The pace of economic change in China has been extremely rapid since the start of economic reforms just over 25 years ago. Economic growth has averaged 9.5 per cent over the past two decades and seems set to continue for a while yet. Such an increase represents one of the most sustained and rapid economic transformations seen in the world economy over the last 50 years.

The size of the economy, when measured at market prices, now exceeds that of several European economies. China could well become the largest exporter in the world by the beginning of the next decade.

The Chinese government has taken a series of monetary policy tightening measures in an attempt to cool down the economy. Since the start of the year, credit guidelines have been tightened and reserve requirements have been raised three times.

Agriculture
China is the world's biggest agricultural producer after the United States, and among the world's largest producers of rice, potatoes, sorghum, millet, peanuts, tea and pork. It is the world's largest producer and consumer of cotton, accounting for 20 to 25 per cent of the world's total production.

Given China's population growth and demand, experts reckon that in five-years' time, China's grain imports could double and, by 2010, China could replace Japan as the world's leading grain importer.

Manufacturing
China is now the world's fourth largest exporter and third largest importer, and accounts for 30 per cent of the world's manufacturing output. The industry has increasingly shifted towards higher value-added products, in hi-tech sectors ranging from electrical machinery to computers. China is fast moving up the production value chain. In 2003, about 30 per cent of its exports were machinery and equipment, compared to less than 10 per cent in 1990.

China accounted for about 50 per cent of the world's consumption of cement, 30 per cent of coal, and 36 per cent of steel. Its copper imports rose by 15 per cent last year and nickel imports more than doubled in 2003.

Market scenario
China is a major marketplace, which is particularly evident in commodity markets. China's oil imports rose by 30 per cent last year, exceeding those of Japan to make it the world's second-largest oil importer. With one-fifth of the world's population and strong economic growth boosting household incomes, China has a huge untapped market of increasingly empowered consumers.

This has fuelled demand for consumer products; analysts estimate the market for motorcycles, refrigerators, TVs, DVDs and cellphones is larger than that in the US. It is projected that the annual sales of light vehicles in China could increase fivefold by 2010, reaching more than 10 million units. Workers, both globally and in China, are shifting out of labour-intensive manufacturing as productivity increases.

Automobiles
Vehicle output was 4.44 million, up 36.7 per cent. Of this, the output of cars reached 2.02 million, up 85 per cent. In 2003, the number of carmakers in China grew to 32, up by 12 over 2002. Eight had production of over 100,000 cars, compared with five in 2002.

Electricity
The government-owned State Power Corporation (SPC) has long dominated China's electricity market, accounting for around 50 per cent of power-generation assets and 90 per cent of electricity supplied in the country.

However, in early 2002, the government moved to restructure the company to introduce more competition. By end-2002, the SPC was duly broken up into 11 firms — two grid operators, five electricity-generation companies (none of which has a market share of more than 20 per cent) and four other companies.

Over 80 per cent of electricity is produced from fossil fuels, and the government is trying to shift the balance of production away from coal and towards other resources, particularly gas. Hydropower, the next most important source accounts for 17 per cent of electricity generation. Hydropower generation will be boosted as 26 turbines with a total capacity of 700 mega watts in the Three Gorges Dam project come on stream over the next six years. Once fully operational in 2009, its output will reach 84.7 terawatt hours of power annually, making it, by far, the single biggest generating facility in the world.

Nuclear power accounted for 1.2 per cent of electricity production in 2000. China has eight operational nuclear power stations, and the government hopes to quadruple China's nuclear power production capacity to 32-40 gigawatts by 2020.

Infotech
The government's plan to develop 30 scientific and technological parks, and 20 business foundation parks for returning students, has greatly contributed to the development of hi-tech SMEs in China. Not surprisingly, China's exports of software and other business services have begun to grow at an unprecedented speed. Software exports are expected to catch up with India's in four years, with the growing integration of South Asia's information markets, says a Gartner Asia-Pacific report.

The report says that exports of software and application services of the more than 6,000 Chinese software companies will grow from $850 million to $27 billion by 2006, with an average annual growth rate of 620 per cent.

The explosive growth of China's software and IT service exports is inseparable from Indian software businesses, since India-related companies contribute up to 40 per cent of China's total exports in the software and IT service industry. Though China has double the number of companies that India does, their exports totalled only $850 million in 2001, compared with $6.2 billion by their Indian counterparts.

Telecom
Telecom is booming in China —- from fixed-line to Internet services — it boasts more subscribers for cable television (100 million) and mobile phones (206 million at end-2002) than the US. The country had more than 214 million fixed-line users at end-2002, and 52.5 million subscribers to Internet services at end-2002 (up from 9 million at end-2000).

Notwithstanding this, mobile and fixed-line penetration rates — around 20 subscribers per 100 people — are still so low. The government estimates that the number of fixed-line and mobile phone users will exceed 600 million by 2005.

Trade
China accounts for more than 6 per cent of world trade, remarkable for a developing economy. It has seen a very strong import growth, both for processing trade and for domestic consumption, particularly in the electrical machinery sector.

A lot of investment has gone into the construction, steel and cement industries. This has very important implications for Asia's regional economies, as well as other economies with which China is fast developing very strong trade linkages. Apart from the benefits it is getting through increased trade integration, its increasing export orientation has been matched by a mounting import push. In effect, this means that China has become a very important conduit for trade from Asia to the rest of the world.

While things look very good at present, with rapid growth rates and rising exports, it faces several challenges. To curb over-investment, China's central bank has raised interest rates for the first time in nine years and this could slow the economy too sharply.

Also, more flexibility in the foreign exchange markets is likely to cause the Chinese renminbi to appreciate.

Moreover, the country's 150 million underemployed peasants and 10 to 11 million surplus workers in state enterprises need jobs. The lack of a good social safety net may make things very difficult for deprived sections to deal with the transition.

Uploaded on March 29, 2006