China - Overview
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In 2013, the slowing down of the economy pushed the government to relax its economic policy. In order to restrart growth, the government granted tax exemptions to very small businesses and invested in infrastructures. The new government gave rise to hopes that it would introduce changes, however so far it has been sending mixed signals to the market as to its will to liberalise and deregulate the economy. In October 2013, a new free-trade zone opened in Shanghai which allows foreign companies to participate but with certain restrictions. Credit restrictions have been lifted but interest rates are still set by the state.
In late 2013, in the third plenum of the Communist Party's (CCP) Central Committee, the CCP announced its reform program to be completed by 2020. It includes: political changes such as abandoning forced labor camps; greater independence for the courts at the local level; relaxing the one-child policy; reform of the "hukou" system which controls (or restricts) mobility and access to public services for citizens; reform of access to land to facilitate the sale of agricultural land by peasants; liberalization of interest rates and the gradual opening of financial transactions; and a reform of state-owned companies. The previous emphasis on economic growth is now being replaced by social concerns such as environmental degradation, corruption and rising inequality. China is still having to deal with many challenges: its aging population, its shrinking workforce and the lack of openess of its political system, issues of competitiveness in an economy dependent on high capital spending, and the expansion of credit.
A large gap remains between the living standard of the cities and the countryside, between urban zones on the Chinese coast and the interior and western parts of the country, as well as between the urban middle classes and those who have not been able to profit from the growth. These inequalities are becoming increasingly worrisome for both the Chinese authorities and the investors. Although poverty has largely decreased in China, almost 10% of the population, i.e. more than 120 million people, continue to live on less than 1 USD a day.
The agricultural sector employs almost 40% of the active population and contributes up to about 10% to the GDP, although only 15% of the Chinese soil (about 1.2 M km ²) is arable. China is the most populated country in the world and one of the largest producers and consumers of agricultural produce. China is the leading global producer of cereals, rice, cotton, potatoes and tea. In terms of livestock, it also dominates sheep and pork livestock farming and the world’s production of fish products. A series of plans have been aimed at transforming agriculture by modernizing and diversifying it and making it more productive.
The mining sector occupies an important place in the Chinese economy, since the country’s subsoil is rich in energetic resources. China has significant coal reserves (the country's primary energy source), which account for two-thirds of the total primary energy consumption. It is the world leader in the production of certain ores (phosphate and titanium) and also has significant petrol and natural gas reserves. It is the world’s fifth biggest oil producer with 3.8 million barrels a year.
The industry and the construction sectors contribute approximately half of China's GDP. China has become one of the preferred destinations for the relocation of global manufacturing units because of a cheap labor market, even though the cost of labor has been increasing. China’s economic development has coincided primarily with the development of a competitive and outward-oriented manufacturing sector. More than half of the Chinese exports are made by companies with foreign capital. Their share in the sector's added-value varies according to the sector: more than 60% for electronics and less than 20% for the majority of producer goods. The Government sector still contributes approximately 40% to the GDP.
The services sector has not progressed, encumbered by public monopolies and restrictive regulations. The tertiary sector's share in the GDP is over 40% and it employs a third of the active population.
Foreign trade overview
China's main trade partners are the countries of South East Asia, the United States and the European Union.
China is an unexploited market and has a potential for considerable growth due to several reasons:
- It's the biggest internal market in the world with 1.3 billion potential customers;
- it's a rapidly growing market (minimum 8% growth per year); and
- the labor costs are low even if this situation is changing in certain areas;
- with the development of the Western provinces, China offers new opportunities, particularly in the Sichuan province.
Nevertheless, certain factors can hinder investments, such as China’s lack of transparence, legal uncertainty, low level of protection of intellectual property rights, corruption or protectionist measures which privilege local businesses.