China Economic and Social Development

Zhang Jianping

Central University for Nationalities

December 1,2005 Beijing

 

Introduction In 1978, the absolute poor in China numbered 250

million and the poverty incidence was 33.1%. By the

end of 2004, among the total population of 1.29988

billion, the absolute poor numbered 26 million (by the

standard of annual income 668 RMB) with poverty

incidence as 2.8%, which is a notable advance in

poverty reduction efforts.

Ⅰ Preview of National Economic and Social Development

1.High economic growth During 1979-2004, China’s GDP grew at an annual pace of 9.4%. As

the biggest developing country, the high grow has been the most

remarkable feature for the country. Since the 1980s, China shadowed

Japan, the US, EU and the world average and developing world average

in terms of economic growth. Its GDP in 2004 amounted to 13.6515

trillion RMB, exceeding 1.6 trillion US dollar which is a proof that China

has become an important source of growth for the world economy.

Chi na GDP Growth Rate(%)

0

2

4

6

8

10

12

14

16

GDP Growth of Various Regions

PrimaryIndustry

2074.4billionRMB 15%、Tirtiary Industry

4338.4billionRMB 32%、 Secondary

I ndustry7238. 7bi l l i on

RMB 53%、

第一产业 第二产业 第三产业

2. Economic restructuring and optimization are speeding up Primary industry is losing its proportion in total GDP; secondary and tertiary industry is assuming a heavier weight so that they have become the driving force for economic growth. It is noticeable that the medium-and-high-tech industry is holding an enlarging share in GDP.

Basic composition of GDP in 2004

The Third Industrial Restructuring Since Reform and Opening-up

0

10

20

30

40

50

60

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

第一产业所占GDP比重 第二产业所占GDP比重 第三产业所占GDP比重

Changes of three industries weight to GDP （ 1978 ～ 2003 ）

28.7 28.9 26.7 25.3 23.3

17.7 15.513.3 12.2

11.4

44.943.4

42.943.7

8.3 10.816.6 19.6 21.6

45.3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993 1995 1998 2000 2002

资源性 低技术 中技术 高技术

Changing Composition of Industries with Different Technical Content （ 1993 ～ 2002 ）

Urbanization Development

17.919.4

23.726.2 26.4 26.9 27.5 28.0 28.5 29.0

30.531.9

33.434.8

36.237.7

39.140.5

0

5

10

15

20

25

30

35

40

45

1978

1980

1985

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

(%)

Urbanization Rate （ 1978 ～ 2003 ）

3. Accomplishments in Opening to the outside world

Foreign Trade:

China’s foreign trade increased from 20.6 billion US dollars in

1978 to 1154 billion US dollars in 2004 ( exports 593.4 billion

US dollars and imports 561.4 billion US dollars) with an

annual growth over 17%, much higher than the 6%

contemporary global growth and also higher than many

developed countries and regions. Therefore, China is the

most dynamic with the largest potential in the world

economy.

Exports to major countries and regions in

2004（ Unit： 100 million US $ ）

Region Export Increase over previous year%

Import Increase over previous year%

Hong Kong Areas

1009   32.3 118 6.1  

Japan735   23.7 944 27.3  

Korea 278   38.4 622 44.3  

ASEAN 429   38.7 630 33.1  

EU 1072   36.9 701 28.8  

Russia 91   51.0 121 24.7  

US 1249 　 35.1 447 31.9 　

Changes of world trade volume during 1994-2003

Global Trade during 2002-2004（ 100 million US $ ）

Foreign Exchange Reserve

Since the unification of exchange rates in 1994, China has seen a constant surplus of international balance under both current account and capital account, among which the trade surplus has exceeded 300 billion US $. By the end of 2004, the national foreign exchange reserve reached 609.9 billion US $, up 206.7 billion over the previous year. Due to the continuous increase of trade surplus and high investment growth, China’s foreign exchange reserve is rising exponentially. For the first half of 2005, the growth rate surpassed 100 million US $, with the total amount breaking the record of 700 billion US $ for the first time.

4. Enormous decline of Poor Population

Since reform and opening-up, China’s great achievements in poverty reduction can be evidenced by the decline of poor population from 250 million to less than 30 million.

Ⅱ Driving force underpinning the Constant High Growth

The major reasons are: China adopted a policy of reform and opening-up. It has accomplished the transfer from a centrally-planned to a market-based socialist economy that better adapts to the changed social and economic conditions in China. Improvement of market system, reforms on state-owned enterprises and further opening to the outside world have helped diversify investors and fill in the financial gap which is a leading force for growth. And emphasis on education, reform and development on social security is another.

Investment on Fixed Assets:

Calculated by constant price， during 1979-2004, China’s annual

growth on fixed assets investment was 12.6%, maintaining 3

percentage points more than GDP growth rate. Its contribution to

GDP growth reached 42.5%, namely, 4 percentage points of overall

economic growth. Despite the minor fluctuations, the investment

kept a rapid pace of growth. Therefore, it is the major driving force

for national economic growth.

The growth rage of fixed asset investment in the third

prosperous phase of economic development (%)

 

Growth Rate of Fixed Asset Investment

  Growth Rate of Fixed Asset Investment

1984 28.2 1992 44.4

1985 38.8 1993 61.8

1987 21.5 2003 26.7

1988 25.4 2004 25.8

Recipients of fixed asset investment and growth tendency

Government Input to Capital Construction （ 1996 ～ 2003 ）

907 1020

1388

2117 2095

2511

31433429

0

500

1000

1500

2000

2500

3000

3500

4000

1996

1997

1998

1999

2000

2001

2002

2003

（亿元）

Channels and sources of fixed asset investment in various social sectors （％）

投资渠道 资金来源

基本建设 更新改造 房地产开发 其他投资 国家预算内资金 国内贷款 利用外资 自筹资金 其他资金

1993 37.0 17.6 10.6 34.7 3.7 23.5 7.3 49.9 15.6

1997 39.8 15.7 12.7 31.8 2.8 18.9 10.6 54.9 12.7

2000 40.8 15.5 15.1 28.6 6.4 20.3 5.1 52.2 16.0

2002 40.6 15.5 17.9 26.0 7.0 19.7 4.6 50.6 18.0

2003 41.2 15.5 18.3 25.0 4.6 20.5 4.4 53.7 16.8

Fixed assets classified by investors

Increase of fixed asset investment classified by sectors since 2000

Since Februery,2005, as the Chinese government promulgated the Decision to Promote the Development of Non-Public Sectors, non-public sectors have entered a new phase of development with the ratio of benefit indicators and industrial added value rising significantly in the aggregate value.

Utilization of Foreign Capital

Since the reform and opening up, utilization of foreign capital has been growing at an increasing speed and scale. In 2003, the actual utilization of FDI reached 53.5 billion $, exceeding that of the US for the first time as one of the largest recipients just after Luxembourg. In 2004, the approved FDI enterprises numbered 43664, 6.3% more than the previous year; contracted foreign capital amounted to 153.5 billion $, 33.4% more than the previous year; actually utilized FDI reached 60.6 billion $.

Foreign Direct Investment to China（Unit：100 million $ ）

Sustained investment growth drives local demands as well as supply. The rapid growth of fixed asset investment has a far and positive influence on China’s national strength which can be seen in the accelerated construction of major physical facilities and the improvement of transportation and telecommunication once regarded as a bottleneck for growth. All the above formed up a solid basis for sustainable social and economic growth. Additionally, the investment has also brought about a constant rise of funds to real estate and subsequently a better living condition for the residents.

Consumption Growth

The growth of consumption, although slower than fixed asset

investment, has generally maintained a rapid pace. During 1979-

2004, China’s annual growth of consumption was 8.5%, 1

percentage point more than GDP growth. Consumption contributed

53.2% to the overall national growth, driving the growth 5

percentage points higher than the previous year.

Since the reform and opening up, the stable increase of

income average nationwide has stimulated a constant growth

of consumption which prompts economic development. Income（ RMB/Person ）

1978 1990 1995 2000 2001 2002 2003 2004 Urban Residents ： 343 1510 4283 6280 6860 7703 8472 942

2 Rural Residents ： 134 686 1578 2253 2366 2476 2622 2936

Annual growth of income 1979-2003 2002 2003 2004 Per capita disposable income for urban residents （ current price ） 13.7% 12.5% 10.3% 11.1% Actual Purchasing Power 6.7% 13.5% 9.3% 7.7% Per capita disposable income for rural residents（ current price ） 12.6% 4.6% 5.9% 12.0% Actual Purchasing Power 6..9% 4.8% 4.3% 6.8%

Relation between per capita GDP and the final per capita household expenditure（ statistics in 1995 as a benchmark, US$）（ Changes during 1990-2002 ）

Average growth of per capita householdexpenditure （annual） Per capi ta GDP growth

Aggregate expenditure（1995 benchmark

US$）J apan 1.33 1.02 3,174,030,611,747US 2.02 1.67 6,438,099,900,000Germany 1.33 1.34 1,534,412,997,398UK 2.77 2.02 964,157,721,869France 1.12 1.43 996,360,180,856Mai nl and Chi na 7.64 8.61 540,907,211,139Korea 4.43 4.98 350,799,290,674Tai wan 5.10 4.50 215,086,063,891Hong Kong 2.39 2.50 98,057,927,219Si ngapore 2.74 3.57 47,137,465,721Thai l and 3.06 3.45 98,472,222,970Mal al ysi a 2.72 3.71 52,937,502,752Phi l i pi nes 1.27 0.86 71,455,893,135I ndonesi a 4.21 2.62 158,686,680,696

Features of Economic Growth in the New Century

Entering the new century, starting from 2001, China’s GDP grew by 7.5%, 8.0%, 9.1% and 9.5% each year, mainly contributed by secondary industry. The expanding fixed assent investment is the fundamental reason for the growth of secondary industry. As preliminarily calculated, secondary industry contributed 70% to GDP growth in 2003 and less in 2004 because of the macro-control measures took by the government, however, the contribution kept at 61%.

Ⅲ Development of Social Security

1. Reform on Social Security System

Defects of social security in a Centrally-planed economy

In the centrally-planed economy, Chinese urban and rural segmentation bereft the rural residents of an up-to-time social security while that for the urban residents are confined to the public sectors.

Social security in urban areas was based on the security provided by

the employer since the mid of the 1960s, specifically, a structure of

high employment, low income and high benefit. The security that the

laborers would expect is subject to the job they obtain.

In response to economic restructuring and to

satisfy the demands of sectors with various

ownership, the Chinese government launched the

construction and reform on social security

system centered on pension insurance since the

1980s. A modern social security system is

shaping up. China has seen a rapid development

in this part of social undertaking.

In 1993, the Chinese government stipulated that a multi-level social security system must be established and that the premium of pension and medical insurance shall be paid by both the employer and the employee in a combination of social pooling and individual account.

In 1997, the State Council issued The Decision of the State Council on Setting up Basic Medical Insurance System for Staff

Members and Workers in Cities and Towns in which a focal point is that pension premium shall be paid by the enterprises and employees. The enterprise pays no more than 20% of the salary while the employee’s responsibility ranges from 4% at the beginning to 8%. Enterprises nationwide shall set personal account for employees with the amount as 11% of their salary. The amount turned in by employees shall all be deposited to the account and the shortage shall be replenished by the employers.

With the establishment of the Minimum Social Security System and the promulgation

and implementation of the Regulations on the Relief to the Migrants to Urban areas

with no Livelihood, the social relief system has achieved a big leap forward and is

playing an important role in poverty reduction.

A wave of profound reforms have wiped various social insurance. Pension, medical

and unemployment insurance as the three pillars of insurance are being improved; a

pension insurance system with a combination of social pooling and individual account

have come into shape; Coordination and allocation of basic pension fund have been

realized.

Approach to social benefit is shifting from hidden imbursement to overt imbursement.

Pension Insurance

By the end of 2004, the beneficiaries under the umbrella of basic pension insurance numbered 163.53 million among which employees 122.5 millions and retirees 41.03 million while the total retirees nationwide were 46.75 million. The revenues gained from basic pension insurance totaled 425.8 billion RMB throughout the year among which central finance contributed 52.2 billion RMB and local finance contributed 9.2 billion RMB. The expenditure stood at 350.2 billion RMB. It is the first time that the pension is provided on time and in full.

By the end of 2004, the rural pension insurance covered 53.78 million farmers with 2.05 million of them having received the pension fund. The accumulative balance of the insurance was 28.5 billion RMB for that year. 22.01 million urban residents received the subsistence allowance from the government.

Unemployment Insurance

The number of those included in the nationwide unemployment insurance by the end of 2004 was 105.84 million with 4.19 million of them having got paid. Revenues from unemployment insurance reached 29.1 billion RMB while expenditure stood at 21.1 billion RMB, up by 15.8% and 4.1% respectively over the previous year. The balance for this year was 38.6 billion RMB.

Basic Medical Insurance By the end of 2004, the number included in

nationwide basic medical insurance stood at 124.04 million, among which employees 90.45 million and retirees 33.59 million.

Revenues for that year was 114.1 billion RMB, expenditure 86.2 billion RMB. The revenues and expenditure coming from social pooling are respectively 62.3 billion and 46.4 billion. The balance for the year was 95.8 billion among which social pooling 55.3 billion and personal account 40.5 billion.

Employment

By the end of 2004, urban employees totaled 752 million among which primary industry absorbed 352.67 million (46.9%),secondary industry 169.2 million (22.5%) and tertiary industry 230.11 million (30.6%). Employees in townships totaled 264.76 million among which 110.99 million in public units, 55.15 million in private or self-employed sectors.

Ⅵ Major Problems in Social and Economic Development

1. Agriculture: weak foundation, difficulty in increasing grain output and farmer’s income, enlarging urban and rural gap.

2. Manufacture: Enormous ongoing and emerging projects, blind expansion of investment with low efficiency; rise of materials price; intensive relation between demand and supply in terms of coal, power and petroleum ; inappropriate use of resources and environmental pollution.

The change of growth mode is an emergency 3. Geographic gap of economic and social development: no

narrowing of geographic gap, no abatement of unemployment pressure, no improvement of living conditions for a number of residents.

Changes of agricultural expenditure ratio to total governmentexpenditure

7

8

9

10

11

12

13

14

1975 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

％

農業支出的比例

Enlarging Rich and Poor Gap

Report on the Development of Productivity in China revealed that the Gini Coefficient was 0.458 in 2000, exceeding the alarming line of 0.4 and it keeps rising in recent years until 0.5 in 2004. It warns that the enlarging rich and poor gap should arouse attention.

Comparison between urban resident per capita disposable income and that of rural residents

Slow increase of farmer’s income and the more remarkable segment between urban and rural economy

Comparison between urban resident disposable income and that of rural residents（ comparable price ， % ）

Imbalance of geographic economic development

The Western Development Strategy, though promote the development of west China, can not prevent the enlarging gap between east and west. Most of Chinese poor live in the west,

especially in the ethnic minorities areas.

表 1.东中西部区内生产总值占全国的比重（％）

1990 2000 2003

东部 51.5 57.3 58.5

中部 28.3 25.6 24.6

西部 20.2 17.1 16.9

表 2.东中西部人均 GDP与全国人均 GDP之比（以全国平均为 1）

1990 2000 2003

东部 1.37 1.47 1.55

中部 0.83 0.78 0.74

西部 0.71 0.61 0.59

表 3.东中西部人均 GDP比值之变化

1990 2000 2003

东部/西部（西部为 1） 1.92 2.42 2.63

东部/中部（中部为 1） 1.64 1.89 2.1

中部/西部（西部为 1） 1.17 1.28 1.25

Traditional Approach Approach in the Transitional Period

New approach

Development

Goals

Seek to exceed The US.and UK. and RealizeModernization before

2000

Seek high growthAnd double GDP by 2000

Human-centered and sustained development

RelationBetweenAccumulatio

nAndConsumptio

n

High accumulation,Low consumption andinvestment mainly on

production

Relatively highaccumulation to stimulate consumptionwith main focusOn physical investment

Investment on software and human resources

Industrial Developmen

t

Priority on heavy industry

Comparative advantageswere applied toindustrial restructuringand education and sciencedevelopment

Use of comparativeadvantages toPromoterestructuring andknowledge-baseddevelopment

Technicalindustrializa

tion

Self-developed technology;

Capital and tech intensive industry

Develop and introduce technologies, Capital and tech intensive industry

Multi-element techintensive approachand use of humanresources

Relation be-Tween

domes-tic and Int-ernationalmarkets

Selfsupply,importsubsitution,Mainl-y relying on domesticResource and market

andMarket and high

Domes-Tic protectionism

Opening-up, export-oriented growth, combination of resources and markets at home and abroad, liberalize trade and investment

Try to be integrated in global economy, enhance competitiveness, utilize international resources, market, capital, tech and liberalization of trade

and investment

Traditional approach

Approach in the transitional period

New approach

Relation be-tween

human And nature

Inappropriateexplore of nat-ural resources

Treatment after pollution, expanded eco-deficit, black development

Sustainable development, eco-enhancement, green development

Relation b-etween

Income And Distrib-Ution

Equalitarianism Theory of getting rich one by one

Theory of common prosperity

Relation between urban and rural areas

Priority to urban areas and segment between the two

Priority to urban areas and enlarging gap

Coordinated development, narrowing the gap

Geographic relation

Priority to inland and large gap

Priority to coastal areas, gap narrowing and enlarging again

Coordinated development between east, mid and west areas

Traditional approach

Approach in the transitional period

New approach

Relation between economic and social developmetn

Priority to social development

Priority to economic development

Coordinated development between social and economic aspects

Relation between equality and efficiency

Priority to equality

Priority to equality while allowing for efficientcy

Priority to efficiency, redistribution, public service, equality and social coordination

Relation between society and government

Government controls society

Government guides the society, the superior and inferior relation

Cooperative and partner relation

Economic system

Centrally-planned system

Introduce market economy

A modern market economic system in shage