continue at a high rate, many workers would not migrate to the second- and third-tier cities where overcapacity is most extreme, but to the major coastal cities.
Though the government can use its hukou household registration system to slow that migration, even it cannot direct people to the specific cities with the most excess capacity. So what can be done? One option would be to export construction expertise and workers. No feasible level of construction exports can fully compensate for faltering domestic investment. Domestic consumption, supported by strong wage growth, must instead be the dominant driver of growth.
The good news is that wages are already growing faster than GDP — a trend that is likely to continue, as demographic change restricts the supply of new labor.
But major policy reforms are also needed. Those revenues could then be used to improve health services and strengthen the social safety net, thereby removing the need for Chinese households to maintain high precautionary savings. Such reforms would challenge powerful vested interests.
But, if China is to replicate the success of Japan, Korea, and Taiwan, there is no alternative to tough reform. What Changes are needed? Read the report. How could China prepare for that? Take a look at the results the World Bank-supported projects have achieved in China. The World Bank provides free and open access to a comprehensive set of development data in countries around the globe, including China.
This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser. To learn more about cookies, click here. Where We Work China. The World Bank In China Since China began to open up and reform its economy in , GDP growth has averaged almost 10 percent a year, and more than million people have been lifted out of poverty. China Home Overview. Last Updated: Oct 12, The CPF has three broad areas of engagement: Advancing market and fiscal reforms by improving the environment for competition and private sector development; and achieving more efficient and sustainable subnational fiscal management and infrastructure financing.
Promoting greener growth by reducing air, soil, water, and marine plastic pollution; strengthening sustainable natural resource management; promoting low-carbon transport and cities; and facilitating the transition to a lower carbon energy path.
Sharing the benefits of growth by increasing access to health and social services; and improving the quality of early childhood development. Research Joint flagship studies have been important for deepening the dialogue on policies and Bank programs and provided a model for other middle-income countries. Projects World Bank-financed projects introduced innovations or piloted new approaches and serve as platforms for knowledge exchange. Here are some of our recent projects and results in China: The Hunan Subnational Governance and Rural Public Service Delivery Program for Results , approved in February , assists the province in delivering more equitable and efficient public services in rural areas.
Innovative China: New Drivers of Growth China needs to foster new drivers of growth to address productivity challenges, intensify reforms and promote greater innovation. Systematic Country Diagnostic for China. Additional Resources. Country Office Contacts.
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