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• Overview: 
Beginning in late 1978 the Chinese leadership has been trying to move the economy from the sluggish Soviet-style centrally planned economy to a more productive and flexible economy with market elements, but still within the framework of monolithic Communist control. To this end the authorities switched to a system of household responsibility in agriculture in place of the old collectivization, increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprise in services and light manufacturing, and opened the economy to increased foreign trade and investment. The result has been a strong surge in production, particularly in agriculture in the early 1980s. Industry also has posted major gains, especially in coastal areas near Hong Kong and opposite Taiwan, where foreign investment and modern production methods have helped spur production of both domestic and export goods. Aggregate output has more than doubled since 1978. On the darker side, the leadership has often experienced in its hybrid system the worst results of socialism (bureaucracy, lassitude, corruption) and of capitalism (windfall gains and stepped-up inflation). Beijing thus has periodically backtracked, retightening central controls at intervals. In 1992-94 annual growth of GDP accelerated, particularly in the coastal areas - to more than 10% annually according to official claims. In late 1993 China's leadership approved additional long-term reforms aimed at giving more play to market-oriented institutions and at strengthening the center's control over the financial system. In 1994 strong growth continued in the widening market-oriented areas of the economy. At the same time, the government struggled to (a) collect revenues due from provinces, businesses, and individuals; (b) keep inflation within bounds; (c) reduce extortion and other economic crimes; and (d) keep afloat the large state-owned enterprises, most of which had not participated in the vigorous expansion of the economy. From 60 to 100 million surplus rural workers are adrift between the villages and the cities, many barely subsisting through part-time low-pay jobs. Popular resistance, changes in central policy, and loss of authority by rural cadres have weakened China's population control program, which is essential to the nation's long-term economic viability. One of the most dangerous long-term threats to continued rapid economic growth is the deterioration in the environment, notably air pollution, soil erosion, and the steady fall of the water table especially in the north. 

Agriculture 

Most of China's labor force is engaged in agriculture, even though only 10% of the land is suitable for cultivation. Virtually all arable land is used for food crops, and China is among the world's largest producers of rice, potatoes, sorghum, millet, barley, peanuts, tea, and pork. Major non-food crops, including cotton, other fibers, and oil seeds, furnish China with a large proportion of its foreign trade revenue. Agricultural exports, such as vegetables and fruits, fish and shellfish, grain and grain products, and meat and meat products, are exported to Hong Kong. Yields are high because of intensive cultivation, but China hopes to further increase agricultural production through improved plant stocks, fertilizers, and technology. 

Industry 

Major state industries are iron, steel, coal, machine building, light industrial products, armaments, and textiles. These industries completed a decade of reform (1979-89) with little substantial management change. The 1996 industrial census revealed that there were 7,342,000 industrial enterprises at the end of 1995; total employment in industrial enterprises was approximately 147 million. The automobile industry is expected to grow rapidly, as is electric power generation. Machinery and electronic products have become China's main exports. 

Economic Reforms 

Since 1979, China has been engaged in an effort to reform its economy. The Chinese leadership has adopted a pragmatic perspective on many political and socioeconomic problems, and has sharply reduced the role of ideology in economic policy. Consumer welfare, economic productivity, and political stability are considered indivisible. The government has emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government has also focused on foreign trade as a major vehicle for economic growth. 

In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits. China pursued agricultural reforms, dismantling the commune system and introducing the household responsibility system that provided peasants greater decision-making in agricultural activities. The government also encouraged non-agricultural activities such as village enterprises in rural areas, and promoted more self-management for state-owned enterprises, increased competition in the marketplace, and facilitated direct contact between Chinese and foreign trading enterprises. China also relied more upon foreign financing and imports. 

During the 1980s, these reforms led to average annual rates of growth of 10% in agricultural and industrial output. Rural per capita real income doubled. China became self-sufficient in grain production; rural industries accounted for 23% of agricultural output, helping absorb surplus labor in the countryside. The variety of light industrial and consumer goods increased. Reforms began in the fiscal, financial, banking, price setting, and labor systems. 

However, by the late 1980s, the economy had become overheated with increasing rates of inflation. At the end of 1988, in reaction to a surge of inflation caused by accelerated price reforms, the leadership introduced an austerity program. 

China's economy regained momentum in the early 1990s. Deng Xiaoping's Chinese New Year's visit to southern China in 1992 gave economic reforms new impetus. The 14th Party Congress later in the year backed up Deng's renewed push for market reforms, stating that China's key task in the 1990s was to create a "socialist market economy." Continuity in the political system but bolder reform in the economic system were announced as the hallmarks of the 10-year development plan for the 1990s. 

During 1993, output and prices were accelerating, investment outside the state budget was soaring, and economic expansion was fueled by the introduction of more than 2,000 special economic zones (SEZs) and the influx of foreign capital that the SEZs facilitated. Fearing hyperinflation, Chinese authorities called in speculative loans, raised interest rates, and re-evaluated investment projects. The growth rate was thus tempered, and the inflation rate dropped from over 17% in 1995 to 8% in early 1996. By early 1997, the Chinese economy was growing at a rate of 9.5%, accompanied by low inflation. 

Despite China's impressive economic development during the past two decades, reforming the state sector remains a major hurdle. Over half of China's state-owned enterprises are inefficient and reporting losses. During the 15th National Congress of the Chinese Communist Party that met in September 1997, President Jiang Zemin announced plans to sell, merge, or close the vast majority of SOEs in his call for increased "public ownership" (privatization in euphemistic terms). The 9th National People's Congress endorsed the plans at its March 1998 session. 

Energy and Mineral Resources 

The Chinese have high energy needs but limited capital. As in other sectors of the state-owned economy, the energy sector suffers from low utilization and inefficiencies in production, transport, conversion, and consumption. Other problems include declining real prices, rising taxes and production costs, spiraling losses, high debt burden, insufficient investment, low productivity, poor management structure, environmental pollution, and inadequate technological development. Demand for energy has risen steadily in response to the rapid expansion of the economy over the last 10 years. In order to keep pace with demand, China seeks to increase electric generating capacity to a target level of 290 gigawatts by 2000. An estimated 15,000 megawatts of generating capacity will be added each year, at an annual cost of about $15 billion. China has imported new power plants from the West to increase its generation capacity, and these units account for approximately 20% of total generating capacity. 

Environment 

A harmful by-product of China's rapid industrial development in the 1980s has been increased pollution. Although China has passed environmental legislation and has participated in some international anti-pollution conventions, pollution will be a serious problem in China for years to come. 

China is an active participant in the UN Environment Program and a signatory to the Basel Convention governing the transport and disposal of hazardous waste. China also signed the Montreal Convention for the Protection of the Ozone Layer in 1991. 

The head of China's National Environmental Protection Agency (NEPA) proclaimed in 1991 that environmental protection was one of China's basic national policies, at the same time cautioning that environmental protection must be coordinated with economic development. According to NEPA, $3.2 billion was spent on pollution prevention and environmental rehabilitation from 1981-85, $8.8 billion from 1986-1990, and about $15 billion for the eighth five-year plan (1991-95). The National Action Program for Environmental Publicity and Education, announced at the Fifth Plenary Session of the 14th Central Committee in 1992, seeks to "do a better job of publicity and education in environmental protection and enhance the environmental consciousness of the entire nation." 

China has sought to contain its increasing industrial pollution largely through administrative procedures and efforts to increase public awareness. The heavily polluted Pearl River delta is one of the first major industrialized areas targeted for clean-up. Officials hope that new sewage treatment plants for cities in the delta area will enable the river to support an edible fish population by the year 2000. A small environmental protection industry has also emerged. However, in some areas of China, pollution has long been considered as one of the costs associated with economic development. 

The question of environmental damage associated with the hydroelectric Three Gorges Dam project concerns NEPA officials. While conceding that erosion and silting of the Yangtze River threaten several endangered species, officials say the hydroelectric power generated by the project will enable the region to lower its dependence on coal, thus lessening air pollution. 

In March 1998, NEPA was officially upgraded to a ministry-level agency, and renamed the State Environment Protection Agency, reflecting the growing importance the Chinese government places on environmental protection. At this point, however, even SEPA recognizes that the environmental situation in China is grim and that increasing water and air pollution, as well as deforestation and desertification, will threaten the base of China's economic development. 

Science and Technology 

At the end of 1996, China had 5,434 state-owned independent research and development institutions at and above the county level. There were another 3,400 research institutions affiliated with universities, 13,744 affiliated with medium and large industrial enterprises, and 726 affiliated with medium and large construction enterprises. A total of 2.8 million people were engaged in scientific and technological activities in these institutions. 

Scientific and technological modernization has been a growing priority for Chinese leaders. They aim to achieve 1980s Western levels by the year 2000 by rebuilding the educational structure, sending students abroad, negotiating technological purchases and transfer arrangements with the U.S. and others, and by developing ways to disseminate scientific and technological information. Areas of most critical interest include microelectronics, telecommunications, computers, automated manufacturing, and energy. China also has had a space program since the 1960s and has successfully launched 27 satellites. One particularly effective program plans to reinvest military resources in the civilian sector and emphasizes bio-space information, laser and automation technology, and research in energy and advanced materials. 

Although China has been funding its ambitious science programs at a rate slightly higher than that accorded other priority programs, the amount spent is still not commensurate with need. Consequently, the Chinese are encouraging local industrial entities to finance and support research groups; they also have sought to encourage foreign investors to pump money and technology into joint equity and cooperative ventures. China has made rapid progress in some areas and is starting to accept that it does not always need state-of-the-art technology, since a lesser technology may prove to be more appropriate, useful, and profitable. 

The U.S. has continued to extend the Agreement on Cooperation in Science and Technology (originally signed in 1979). A five-year agreement to extend and amend the accord, including provisions for the protection of intellectual property rights, was signed in May 1991, and the Agreement was again extended for five years in April 1996. There are currently over 30 active protocols under the Agreement, leading to cooperation in areas such as marine conservation, high energy physics, renewable energy, and health. Japan has also continued to increase science and technology cooperation with China. 

Trade and Investment 

China's current leadership has recognized that foreign trade and technology play critical roles in the country's modernization and has promulgated measures to improve the investment climate. 

China has experimented with decentralizing its foreign trading system and has sought to integrate itself into the world trading system. In November 1991, China joined the Asia Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation in economic, trade, investment, and technology issues. 

China is now in its 11th year of negotiations for accession to the World Trade Organization (WTO)--formerly the General Agreement on Tariffs and Trade (GATT). China has significantly reduced import tariffs. In 1996, China introduced cuts to more than 4,000 tariff lines, reducing average tariffs from 35% to 23%; further tariff cuts that took effect October 1, 1997 decreased average tariffs to 17%. 

To gain WTO entry, all prospective WTO members are required to comply with certain fundamental trading disciplines and offer substantially expanded market access to other members of the organization. Many major trading entities--among them the United States, the European Union, and Japan--have shared concerns with respect to China's accession. These concerns include obtaining satisfactory market access offers for both goods and services, full trading rights for all potential Chinese consumers and end-users, nondiscrimination between foreign and local commercial operations in China, the reduction of monopolistic state trading practices, and the elimination of arbitrary or non-scientific technical standards. The United States continues to work with China and other WTO members to achieve a commercially viable accession protocol. 

According to preliminary Chinese statistics, China's global trade totaled $325 billion in 1997; the trade surplus stood at $40.0 billion. China's primary trading partners include Japan, Taiwan, the U.S., South Korea, Hong Kong, Germany, Singapore, Russia, and the Netherlands. In 1997, according to U.S. statistics, China had a trade surplus with the U.S. of $49.7 billion. 

To increase exports, China has pursued policies such as fostering the rapid development of foreign-invested factories which assemble imported components into consumer goods for export. 

The U.S. is one of China's primary suppliers of power generating equipment, aircraft and parts, computers and industrial machinery, raw materials, and chemical and agricultural products. However, U.S. exporters continue to have concerns about fair market access due to China's restrictive trade policies. 

Foreign Investment 

Foreign investment stalled in late 1989 in the aftermath of Tiananmen. In response, the government introduced legislation and regulations designed to encourage foreigners to invest in high-priority sectors and regions. 

In 1990, the government eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, and allowed foreign partners to become chairs of joint venture boards. In 1991, China granted more preferential tax treatment for wholly foreign-owned businesses and contractual ventures and for foreign companies which invest in selected economic zones or in projects encouraged by the state, such as energy, communications, and transportation. It also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges. These "B" shares are sold to foreigners but carry no ownership rights in a company. In 1996, China approved 24,673 foreign investment projects and received over $42 billion in foreign direct investment, second only to the United States. 

Opening to the outside remains central to China's development. Foreign-invested enterprises produce about 40% of China's exports, and China continues to attract large investment inflows. Foreign exchange reserves total about $140 billion. 

 
• National product: 
GDP - purchasing power parity - $890 billion (1997 est.) 
 
• National product real growth rate: 
8.8% (1997 est.) 
 
• National product per capita: 
$700 (1997 est.) 
 
• Inflation rate (consumer prices): 
25.5% (1997 est.)  
 
• Unemployment rate: 
2.7% in urban areas (1997); substantial underemployment 
 
• Exports: 
$121 billion (f.o.b., 1997) 
 
commodities: 
textiles, garments, footwear, toys, machinery and equipment, weapon systems 
 
partners: 
Hong Kong, Japan, US, Germany, South Korea, Russia (1993) 
 
• Imports: 
$115.7 billion (c.i.f., 1997) 
 
commodities: 
rolled steel, motor vehicles, textile machinery, oil products, aircraft 
 
partners: 
Japan, Taiwan, US, Hong Kong, Germany, South Korea ( 
 
• External debt: 
$100 billion (1997 est.) 
 
• Industrial production: 
growth rate 17.5% (1997 est.) 
 
• Electricity: 
 
capacity: 
162,000,000 kW 
 
production: 
746 billion kWh 
 
consumption per capita: 
593 kWh (1993) 
 
• Industries: 
iron and steel, coal, machine building, armaments, textiles and apparel, petroleum, cement, chemical fertilizers, consumer durables, food processing, autos, consumer electronics, telecommunications 
 
• Agriculture: 
accounts for almost 30% of GDP; among the world's largest producers of rice, potatoes, sorghum, peanuts, tea, millet, barley, and pork; commercial crops include cotton, other fibers, and oilseeds; produces variety of livestock products; basically self-sufficient in food; fish catch of 13.35 million metric tons (including fresh water and pond raised) (1991) 
 
• Illicit drugs: 
illicit producer of opium; bulk of production is in Yunnan Province (which produced 25 metric tons in 1994); transshipment point for heroin produced in the Golden Triangle 
 
• Economic aid: 
 
donor: 
to less developed countries (1970-89) $7 billion 
 
recipient: 
US commitments, including Ex-Im (FY70-87), $220.7 million; Western (non-US) countries, ODA and OOF bilateral commitments (1970-87), $13.5 billion 
 
• Currency: 
1 yuan (Y) = 10 jiao 
 
• Exchange rates: 
yuan (Y) per US$1 - 8.4413 (January 1995), 8.6187 (1994), 5.7620 (1993), 5.5146 (1992), 5.3234 (1991), 4.7832 (1990) 
 
note: 
beginning 1 January 1994, the People's Bank of China quotes the midpoint rate against the US dollar based on the previous day's prevailing rate in the interbank foreign exchange market 
 
• Fiscal year: 
calendar year