china report eiu (2)

Country Report

China

February 2011

Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

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China 1

Country Report February 2011 www.eiu.com © The Economist Intelligence Unit Limited 2011

China

Executive summary 3 Highlights

Outlook for 2011-15 4 Political outlook 6 Economic policy outlook 7 Economic forecast

Monthly review: February 2011 11 The political scene 12 Economic policy 14 Economic performance

Data and charts 17 Annual data and forecast 18 Quarterly data 19 Monthly data 21 Annual trends charts 22 Quarterly trends charts 23 Monthly trends charts 24 Comparative economic indicators

Country snapshot 25 Basic data 26 Political structure

Editors: Duncan Innes-Ker (editor); Kilbinder Dosanjh (consulting editor)

Editorial closing date: January 21st 2011

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

2 China


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China 3


Executive summary

Highlights

February 2011

• There is little likelihood of significant political reforms in the forecast period, as China's leaders will concentrate on maintaining stability during the transition to a younger generation of political leaders in 2012-13.

• Strained relations between China's majority Han ethnic group and Tibetan and Uighur minorities are unlikely to improve. The government will main-tain a hard line against separatism, thereby stoking wider ethnic grievances.

• The economy performed unexpectedly strongly in 2010, with real GDP expanding by 10.3%. Growth will slow to an average of 8.5% a year in 2011-15.

• Wage inflation will remain rapid in the forecast period, helping to support private consumption. But growth in investment, notably in the property sector, will decelerate from its 2010 rate.

• China will continue to come under strong pressure to allow a more meaningful increase in the value of the renminbi. However, the currency is likely to appreciate only slowly against the US dollar in 2011-15.

• Consumer price inflation is expected to remain a major policy issue in 2011 as the government struggles to contain a strong increase in food prices. Inflation is expected to average a manageable 4.1% in 2011-15.

• The US secretary of defense, Robert Gates, made his first visit to China for three years in January, just as China was testing a new stealth jet. China's president, Hu Jintao, has meanwhile flown to the US for a state visit.

• Year-on-year consumer price inflation decelerated in December, to 4.6%, but inflationary pressures remain worrying.

• The People's Bank of China (the central bank) raised benchmark one-year lending interest rates by 25 basis points in December, to 5.81%. Bank reserve requirement ratios were also increased.

• New renminbi-denominated lending in 2010, at Rmb7.95trn (US$1.2bn), was substantially above the government's target of Rmb7.5trn. The rate of growth in the broad money supply (M2), at 19.7%, also overshot the target of 17%.

• Real GDP grew by 9.8% year on year in October-December 2010, lifting economic growth in the year as a whole to 10.3%, up from 9.2% in 2009.

• Passenger-car sales rose by 33.3% to 13.7m units in 2010, but the removal of two important subsidy programmes could depress sales growth in 2011.

• According to the All-China Federation of Trade Unions, over 400,000 labour dispute cases were filed in 2010, up by 12.1% on the number of cases in 2009.

Outlook for 2011-15

Monthly review

4 China


Outlook for 2011-15 Political outlook

The Chinese Communist Party (CCP) will continue to dominate the political scene in the forecast period. The CCP monopolises political power in China and suppresses any challenge, real or perceived, to its authority. It has been highly successful in maintaining its dominant position. The CCP controls the institutions of law and order, the security apparatus and the media. As a last resort, it can count on the armed forces to guarantee the continuance of its rule. Consequently, threats to the party-state structure are likely to remain subdued in 2011-15. However, factional rivalry within the upper echelons of the party is a potentially destabilising factor. During the early part of the forecast period more overt jostling between factions is likely in the run-up to the 2012 party congress, which will see the installation of a new CCP leadership.

Social tensions will continue to be generated by a number of issues, including unemployment, poor working conditions, environmental pollution, late pay-ment of wages and benefits, illegal eviction from homes and land, official corruption and abuse of power. The majority of protests take place in the countryside, where illegal land seizures from farmers are a major problem. However, the rural population tends to be poorly organised and easily con-trolled by the state security organs, so that such protests pose little threat to national political stability. Social spending, especially in rural areas, has been increased in the past few years, and further rises in expenditure are likely. This will go some way towards reducing tensions.

Unrest in urban areas could pose a greater threat, but the CCP suppresses non-governmental organisations that might co-ordinate or channel social discontent. The government's strategy of punishing those who lead protests while trying to alleviate the underlying causes of social unrest has also proved highly effective. Yet in an economic or political crisis it is possible that unrest could suddenly coalesce in a fashion that would be hard to control without bloodshed. The nascent force of labour activism, especially in relatively skilled industries such as vehicle production, could also prove a source of trouble.

Separatist movements will remain weak, but ethnic unrest will probably erupt occasionally in the ethnic-minority regions of Tibet and Xinjiang, and related incidents of terrorist violence elsewhere in China are possible. Violence by Tibetans in early 2008 was followed in mid-2009 by race riots in Xinjiang in which nearly 200 people were killed. Separatism in Xinjiang poses a greater risk of escalating into a full-blown insurgency than unrest in Tibet, given the proximity of Xinjiang to separatist and Islamist groups in Central Asia. However, a new generation of Tibetans is less receptive to calls from their own leaders (including the Dalai Lama) for a peaceful approach, and this increases the potential for violence. Both regions are likely to see further protests. The Dalai Lama is growing old, and the Chinese authorities will be concerned that his eventual death could be a catalyst for further Tibetan instability. The government continues to take a harsh approach, including the use of the

Political stability

China 5


death penalty, to curbing separatist and ethnic unrest. It is also increasing development spending in Xinjiang and Tibet in an attempt to pacify these regions by boosting economic opportunities, although this tactic has failed in these parts of China in the past.

Since the current leadership, headed by the president, Hu Jintao, and the premier, Wen Jiabao, came to power a collective-style government has emerged. New figures were "elected" to both the party's and the government's leadership line-ups in 2007-08. The next reconfiguration will begin in late 2012, when the CCP�s 18th congress will select a new party leadership. This will be followed by the installation of a new state leadership in early 2013. In October the vice-president, Xi Jinping, was appointed to the position of vice-chairman of the powerful Central Military Commission (which oversees the armed forces), confirming his status as heir-apparent to Mr Hu. The current executive vice-premier, Li Keqiang, who is regarded as being Mr Hu�s favourite among the upcoming generation of cadres, looks set to succeed Mr Wen. However, the top tier of the future leadership does not look to be as ideologically cohesive as the current government. Factional struggles are likely to be intense in 2012-15 as the new leaders seek to establish their independence from their predecessors and compete among themselves for control of the political agenda.

Neither Mr Hu nor his successor is likely to countenance a meaningful opening up of the electoral process. Editorials in a leading CCP newspaper, the People's Daily, in October and November last year indicated that the government would continue to reject multiparty elections and the constitutional separation of powers in 2011-15.

The 2008-09 international economic downturn, which China weathered more successfully than many other nations, has boosted the country's self-confidence on the international stage. China has adopted a more forceful stance on a range of issues, such as global warming, Taiwan, Tibet, exchange-rate policies and global liquidity levels. China's greater assertiveness means that further con-frontation is likely in 2011-15. Its clashes with its neighbours will encourage them to look more often to the US for political support. China will be a crucial participant in global negotiations, but it is highly sensitive to perceived slights, interference in its internal affairs and what it views as efforts to curb its rise. This, coupled with the weak influence within China of the Ministry of Foreign Affairs, will complicate attempts to improve international relations.

China�s claim on Taiwan will remain a crucial foreign policy issue for the government. But military escalation of the dispute looks increasingly unlikely, as economic ties have deepened and China has adopted a less aggressive posture towards the island. Even if pro-independence forces take power in Taiwan, the status quo looks set to endure. China's ties with Japan will remain problematic, owing to lingering tensions over the Japanese occupation of China during the second world war and disputes over maritime territory. However, both governments will try to improve relations in the longer term. China�s expanding international interests have been highlighted by increased activity in fields such as peacekeeping and anti-piracy patrols. This trend is likely to continue, but the greatest source of the country's influence on the global stage

International relations

Election watch

6 China


will come from the desire of foreign governments and companies to tap its vast market and to attract Chinese investment.

Economic policy outlook

In response to a rise in activity in the housing market and an acceleration in inflation during the second half of 2010, the government started to tighten policy. Further incremental tightening is likely in 2011, as the authorities try to maintain steady economic growth while keeping inflationary pressures in check. Fiscal policy will continue to exert a drag on growth, as the central government's traditionally conservative fiscal instincts reassert themselves amid an effort to address the risks associated with the recent surge in local government debt.

Distortions in the economy will remain a major policy challenge in 2011-15. Growth will continue to rely on unsustainably high rates of investment, despite government policies designed to boost consumption. The government will look to moderate increasing social inequality; an important CCP policy meeting in October stressed the need to raise incomes and �reasonably adjust income distribution�. Officials may support workers' efforts to secure pay rises and could seek to use the tax system more effectively to redistribute wealth. But state welfare services will remain underdeveloped, and efforts to increase expenditure in this area will make slow progress. The strong policy support provided to the state sector during the 2008-09 economic slowdown will diminish in the next couple of years, but the public sector will continue to enjoy preferential treatment, for example in terms of access to credit.

China is estimated to have recorded a budget deficit equivalent to 2.2% of GDP in 2010. The situation will improve in 2011-15, as spending on stimulus-related infrastructure projects (which rose sharply in 2009-10 as the government attempted to support economic growth during the global downturn) comes to an end. But expenditure on education, healthcare and pensions will rise substantially, in line with the government's "harmonious society" programme. Revenue growth will also remain strong as the economy continues to expand rapidly.

The government's fiscal position is not as healthy as the headline figures suggest, and concerns persist about the transparency of official data on the public finances. The extent of off-budget expenditure is difficult to quantify, and the quality of data relating to local governments in particular is in doubt. Local government finances are likely to have deteriorated as a result of recent stimulus spending, and the debt burden of the investment platforms that local governments created to channel this expenditure will become heavier in 2011-15 as interest rates rise. An even greater problem is the government's many contingent liabilities, which include the cost of pension provision and potential future losses by the state-owned banking sector.

Fiscal policy

Policy trends

China 7


In December, amid growing concern about rising inflationary pressures, the government altered its monetary policy stance from "appropriately loose" to "prudent". Moreover, the People�s Bank of China (PBC, the central bank) has begun to raise interest rates, most recently in December, when it lifted the benchmark one-year lending rate to 5.81%. As worries grow about inflation, interest rates are likely to be increased steadily during 2011-12. However, the government's ability to control credit expansion through the state-owned banking sector means that quantitative controls on monetary and credit expansion are more important in policy terms than interest rates. The govern-ment will thus implement further increases in bank reserve requirements early in the forecast period to contain inflation. In addition, banks will also be subject to monthly and quarterly credit quotas. The use of such quantitative means of controlling bank lending is not ideal, as credit quotas penalise small and medium-sized enterprises in the private sector that lack political connections. It also looks increasingly ineffective, given that credit targets were exceeded considerably in 2010. The PBC will seek to move gradually towards a system that relies more strongly on interest rates in 2011-15.

Economic forecast

2010 2011 2012 2013 2014 2015

Economic growth (%) US GDP 2.8 2.7 2.2 2.4 2.5 2.4

OECD GDP 2.9 2.3 2.1 2.2 2.3 2.1

World GDP 3.8 3.0 3.0 3.1 3.1 3.1

World trade 12.4 6.4 6.3 6.7 6.7 6.0

Inflation indicators (% unless otherwise indicated) US CPI 1.6 1.2 2.0 2.5 2.8 2.8

OECD CPI 1.3 1.1 1.6 1.9 2.1 2.3

Manufactures (measured in US$) 3.2 0.8 0.1 1.8 1.2 1.8

Oil (Brent; US$/b) 79.6 90.0 82.3 78.3 75.5 76.0

Non-oil commodities (measured in US$) 24.0 13.9 -6.2 -4.9 1.1 0.0

Financial variables US$ 3-month commercial paper

rate (av; %) 0.2 0.3 0.7 2.2 4.1 5.1

¥ 3-month money market rate (av; %) 0.2 0.3 0.9 1.4 2.0 2.3

¥:US$ (av) 88.0 82.4 82.4 81.0 82.1 83.5

Rmb:US$ (av) 6.76 6.47 6.30 6.08 5.86 5.70

Real GDP growth hit 10.3% in 2010 according to the National Bureau of Statistics, up from 9.2% in 2009. Stronger growth was driven by rising activity in most parts of the economy, thanks to loose credit conditions and a government-backed stimulus package that boosted investment. Economic expansion will slow to 9% in 2011 as stimulus spending comes to an end and policy tightening leads to a slowdown in growth in property investment. Weakening demand in major OECD markets will also serve to damp down export growth. However, strong income growth will support consumption, despite the fact that higher inflation will erode purchasing power. Low or negative real interest rates and

International assumptions

Economic growth

Monetary policy

8 China


relatively loose credit conditions will also encourage consumer purchases of high-value items.

During 2012-15 economic growth will slow to an average of 8.4% a year. The deceleration will largely reflect slower investment growth as more cities in China reach the stage at which mass redevelopment becomes economically costly. The contribution to GDP growth from net exports will also weaken as a strengthening renminbi, anaemic growth in many developed economies and declining Chinese competitiveness cause export growth to slow relative to import expansion. However, high levels of job creation and rising wages should ensure sustained rapid growth in consumption. The ongoing expansion of social services (and in particular healthcare, education and pension provision) will support growth in state spending, although a return to fiscal conservatism will act as a brake on public expenditure growth. There remains the risk that China could suffer a sharp economic correction in 2011-15. The frothy housing market and continuing massive overinvestment are the most likely sources of potential problems. The government�s capacity to counteract economic crises is strong, as it proved in 2008-09, but its ability to do so without aggravating the imbalances that already threaten the economy is less certain.

Economic growth % 2010a 2011b 2012 b 2013 b 2014b 2015b

GDP 10.3c 9.0 8.7 8.6 8.1 8.0

Private consumption 9.9 10.2 10.0 10.0 9.8 9.1

Government consumption 7.5 8.0 8.8 8.9 9.0 9.2

Gross fixed investment 11.3 9.0 9.0 9.8 9.1 8.8

Exports of goods & services 15.3 9.2 10.4 9.4 9.6 9.0

Imports of goods & services 13.9 10.7 11.6 12.2 12.7 11.4

Domestic demand 9.5 9.6 9.1 9.8 9.5 9.0

Agriculture 4.0 2.6 3.0 2.7 2.8 2.8

Industry 12.0 9.5 8.8 8.4 8.3 7.8

Services 9.3 9.8 9.7 10.0 8.7 9.1

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

Controlling inflation is now the government's main policy challenge. In December year-on-year consumer price inflation dipped to 4.6%, but it is expected to accelerate to an average of 5% in 2011. Strong liquidity growth and booming demand have contributed to the acceleration in prices, but rising input costs are the main threat in 2011-15. The large salary increases that firms are having to offer to keep workers may put upward pressure on consumer prices, as well as raising manufacturing costs. This has a particular impact on prices for labour-intensive agricultural products. Rising global commodity price pressures are a further concern.

The risks to the Economist Intelligence Unit's inflation forecast remain largely on the upside. The main danger concerns the volatility of food prices, which account for a large share of the consumer price index basket in China. Local agricultural prices are vulnerable to the vagaries of the weather, particularly in China, but also internationally. In any case, food prices will rise as agricultural land becomes scarcer and the cost of other farming inputs increases.

Inflation

China 9


Producer prices will be subject to strong upward forces as a result of booming domestic demand and policy-driven increases in state-mandated prices for fuel and utilities. Producer price inflation should nevertheless cool from 2012 as the rising global supply of raw materials and food reins in international commodity prices. There is a danger that speculative asset price bubbles, notably in property or equity markets, could emerge in the forecast period. The risk is aggravated by negative real deposit interest rates, which encourage savers to put their money in other saving and investment vehicles.

China is under intense pressure from its trading partners, most notably the US, to allow the renminbi to appreciate more rapidly. As evidence that the Chinese government manipulates the exchange rate to support exports, critics of China�s policies cite the country�s rapid accumulation of foreign-exchange reserves owing to its persistently large current- and capital account surpluses. (China's reserves rose again in 2010, to a massive US$2.85trn.) The Chinese government is likely to remain highly cautious in the area of exchange-rate policy, and is not expected to bow to foreign pressure for a substantial revaluation. However, it will allow the renminbi to strengthen gradually during the forecast period, and in real terms the currency's appreciation will be faster. Despite the problems that this will cause for exporters, renminbi appreciation is desirable, as it should help to reduce the surpluses on China's capital and current accounts, which are contributing significantly to domestic and global economic imbalances. The average exchange rate in 2011 is forecast at Rmb6.47:US$1, and the renminbi is expected to appreciate against the US dollar by an average of 3.5% a year in 2011-15.

China's current-account surplus stood at a massive US$297.1bn in 2009, but as a proportion of GDP it has been falling since 2008 and stood at 5.9% in 2009. The surplus is forecast to continue to shrink relative to GDP in 2011-15, but it will decline more slowly in US dollar terms, and we expect it stand at US$262bn, equivalent to 2.1% of GDP, in 2015. Although merchandise exports are forecast to expand by a rapid 12.1% a year on average in the forecast period, this will be well below the supercharged pace of export growth recorded in the period preceding the 2008-09 global financial and economic crisis. A large proportion of China's imports consists of components that are assembled in the country before being shipped abroad again, and its imports and exports therefore tend to expand at similar rates. However, a growing proportion of imports will be consumed domestically in 2011-15, and, at an average of 14.9% a year, import growth will outpace export expansion. The trade surplus will therefore fall, but at US$146.5bn in 2015 it will remain substantial.

The services deficit will widen considerably in 2011-15, largely reflecting an explosion in overseas travel by Chinese tourists. In addition, the economy�s growing sophistication will see demand for imports of professional services increase rapidly, although exports of services will also grow, reflecting the rising earnings of Chinese companies working on infrastructure projects overseas. The income account will post a huge surplus in the forecast period as a result of the income earned on China�s enormous stock of foreign-exchange reserves, which will continue to rise. These inflows will dwarf the income debits

External sector

Exchange rates

10 China


associated with the country's large stock of inward foreign direct investment. However, such outflows will grow as the number of foreign firms operating in China expands rapidly and their revenue rises strongly. The current transfers account will remain in surplus in 2011-15, reflecting the high level of remittances from overseas Chinese.

Forecast summary (% unless otherwise indicated)

2010a 2011b 2012 b 2013 b 2014b 2015b

Real GDP growth 10.3c 9.0 8.7 8.6 8.1 8.0

Industrial production growth 13.6 13.0 12.5 12.0 11.7 11.1

Gross agricultural production growth 4.0 2.6 3.0 2.7 2.8 2.8

Unemployment rate (av) 6.1 6.5 6.4 6.6 7.0 6.3

Consumer price inflation (av) 3.2 5.0 3.6 4.1 4.0 3.8

Consumer price inflation (end-period) 4.6 3.3 3.7 4.5 3.7 3.8

Short-term interbank rate (end-period) 5.8 6.8 7.3 7.1 7.3 7.3

Government balance (% of GDP) -2.2 -1.7 -1.6 -1.4 -0.8 -0.8

Exports of goods fob (US$ bn) 1,580.0 1,763.1 1,976.4 2,220.0 2,497.6 2,795.8

Imports of goods fob (US$ bn) 1,324.7 1,569.6 1,787.5 2,047.8 2,345.0 2,649.2

Current-account balance (US$ bn) 310.7 289.9 304.7 288.6 271.2 262.0

Current-account balance (% of GDP) 5.5 4.3 3.9 3.1 2.5 2.1

External debt (end-period; US$ bn) 420.7 487.2 552.5 633.3 717.9 814.7

Exchange rate Rmb:US$ (av) 6.76 6.47 6.30 6.08 5.86 5.70

Exchange rate Rmb:US$ (end-period) 6.63 6.36 6.21 5.96 5.78 5.63

Exchange rate Rmb:¥100 (av) 7.69 7.85 7.64 7.50 7.14 6.82

Exchange rate Rmb:� (end-period) 8.89 7.63 7.39 6.97 6.74 6.61

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

Quarterly forecasts 2010 2011 2012

1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

GDP

% change, quarter on quarter 2.5 3.4 1.0 2.6 2.0 2.2 2.4 2.2 1.6 2.4 2.3 1.8

% change, year on year 12.0 10.3 9.6 9.8 9.3 8.1 9.5 9.1 8.7 8.8 8.8 8.4

Consumer prices

% change, quarter on quarter 2.0 -0.1 0.6 2.2 2.6 0.4 -0.2 0.9 2.2 0.6 0.1 0.9


Producer prices

% change, quarter on quarter 1.0 3.1 0.2 1.3 0.5 2.9 0.4 1.2 0.3 1.1 0.7 1.0


Exchange rate Rmb:US$

Average 6.83 6.82 6.77 6.63 6.59 6.54 6.39 6.35 6.37 6.38 6.23 6.20

End-period 6.83 6.79 6.70 6.70 6.61 6.56 6.47 6.37 6.36 6.38 6.31 6.22

Interest rates (%; av)

Money market rate 2.0 2.5 2.6 3.4 3.7 3.9 4.1 4.0 4.0 4.0 4.2 4.2

China 11


Monthly review: February 2011

The political scene

Although the state visit to the US by China's president, Hu Jintao, that is currently in progress may not break much new ground, in the field of defence recent exchanges have raised more novel concerns. Earlier in January the US secretary of defense, Robert Gates, made his first visit to China in three years. Prior to this, military ties had been on hold for many months owing to a number of Chinese complaints, not least about the sale of arms by the US to Taiwan in 2010. China's military, which is more bombastic than its political leadership, appeared to express its views on the visit by conducting a test flight of its new stealth fighter jet, the J-20, to coincide with Mr Gates' arrival.

Curiously, Mr Gates later noted that China's top political leaders had seemed unaware that the flight was to take place. This raises questions about com-munications between the civilian and military leadership. Whether it reflects a failure of control or merely a lack of concern about the potential diplomatic ramifications of important military actions (the People's Liberation Army (PLA) is certainly more influential than the Ministry of Foreign Affairs) is not clear. However, the disconnect is disconcerting, given the growing might of China's armed forces. During his trip Mr Gates emphasised that the US was seeking a strategic military dialogue, not only with China�s civilian leadership but also with the PLA.

The stealth fighter is still in development, but the local armaments industry is also making strong headway in a number of other fields. China�s cutting-edge Dong Feng-21D anti-ship ballistic missile is close to being deployed, and could theoretically challenge the US's ability to project its naval power in the Pacific region. China is also expected to launch its first aircraft carrier later this year. This would be a modification of a ship built by the Soviet Union, but plans are also afoot to create a domestically designed aircraft carrier. In the light of recent developments, a US vice-admiral, Jack Dorsett, has admitted that the pace of China�s military progress has been underestimated by the US. Although China is still well behind the US in terms of military technology and power, this concern will strengthen the US's commitment to policies designed to curb China's military rise.

China's global military profile will meanwhile continue to develop. Although the "string of pearls" theory (the suggestion that China is developing port infrastructure in a number of countries around the Indian Ocean as part of a strategic military policy) looks unlikely to be correct, the country's international naval activities are escalating, notably in connection with anti-piracy operations in the Gulf of Aden. In addition, the Chinese navy has begun to make more frequent international stopovers. In 2010 it recorded visits to Greece, Italy, Egypt, Myanmar, Singapore and Saudi Arabia. The last, in late November, was the first such visit to Saudi Arabia and came after the vessels concerned had spent several months in the waters off Somalia.

China's military provokes US unease

12 China


Chinese officials regularly use visits to apparently ordinary citizens as a way of displaying the government's concern for the mass of the country's people. However, a visit in late December by the president that was designed to highlight the government's efforts to provide low-cost public housing sub-sequently backfired. Internet users queried how the apartment's occupier (the flat was in the capital, Beijing) could be renting it for Rmb77 (US$12) a month, as she claimed, given that the market rent for such an apartment would be around Rmb2,000 a month. The government claimed that the resident qualified for low-income subsidies, but some Internet users suggested that she was actually a civil servant in the transport police and thus ought to be ineligible for such benefits.

Although the true facts of the case remain obscure, the incident highlighted public concern that the much-vaunted low-cost-housing programme might be vulnerable to abuse. Public-housing schemes that benefit officials or the well-connected rich rather than the needy have already made headlines in China. In 2010 it emerged that some of those on a list of people due to receive housing subsidies in the city of Shenzhen, in Guangdong province, were hugely wealthy.

Investment in "economic" housing (a) (Rmb bn)

Source: CEIC.

(a) "Economic" housing is subsidised by the state and is intended to increase the supply of low-cost housing.

0

20

40

60

80

100

120

1009080706050403020120009998971996

The government said in late December that it planned to build 10m more low-cost housing units this year as a means of improving the living standards of the less well-off, for whom the cost of accommodation is a growing concern. However, such scandals highlight the ambivalence of local authorities towards the policy, which uses land that might otherwise be available for higher-cost developments which have the potential to raise greater amounts of fiscal revenue for regional governments. Recently published figures show that only Rmb17.5bn (US$2.6bn) of the Rmb55bn provided by the central government to build low-cost housing in 2009 was spent, pointing to difficulties in imple-menting high-minded policies announced from the centre.

Economic policy

Year-on-year consumer price inflation dipped slightly in December, to 4.6%, from 5.1% in November, thanks to government measures designed to curb food price growth. However, concerns about inflation are mounting. In December

The public-housing policy generates controversy

China tries to squeeze out excess liquidity

China 13


the People's Bank of China (PBC, the central bank) took a number of steps to tighten monetary policy, most notably by implementing an interest rate rise of 25 basis points (the second of 2010) on December 25th, thus lifting the benchmark one-year deposit and lending rates to 2.75% and 5.81% respectively. As on previous occasions, rates on longer-term deposits were increased by more than those on short-term deposits, in an effort to curb the trend whereby depositors have been shifting their funds to more liquid accounts. Bank reserve requirement ratios (the proportion of funds that banks must keep on deposit with the PBC) were also raised twice, in December 2010 and again in January 2011, by 0.5 percentage points on each occasion. In addition, as a further measure the PBC increased the interest rate that it charges on the loans that it makes to commercial banks�its first such move for two years.

Observers have begun to suggest that the central bank may have lost control over lending. New renminbi lending in December of Rmb480.7bn took the yearly total to Rmb7.95trn (around US$1.2trn), substantially overshooting the government�s target for 2010 of Rmb7.5trn. An international credit-rating agency, Fitch, produced a report in December arguing that Chinese credit growth in 2010 had "not slowed materially" from the stimulus-stoked rates recorded in 2009. Banks reportedly circumvented caps on lending by reducing their holdings of discounted bills and by re-packaging loans and selling them as investment products. This would help to explain why year-on-year broad money (M2) growth had accelerated to 19.7% by the end of 2010, well above the government�s target rate of 17%. The central bank has hinted that in 2011 it will steer away from sectoral credit targets, instead using bank-by-bank analysis and tools to curb liquidity growth.

In tandem with tighter control of bank lending, the government is also aiming to cool the economy by cutting the budget deficit to 2% of GDP, or Rmb900bn, in 2011. The central government is projected to account for roughly 78% of the deficit. Several changes to tax regulations are expected in 2011, including higher thresholds for income tax eligibility, the imposition of property taxes in selected pilot cities, and a rise in dividend payments to the central government from state-owned enterprises, probably to 15% of profits, from 10% previously. In December the government also announced that it had raised the official poverty line to annual income per head of Rmb1,500, from Rmb1,196 previously. This is expected to increase sharply the number of people eligible for state assistance.

In a further example of the authorities' efforts to control domestic liquidity, in December the State Administration for Foreign Exchange (SAFE) announced the relaxation of control over exporters� foreign-exchange earnings, which may now be kept in overseas accounts. The move is expected to help to restrain growth in China's foreign-exchange reserves, which reached US$2.85trn at the end of 2010.

Liquidity may be further reduced by the PBC's decision in January to permit businesses and banks that are qualified to settled crossborder trade in renminbi (numbering roughly 70,000 domestic enterprises at present) to make direct overseas investments in the currency. It is unclear, though, how many foreign

Capital account liberalisation edges ahead

14 China


firms will be willing to accept the renminbi, a currency that is still largely unconvertible, in payment for investments. In another development, the city of Wenzhou, in Zhejiang province, announced a decision in January permitting individuals from the city to make overseas direct investments with a ceiling per project of US$3m and a maximum yearly quota of projects of US$200m. This policy may, however, exceed the regulatory authority of the local government concerned, and could yet be overruled by the PBC or SAFE.

China's outbound investment looks set to continue expanding rapidly in 2011. Two Chinese-based agricultural companies, New Hope and Agria, announced plans in December for a partial takeover, worth NZ$141m (US$110m), of New Zealand's largest agricultural-services company, PGG Wrightson. The investment proposal awaits approval from the New Zealand government. A prior bid by another Chinese-based company, Natural Dairy Holdings, to purchase agri-cultural assets in New Zealand was rejected by the regulators in New Zealand.

Meanwhile, in a move that will actually add to domestic liquidity, China's main financial centre, Shanghai, has been chosen as the site for a pilot programme dubbed the Qualified Foreign Limited Partner fund. Through this scheme, foreign private-equity firms will be permitted to convert foreign exchange into renminbi for direct investment, easing the usually tortuous process of making financial investments in China. SAFE has granted an initial US$3bn quota for the project.

Economic performance

China's real economic growth accelerated in October-December, to 9.8% year on year, from 9.6% in the previous quarter. The stronger growth rate in the fourth quarter of 2010 was especially surprising given the higher base of comparison in the year-earlier period, as economic activity had grown significantly faster in the fourth quarter of 2009 than in the third. The October-December performance took GDP growth in 2010 as a whole to 10.3%, according to the National Bureau of Statistics, compared with a revised rate of 9.2% in 2009. Whereas data for urban fixed-asset investment appeared to show a substantial cooling in December, growth rates for industrial production (which was up by 13.5% year on year in the month) and retail sales (up by 19.1%) both accelerated relative to their November levels.

China's external trade (on a customs basis) recovered strongly in 2010 from the depressed levels of 2009, with merchandise exports rising by 31.3%, to US$1.6trn, and imports expanding by 38.7%, to US$1.4trn. The trade surplus, at US$183.1bn, declined by 6.4% compared with 2009. In December export growth showed signs of decelerating (possibly owing to the end of the restocking cycle in the developed world), slipping to 18% year on year. However, imports in December were still up by an impressive 25.6% year on year, reflecting the strength of domestic demand.

Booming imports have helped to bolster the government's fiscal position. Import tariff revenue grew by 35.9% in 2010, to Rmb1.05trn, accounting for 13.6% of the total tax revenue figure of Rmb7.74trn. Revenue from China's three

Growth accelerates in the fourth quarter of 2010

China 15


main turnover taxes, namely domestic value-added tax, consumption tax and business tax, increased by 14.8%, 27.5% and 23.8% respectively in the year. The rapid expansion in consumption tax income was driven by booming consumer spending and a pick-up in inflation.

But recent trade news has not all been positive. In December the World Trade Organisation (WTO) delivered a judgment on a controversial case involving a US decision in 2009 to impose punitive tariffs of up to 35% on imports of tyres from China. The US had justified the measure under �transitional safeguard� provisions, arguing that the scale of the surge in imports of tyres had disrupted its domestic market; the WTO ruled that the US had acted within its rights. China has signalled that it will appeal against the decision.

A government incentive programme to boost vehicle sales, launched in 2009, was brought to a close at the start of 2011. The scale of the policy�s success can be seen from the fact that even in its second year passenger-car sales were up by 33.3% year on year, to 13.7m units. At the start of 2011 a 10% purchase tax on vehicles with engine sizes of 1600cc or less, which had previously benefited from the scheme, was reinstated. In addition to the small-car tax cut, China had also instituted a trade-in programme for older vehicles, under which Rmb6.4bn was expended in subsidies to more than 459,000 purchasers in 2010. This programme too was terminated at the end of 2010. The removal of fiscal policy support will serve to damp down car sales in 2011.

China�s love affair with the car will face other strains in the coming months as restrictive registration policies proliferate among China's increasingly congested cities. Shanghai has run an auction system for car licence plates for several years, but in late 2010 the municipality of Beijing declared that it too would cap registrations in 2011, at 240,000. By comparison, there were 624,532 passenger cars registered there in 2009. Fortunately, given the prospect that car sales will be curbed, more people now have the opportunity to commute by public transport, thanks to the fact that five new underground rail lines opened in the capital at the end of December.

Although urban railways are expanding rapidly (new metro systems were opened in Chengdu, Foshan and Shenyang in 2010, while many others were expanded), other rail links are growing even more rapidly. According to the Ministry of Railways, China boasted 8,358 km of high-speed railways by end-2010. This means that the country already boasts the world's largest rail network, but there are plans to open an additional 5,000 km of high-speed lines in 2011. The railways minister, Liu Zhijun, said recently that China would invest Rmb700bn in railway construction in 2011, with 70 new projects starting, including 15 new regional high-speed rail links and direct inter-city train services.

Plans have meanwhile been mooted to merge two of the nation�s largest state-owned rolling-stock companies, the China North Locomotive and Rolling Stock Group and the China South Locomotive and Rolling Stock Group. Proponents of the merger argue that it would create a "national champion" that would be better able to compete for international contracts, but the move has been

Car sales growth may be less impressive in 2011

China's railway networks are expanding rapidly

16 China


opposed by many in China who believe that it would reduce competition in the domestic market.

Railway performance

Source: CEIC.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Passengers carried (m person km);right scale

Cargo carried (m tonnes);left scale

1009080706050403020120001999

The All China Federation of Trade Unions (ACFTU, the government-controlled trade union body and the country's sole approved such organisation) reports that over 400,000 labour dispute cases were filed in 2010, representing an increase of 12.1% compared with 2009. Strikes continue: two taxi-drivers' stoppages were reported in early 2011 in the cities of Zhengzhou in Henan province and Xianning in Hubei, for instance. The government has put its weight behind improving workers' conditions and pay, partly to help improve social stability, and also as part of wider efforts to boost consumption.

As part of this drive, the ACFTU is expected to press for collective bargaining to be adopted by all enterprises within the next three years. New regulations designed to promote collective bargaining came into effect in Fujian province in January 2011, although similar legislation that has long been discussed in Guangdong province remains stuck at the draft stage as a result of opposition from employers. The ACFTU is also pressing ahead with efforts to unionise workers; the organisation reports that 79% of foreign-invested enterprises and 78.5% of domestic private companies had set up trade unions by the end of 2010.

Meanwhile, the rapid rise in wages for the low-paid looks set to continue in 2011. At the start of January the municipality of Beijing raised its minimum wage by almost 21%, to Rmb1,160 per month. Guangdong will also increase its minimum wage, by an average of 18.6%, from March. These moves follow similar large rises in 2010.

Upward wage pressures will persist in 2011

China 17


Data and charts Annual data and forecast

Pl ea se se e g ra p hi c b el ow

2006a 2007a 2008a 2009a 2010 b 2011c 2012c

GDP

Nominal GDP (US$ bn) 2,787 3,494 4,532 5,051 5,697 6,767 7,902

Nominal GDP (Rmb bn) 22,224 26,583 31,490 34,502 38,521 43,769 49,755

Real GDP growth (%) 12.7 14.2 9.6 9.2 10.3 a 9.0 8.7

Expenditure on GDP (% real change)

Private consumption 9.2b 10.8b 8.4b 10.4b 9.9 10.2 10.0

Government consumption 11.7b 11.9b 9.0b 7.2b 7.5 8.0 8.8

Gross fixed investment 12.9b 13.7b 9.8b 23.1b 11.3 9.0 9.0

Exports of goods & services 20.7b 20.4b 13.9b -9.1b 15.3 9.2 10.4

Imports of goods & services 19.5b 18.5b 15.2b -2.7b 13.9 10.7 11.6

Origin of GDP (% real change)

Agriculture 5.0 3.7 5.4 4.2 4.0 2.6 3.0

Industry 13.4 15.1 9.9 9.9 12.0 9.5 8.8

Services 14.1 16.0 10.4 9.3 9.3 9.8 9.7

Population and income

Population (m) 1,283b 1,290b 1,297b 1,305b 1,312 1,320 1,328

GDP per head (US$ at PPP) 4,921b 5,753b 6,410b 7,023b 7,739 8,509 9,402

Fiscal indicators (% of GDP)

General government revenue 17.4 19.3 19.5 19.8 20.6 20.7 20.7

General government expenditure 18.2 18.7 19.9 22.0 22.8 22.4 22.3

General government balance -0.7 0.6 -0.4 -2.1 -2.2 -1.7 -1.6

Net public debt 20.8b 17.1b 15.2b 16.4b 17.3 17.2 17.0

Prices and financial indicators

Exchange rate Rmb:US$ (end-period) 7.81 7.31 6.84 6.83 6.63 6.36 6.21

Exchange rate ¥:Rmb (end-period) 10.31 10.67 9.50 9.79 8.89 7.63 7.39

Consumer prices (end-period; %) 2.8 6.6 1.4 1.5 4.6 3.3 3.7

Producer prices (av; %) 3.0 3.1 6.9 -5.4 5.5 5.1 3.6

Stock of money M1 (% change) 17.9 21.0 9.0 33.2 21.2 15.5 15.0

Stock of money M2 (% change) 22.1 16.7 17.8 28.4 19.9 14.9 15.8

Lending interest rate (end-period; %) 6.1 7.5 5.3 5.3 5.8 6.8 7.3

Current account (US$ bn)

Trade balance 217.7 315.4 360.7 249.5 255.3 193.5 188.9

Goods: exports fob 969.7 1,220.0 1,434.6 1,203.8 1,580.0 1,763.1 1,976.4

Goods: imports fob -751.9 -904.6 -1,073.9 -954.3 -1,324.7 -1,569.6 -1,787.5

Services balance -8.8 -7.9 -11.8 -29.4 -24.0 -27.1 -34.8

Income balance 15.2 25.7 41.4 43.3 43.1 83.7 108.1

Current transfers balance 29.2 38.7 45.8 33.7 36.4 39.8 42.5

Current-account balance 253.3 371.8 436.1 297.1 310.7 289.9 304.7

External debt (US$ bn)

Debt stock 325.3 373.8 378.2 348.3b 420.7 487.2 552.5

Debt service paid 27.5 32.2 34.4 39.1b 31.3 37.0 44.6

Principal repayments 18.1 20.8 25.1 31.4b 24.5 28.1 32.2

Interest 9.4 11.4 9.2 7.8b 6.8 8.9 12.4

International reserves (US$ bn)

Total international reserves 1,072.6 1,534.4 1,953.3 2,425.9 2,857.4 3,232.7 3,584.9

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Sources: IMF, International Financial Statistics.

18 China


Quarterly data Pl ea se se e g ra p hi c b el ow

2009 2010

1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Output

Real GDP (% change, year on year) 6.4 7.8 9.0 10.8 12.0 11.7 9.6 9.8

Industrial production, gross value added (1990 prices; % change, year on year) 9.7 9.0 12.3 17.9 15.5 16.0 13.5 n/a

Electricity production (% change, year on year) -4.0 -0.1 8.0 24.3 22.1 17.4 11.8 n/a

Prices

Consumer prices (2000=100) 112.5 111.7 111.7 112.6 114.9 114.7 115.4 117.9

Consumer prices (% change, year on year) -0.6 -1.5 -1.3 0.4 2.1 2.7 3.3 4.7

Financial indicators

Exchange rate Rmb:US$ (av) 6.84 6.83 6.83 6.83 6.83 6.82 6.77 6.63

Exchange rate Rmb:US$ (end-period) 6.84 6.83 6.83 6.83 6.83 6.79 6.70 6.70

Deposit rate (end-period; %) 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.8

Prime lending rate (end-period; %) 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.8

3-month interbank rate (av; %) 1.6 1.5 1.9 1.8 2.0 2.5 2.6 3.4

Lending & deposits (end-period; % change, year on year)

Total loans 27.1 31.9 34.2 31.7 21.8 18.2 18.5 19.9

Short-term loans 14.2 15.4 15.2 17.1 8.9 7.9 9.0 13.4

Medium- & long-term loans 24.2 31.7 38.3 43.5 44.5 38.2 33.0 29.9

Urban & rural savings deposits 29.6 28.3 24.9 19.7 15.6 15.5 17.0 16.3

M1 (end-period; Rmb bn) 17,654 19,314 20,171 22,145 22,940 24,058 24,382 n/a

M1 (% change, year on year) 17.0 24.8 29.5 33.2 29.9 24.6 20.9 n/a

M2 (end-period; Rmb bn) 53,063 56,892 58,541 61,022 64,995 67,392 69,647 n/a

M2 (% change, year on year) 25.4 28.4 29.3 28.4 22.5 18.5 19.0 n/a

Shanghai �A� share price index (end-period; Feb 21st 1992=100) 2,491 2,996 2,917 3,437 3,260 2,514 2,782 2,890

Shanghai �A� share price index (% change, year on year) -31.6 4.4 21.1 78.6 30.9 -16.1 -4.6 -15.9

Sectoral trends (% change, year on year)

Retail sales, consumer goods 15.0 16.8 15.4 16.5 23.7 21.9 23.9 n/a

Foreign trade (US$ bn)

Exports fob 245.5 276.1 324.9 355.0 316.1 389.0 429.8 443.5

Imports cif -183.3 -242.2 -286.6 -293.9 -301.6 -347.7 -364.1 -380.6

Trade balance 62.2 33.9 38.3 61.1 14.5 41.3 65.7 62.9

Capital flows

Foreign direct investment (US$ bn) 21.8 21.2 20.8 26.3 23.4 28.0 22.9 n/a

Foreign direct investment (% change, year on year) -20.6 -15.0 -5.6 45.7 7.7 31.8 10.3 �

Reserves excl gold (end-period; US$ bn) 1,957 2,135 2,288 2,416 2,464 2,471 2,667 n/a

Sources: IMF, International Financial Statistics; China Statistical Information Centre; National Bureau of Statistics, China Monthly Economic Indicators; People's Bank of China, Quarterly

Statistics Bulletin.

China 19


Monthly data Pl ea se se e g ra p hi c b el ow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate Rmb:US$ (av) 2008 7.25 7.17 7.08 7.00 6.97 6.90 6.84 6.85 6.83 6.83 6.83 6.84

2009 6.84 6.84 6.84 6.83 6.83 6.83 6.83 6.83 6.83 6.83 6.83 6.83

2010 6.83 6.83 6.83 6.83 6.83 6.82 6.78 6.79 6.74 6.67 6.66 n/a

Exchange rate Rmb:US$ (end-period) 2008 7.19 7.11 7.02 7.00 6.95 6.86 6.84 6.84 6.82 6.83 6.84 6.84

2009 6.84 6.84 6.84 6.83 6.83 6.83 6.83 6.83 6.83 6.83 6.83 6.83

2010 6.83 6.83 6.83 6.83 6.83 6.79 6.78 6.81 6.70 6.69 6.68 n/a

Real effective exchange rate (2000=100; CPI basis) 2008 100.26 102.10 100.63 101.91 102.86 104.06 103.85 106.37 109.11 113.04 115.01 111.85

2009 112.90 114.23 115.84 114.10 111.21 109.78 109.27 108.47 107.25 105.66 105.23 106.16

2010 106.36 107.79 107.44 108.03 110.74 112.17 110.96 109.64 109.40 107.63 n/a n/a

Money supply M1 (% change, year on year) 2008 20.5 18.9 18.0 18.8 17.7 14.0 13.8 11.3 9.2 8.7 6.6 9.0

2009 6.7 10.6 17.0 17.5 18.7 24.8 26.4 27.7 29.5 32.0 34.6 33.2

2010 39.0 35.0 29.9 31.3 29.9 24.6 22.9 21.9 20.9 22.1 n/a n/a

Money supply M2 (% change, year on year) 2008 18.9 17.4 16.2 16.9 18.0 17.3 16.3 15.9 15.2 14.9 14.7 17.8

2009 18.7 20.3 25.4 25.9 25.7 28.4 28.4 28.5 29.3 29.5 29.6 28.4

2010 26.1 25.5 22.5 21.5 21.0 18.5 17.6 19.2 19.0 19.3 n/a n/a

Deposit rate (end-period; %) 2008 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 3.6 2.5 2.3

2009 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3

2010 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.5 2.5 2.8

Prime lending rate (end-period; %) 2008 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.2 6.7 5.6 5.3

2009 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3

2010 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.6 5.6 5.8

Industrial production (% change, year on year) 2008 n/a 15.4 17.8 15.7 16.0 16.0 14.7 12.8 11.4 8.2 5.4 5.7

2009 n/a 11.0 8.3 7.3 8.9 10.7 10.8 12.3 13.9 16.1 19.2 18.5

2010 n/a 12.8 18.1 17.8 16.5 13.7 13.4 13.9 13.3 13.1 13.3 n/a

Retail sales of consumer goods (% change, year on year) 2008 21.2 19.1 21.5 22.0 21.6 23.0 23.3 23.2 23.2 22.0 20.8 19.0

2009 18.5 11.6 14.7 14.8 20.6 15.0 15.2 15.4 15.5 16.2 15.8 17.5

2010 18.2 32.3 21.5 23.2 18.7 24.0 23.3 24.3 24.0 21.9 22.7 n/a

Shanghai �A� share price index (end-period; Feb 21st 1992=100) 2008 4,600 4,563 3,643 3,875 3,603 2,870 2,912 2,517 2,409 1,816 1,965 1,925

2009 2,090 2,187 2,491 2,591 2,764 2,996 3,582 2,799 2,917 3,144 3,351 3,437

2010 3,135 3,200 3,260 3,009 2,718 2,514 2,764 2,765 2,782 3,121 2,953 2,890

Consumer prices (av; % change, year on year) 2008 7.1 8.7 8.3 8.5 7.7 7.1 6.3 4.9 4.6 4.0 2.4 1.2

2009 1.0 -1.6 -1.2 -1.5 -1.4 -1.7 -1.8 -1.2 -0.8 -0.5 0.6 1.9

2010 1.5 2.7 2.4 2.8 3.1 2.9 3.3 3.2 3.6 4.3 5.2 n/a

Producer prices (av; % change, year on year) 2008 6.1 6.6 8.0 8.1 8.2 8.8 10.0 10.1 9.1 6.6 2.0 -1.1

2009 -3.4 -4.5 -6.0 -6.6 -7.2 -7.8 -8.2 -7.9 -7.0 -5.8 -2.1 1.7

2010 4.3 5.4 5.9 6.8 7.1 6.4 4.8 4.3 4.3 5.0 6.1 n/a

20 China


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Total exports fob (US$ bn) 2008 109.6 87.3 108.9 118.7 120.5 121.1 136.6 135.4 136.7 128.5 115.0 111.1

2009 90.5 64.9 90.2 91.9 88.7 95.5 105.4 103.6 115.9 110.6 113.7 130.7

2010 109.5 94.5 112.1 119.9 131.7 137.4 145.6 139.3 145.0 135.9 153.4 154.2

Total imports cif (US$ bn) 2008 90.2 79.1 95.8 102.4 100.8 100.4 111.5 106.0 106.7 92.7 74.6 72.0

2009 51.4 60.1 71.9 79.0 75.7 87.5 95.2 88.2 103.2 86.9 94.7 112.3

2010 95.4 86.9 119.3 118.3 112.2 117.3 116.8 119.3 128.0 108.9 130.6 141.1

Trade balance fob-cif (US$ bn) 2008 19.4 8.2 13.2 16.4 19.7 20.7 25.1 29.3 30.0 35.8 40.4 39.0

2009 39.1 4.8 18.3 12.9 13.1 8.0 10.2 15.4 12.7 23.8 18.9 18.4

2010 14.1 7.6 -7.2 1.6 19.5 20.2 28.7 20.0 16.9 27.0 22.8 13.1

Foreign-exchange reserves excl gold (US$ bn) 2008 1,592 1,649 1,684 1,759 1,799 1,811 1,847 1,886 1,908 1,882 1,888 1,949

2009 1,917 1,915 1,957 2,012 2,093 2,135 2,178 2,224 2,288 2,344 2,405 2,416

2010 2,432 2,441 2,464 2,507 2,456 2,471 2,556 2,565 2,667 2,780 2,786 n/a

Sources: IMF, International Financial Statistics; Haver Analytics.

China 21


Annual trends charts Pl ea se se e g ra p hi c b el ow

Annual trends charts

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

GDP per head (US$; PPP)

Total external debt (% of GDP)



Real GDP growth(% change)

Consumer price inflation(av; %)

Leading markets, 2009(% of total) (% of total)

Leading suppliers, 2009

South Korea4.5

Others55.2

US18.4

Hong Kong13.8

Japan8.1

Others60.6

Japan13.0

South Korea10.2

Taiwan8.5

US7.7

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0 World Asia (excl Japan) China

1211100908072006-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0 World Asia (excl Japan) China

1211100908072006

0.0

5.0

10.0

15.0

20.0

25.0

30.0 Asia (excl Japan) China

12111009080720060

2,000

4,000

6,000

8,000

10,000

12,000

14,000 World Asia (excl Japan) China

1211100908072006

22 China


Quarterly trends charts Pl ea se se e g ra p hi c b el ow

Quarterly trends charts

Real GDP growth(% change)

Price inflation(av; %; year on year)

Interest rates(av; %)

Exchange rate(Rmb:US$; av; inverted scale)

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0Money market rateLending rate

Q112

Q111

Q110

Q109

Q108

Q107

Q106

Q105

Q104

Q12003

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0Quarter on quarter Year on year

Q112

Q111

Q110

Q109

Q108

Q107

Q106

Q105

Q104

Q12003

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0ProducerConsumer

Q112

Q111

Q110

Q109

Q108

Q107

Q106

Q105

Q104

Q12003

8.5

8.0

7.5

7.0

6.5

6.0

Q112

Q111

Q110

Q109

Q108

Q107

Q106

Q105

Q104

Q12003

China 23


Monthly trends charts Pl ea se se e g ra p hi c b el ow

Monthly trends charts

Price inflation (% change, year on year)

Interest rates (av; %)

Monetary aggregates (% change, year on year)

Foreign trade (US$ m; goods only)

Foreign-exchange reserves(US$ m)

Exchange rate (Rmb:US$; av; inverted scale)




1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0 Lending rate Deposit rate

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

-12.0

-8.0

-4.0

0.0

4.0

8.0

12.0 Producer prices Consumer prices

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2,200,000

2,400,000

2,600,000

2,800,000

3,000,000

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

7.8

7.6

7.4

7.2

7.0

6.8

6.6

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0 M2 M1

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000 Balance Imports Exports

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

24 China


Comparative economic indicators Pl ea se se e g ra p hi c b el ow

Comparative economic indicators, 2009

Gross domestic product(US$ bn; market exchange rates)

Gross domestic product(% change, year on year)

Consumer prices(% change, year on year)

Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product per head(US$ '000; market exchange rates)

0 200 400 600 800 1,000

Laos

Papua New Guinea

Cambodia

Myanmar

Sri Lanka

Bangladesh

Vietnam

New Zealand

Philippines

Pakistan

Singapore

Malaysia

Hong Kong

Thailand

Taiwan

Indonesia

South Korea

Australia

India

China

Japan

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Myanmar

Bangladesh

Cambodia

Pakistan

Laos

Vietnam

India

Papua New Guinea

Philippines

Sri Lanka

Indonesia

China

Thailand

Malaysia

Taiwan

South Korea

New Zealand

Hong Kong

Singapore

Japan

Australia

-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Japan

Taiwan

Thailand

China

Cambodia

Laos

Hong Kong

Malaysia

Singapore

Myanmar

Australia

New Zealand

South Korea

Philippines

Sri Lanka

Indonesia

Bangladesh

Papua New Guinea

Vietnam

India

Pakistan

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0

Japan

Hong Kong

Thailand

Taiwan

Malaysia

Cambodia

Singapore

New Zealand

South Korea

Philippines

Australia

Myanmar

Sri Lanka

Pakistan

Indonesia

Vietnam

Papua New Guinea

Bangladesh

Laos

India

China

5,068.1

5,050.5

1,297.9

44.5

39.9

36.6

China 25


Country snapshot

Basic data

9,561,000 sq km

1.32bn (end-2007; official estimate)

Population (millions) of main urban areas

Shanghai 15.6 Chongqing 5.1 Beijing (capital) 13.1 Wuhan 4.9 Guangzhou 11.0 Harbin 4.8 Shenzhen 8.5 Shenyang 4.4 Dongguan 6.5 Chengdu 3.8 Tianjin 5.2 Zhengzhou 3.5

Continental, with extremes of temperature; subtropical in the south-east

Hottest months, July and August, 23-33°C (average daily minimum and maximum); coldest month, January, -1 to 9°C; driest month, September, less than 5 mm average rainfall; wettest month, June, 160-165 mm average rainfall

Mainly putonghua, or Standard Chinese, based on northern Chinese (the Beijing dialect known as Mandarin); local dialects and languages are also used

The metric system is used alongside certain standard Chinese weights and measures, of which the most common are:

1 jin = 0.5 kg 2,000 jin = 1 tonne 1 dan = 50 kg 20 dan = 1 tonne 1 mu = 0.0667 ha 15 mu = 1 shang = 1 ha

Renminbi (Rmb), or yuan. Rmb1 = 10 jiao = 100 fen. Average exchange rate in 2010: Rmb6.77:US$1

January-December

8 hours ahead of GMT

New Year, January 1st-3rd; Chinese New Year, February 2nd-8th; Qingming Festival, April 3rd-5th; Labour Day, May 1st; Dragon Boat Festival, June 4th-6th; Mid-Autumn Day, September 10th-12th; National Day, October 1st-7th. All public holidays are technically one day long except for Chinese New Year and National Day, which are three days. When the holiday covers weekdays in excess of this figure, they are compensated for by working weekends around the holiday

Climate

Weather in Shanghai (altitude 4 metres)

Language

Measures

Fiscal year

Time

Public holidays

Land area

Population

Main towns

Currency

26 China


Political structure

People's Republic of China

One-party rule by the Chinese Communist Party (CCP)

The state council, approved by the legislature; state council members, including the premier, may serve no more than two consecutive five-year terms

A president and a vice-president are approved by the legislature for a maximum of two consecutive five-year terms

Unicameral National People's Congress (NPC): 2,989 delegates are selected by provinces, municipalities, autonomous regions and the armed forces. The NPC approves the president and members of the state council, as well as the membership of the standing committee of the NPC, which meets when the NPC is not in session. All arms of the legislature and the executive sit for five-year terms

There are 22 provinces, four municipalities directly under central government control and five autonomous regions. These elect local people's congresses, and are administered by people's governments

The current government line-up was approved at the NPC meeting in March 2008. A new party leadership will be announced at the 18th national congress of the CCP in late 2012. The new government line-up will be announced in March 2013 at the NPC, when Xi Jinping and Li Keqiang are expected to take over from Hu Jintao and Wen Jiabao as president and premier respectively

The politburo (political bureau) of the CCP sets policy and controls all administrative, legal and executive appointments; the nine-member politburo standing committee is the focus of power

The CCP, of which Hu Jintao is the general secretary

Hu Jintao Wu Bangguo Wen Jiabao Jia Qinglin Li Changchun Xi Jinping Li Keqiang He Guoqiang Zhou Yongkang

President Hu Jintao Vice-president Xi Jinping Premier Wen Jiabao Vice-premiers Li Keqiang Hui Liangyu Zhang Dejiang Wang Qishan Commerce Chen Deming Finance Xie Xuren Foreign affairs Yang Jiechi National Development & Reform Commission Zhang Ping

Zhou Xiaochuan Central bank governor

National legislature

Regional assemblies and administrations

National government

Main political organisation

Politburo standing committee members

Form of government

The executive

Head of state

National elections

Heads of selected state ministries and commissions

Official name

china report eiu (2)

Documents