Economy of China

GDP by Administrative Division

There are 33 administrative divisions in China. Below are the top administrative divisions in China ranked by GDP in 2017,^[58] as GDP was converted from CNY to USD using a FX rate of 6.7518 CNY/USD.^[59]

Hong Kong and Macau

In accordance with the One Country, Two Systems policy, the economies of the former British colony of Hong Kong and Portuguese colony of Macau are separate from the rest of China and each other. Both Hong Kong and Macau are free to conduct and engage in economic negotiations with foreign countries, as well as participating as full members in various international economic organizations such as the World Customs Organization, the World Trade Organization and the Asia-Pacific Economic Cooperation forum, often under the names "Hong Kong, China" and "Macau, China".

See also: Closer Economic Partnership Arrangement (disambiguation) with Hong Kong and Macau.

Issues with overclaiming

Chinese provinces and cities have long been suspected of cooking up numbers, with the focus on local government officials, whose performance are often assessed based on how well their respective economies have performed.^[63] In recent years, China claimed growth numbers come under scrutiny, with both non-Chinese financial and economic observers as well as Chinese government officials claiming the government has been inflating its economic output.^[64][65][66] Instances of overclaiming officially came to light when:

• Binhai New Area in the northern Chinese city of Tianjin. Tianjin's trillion yuan GDP claim for 2016, was in fact a third lower, at 665 billion yuan ($103 billion).
• Inner Mongolia’s government also stated, that about 40% of the region’s reported industrial output in 2016, as well as 26% of reported fiscal revenues, did not exist.
• The provincial government in Liaoning publicly admitted that the government has been cooking the books when publishing it's economic data from 2011 to 2014. Liaoning, frequently called China's rust belt, admitted in 2017, that local GDP numbers from 2011 to 2014 had been inflated artificially by about 20%.

Regarding the credibility, a team of Bloomberg economists wrote "We don't have total confidence in the numbers, and we are surprised by the acceleration in services output given the collapse in the equity market,". A Wall Street Journal survey of 64 select economists found that 96% of respondents think China's GDP estimates don't "accurately reflect the state of the Chinese economy."^[67] According to some analysts, chinese officials likely "overstate GDP by about 2 to 3 percentage points,".^[68] China's own premier has previously said he's far from confident in the country's GDP estimates, calling them "man-made" and unreliable, according to a leaked document from 2007 obtained by WikiLeaks. He said government data releases, especially the GDP numbers, should be used "for reference only."^[69]

Analyst Gary Shilling suggests that China's official figures are off by as much as 50%; he estimates an actual growth rate of 3.5% rather than 7%. Other analysts like Wilbur Ross and Donald Straszheim agree with this assessment, and estimate a growth rate at around 4% or less. Donald Straszheim even went as far to say that growth rates in what he describes as old China are as low as 0%, while explaining that the "new" China of services and consumer spending is tough to measure in the absence of robust data from the private sector.^[70]

Regional development

		The East Coast (w/ existing development programmes)
		"Rise of Central China"
		"Revitalize Northeast China"
		"China Western Development"

These strategies are aimed at the relatively poorer regions in China in an attempt to prevent widening inequalities:

• China Western Development, designed to increase the economic situation of the western provinces through capital investment and development of natural resources.
• Revitalize Northeast China, to rejuvenate the industrial bases in Northeast China. It covers the three provinces of Heilongjiang, Jilin, and Liaoning, as well as the five eastern prefectures of Inner Mongolia.
• Rise of Central China Plan, to accelerate the development of its central regions. It covers six provinces: Shanxi, Henan, Anhui, Hubei, Hunan, and Jiangxi.
• Third Front, focused on the southwestern provinces.

Foreign investment abroad:

• Go Global, to encourage its enterprises to invest overseas.

Key national projects

The "West-to-East Electricity Transmission", the "West-to-East Gas Transmission", and the "South–North Water Transfer Project" are the government's three key strategic projects, aimed at realigning overall of 12 billion cu m per year. Construction of the "South-to-North Water Diversion" project was officially launched on 27 December 2002 and completion of Phase I is scheduled for 2010; this will relieve serious water shortfall in northern China and realize a rational distribution of the water resources of the Yangtze, Yellow, Huaihe, and Haihe river valleys.

Systemic issues and environment

Over the years, large subsidies were built into the price structure of certain commodities and these subsidies grew substantially in the late 1970s and 1980s.^[78]

By 2010, rapidly rising wages and a general increase in the standard of living had put increased energy use on a collision course with the need to reduce carbon emissions in order to control global warming. There were diligent efforts to increase energy efficiency and increase use of renewable sources; over 1,000 inefficient power plants had been closed, but projections continued to show a dramatic rise in carbon emissions from burning fossil fuels.^[79]

National debt

The International Monetary Fund, the Federal Reserve Bank of St. Louis^[80] and other sources, such as the Article IV Consultation Reports,^[81] state that, at the end of 2014, the "general government gross debt"-to-GDP ratio for China was 41.44 percent.^[82] With China's 2014 GDP being US$ 10,356.508 billion,^[82][83] this makes the government debt of China approximately US$ 4.3 trillion.

By the mid-2010s, many analysts have expressed concern over the overall "size" of the Chinese government debt.^{[84][85][86][87]}

A 2015 International Monetary Fund report concluded that China's public debt is relatively low "and on a stable path in all standard stress tests except for the scenario with contingent liability shocks", such as "a large-scale bank recapitalization or financial system bailout to deal, for example, with a potential rise in NPLs from deleveraging".^[88]

"Shadow banking" has risen in China, posing risks to the financial system.^[89][90]

Chinese authorities have dismissed analysts' worries, insisting "the country still has room to increase government debt."^[91] Former Fed Chairman Ben Bernanke, earlier in 2016, commented that "the ... debt pile facing China [is] an 'internal' problem, given the majority of the borrowings was issued in local currency.^[92] Many economists have expressed the same views as Bernanke.^[93]

Regulatory environment and tax system

Though China's economy has expanded rapidly, its regulatory environment has not kept pace. Since Deng Xiaoping's open market reforms, the growth of new businesses has outpaced the government's ability to regulate them. This has created a situation where businesses, faced with mounting competition and poor oversight, take drastic measures to increase profit margins, often at the expense of consumer safety. This issue became more prominent in 2007, with a number of restrictions being placed on problematic Chinese exports by the United States.^[94]

From the 1950s to the 1980s, the central government's revenues derived chiefly from the profits of the state enterprises, which were remitted to the state. Some government revenues also came from taxes, of which the most important was the general industrial and commercial tax.

The trend, however, has been for remitted profits of the state enterprises to be replaced with taxes on those profits. Initially, this tax system was adjusted so as to allow for differences in the market capitalization and pricing situations of various firms, but more-uniform tax schedules were introduced in the early 1990s. In addition, personal income and value-added taxes were implemented at that time.

Inflation

Consumer price inflation in China^[1]

During the winter of 2007–2008, inflation ran about 7% on an annual basis, rising to 8.7% in statistics for February 2008, released in March 2008.^[95][96][97]

Shortages of gasoline and diesel fuel developed in the fall of 2007 due to reluctance of refineries to produce fuel at low prices set by the state. These prices were slightly increased in November 2007 with fuel selling for $2.65 a gallon, still slightly below world prices. Price controls were in effect on numerous basic products and services, but were ineffective with food, prices of which were rising at an annual rate of 18.2% in November 2007.^[98][99] The problem of inflation has caused concern at the highest levels of the Chinese government. On 9 January 2008, the government of China issued the following statement on its official website: "The Chinese government decided on Wednesday to take further measures to stabilize market prices and increase the severity of punishments for those guilty of driving up prices through hoarding or cheating."^[100][101]

Pork is an important part of the Chinese economy with a per capita consumption of a fifth of a pound per day. The worldwide rise in the price of animal feed associated with increased production of ethanol from corn resulted in steep rises in pork prices in China in 2007. Increased cost of production interacted badly with increased demand resulting from rapidly rising wages. The state responded by subsidizing pork prices for students and the urban poor and called for increased production. Release of pork from the nation's strategic pork reserve was considered.^[102]

By January 2008, the inflation rate rose to 7.1%, which BBC News described as the highest inflation rate since 1997, due to the winter storms that month.^[103] China's inflation rate jumped to a new decade high of 8.7 percent in February 2008 after severe winter storms disrupted the economy and worsened food shortages, the government said 11 March 2008.^[104] Throughout the summer and fall, however, inflation fell again to a low of 6.6% in October 2008.^[105]

By November 2010, the inflation rate rose up to 5.1%, driven by an 11.7% increase in food prices year on year. According to the bureau, industrial output went up 13.3 percent. As supplies have run short, prices for fuel and other commodities have risen.^[106]

Investment cycles

Chinese investment has always been highly cyclical.^[107] Ever since the 1958 Great Leap Forward, growth in fixed capital formation has typically peaked about every five years. Recent peaks occurred in 1978, 1984, 1988, 1993, 2003 and 2009. The corresponding troughs were in 1981, 1986, 1989, 1997 and 2005.

In China, the majority of investment is carried out by entities that are at least partially state-owned. Most of these are under the control of local governments. Thus booms are primarily the result of perverse incentives at the local-government level.^[108] Unlike entrepreneurs in a free-enterprise economy, Chinese local officials are motivated primarily by political considerations. As their performance evaluations are based, to a large extent, on GDP growth within their jurisdictions, they have a strong incentive to promote large-scale investment projects.^[109][110] They also don’t face any real bankruptcy risk. When localities get into trouble, they are invariably bailed out by state-owned banks. Under these circumstances, overinvestment is inevitable.

A typical cycle begins with a relaxation of central government credit and industrial policy. This allows local governments to push investment aggressively, both through state-sector entities they control directly and by offering investment-promotion incentives to private investors and enterprises outside their jurisdictions.^[111] The resulting boom puts upward pressure on prices and may also result in shortages of key inputs such as coal and electricity (as was the case in 2003).^[112] Once inflation has risen to a level at which it begins to threaten social stability, the central government will intervene by tightening enforcement of industrial and credit policy. Projects that went ahead without required approvals will be halted. Bank lending to particular types of investors will be restricted. Credit then becomes tight and investment growth begins to decline.^[113]

Eventually such centrally-imposed busts alleviate shortages and bring inflation down to acceptable levels. At that point, the central government yields to local-government demands for looser policy and the cycle begins again.

Stock markets

See 2015 Chinese stock market crash for current events

Cartoon that sometimes accompanied reprints of the People's Daily commentary published 21 April 2015 touting the Chinese bull market, "What's a bubble? Tulips and Bitcoins are bubbles"^[122]

As of 2014 and the first quarter of 2015 the financial industry had been providing about 1.5% of China's 7% annual growth rate.^[123]

Despite slowing of the economy, as of June 2015 the Chinese stock index, the CSI 300 Index, which is based on 300 stocks traded in the Shanghai and Shenzhen stock exchanges, had risen nearly 150% over the past 12 months. In an effort to forestall damage from collapse of a possible economic bubble fueled by margin trading the central government raised requirements for margin lending. Economic damage from a crash in 2007-2008 was limited due to margin lending being highly restricted.^[124] In early July, after a fall in the markets of nearly 30% from their 12 June highs, there were efforts by blue-chip, often state-owned, firms, the Chinese securities industry, and the central government to stabilize the market by buying back stock and increasing purchases of the stock of established firms; however, much of the volatility has been in smaller, less-established firms that had been heavily invested in by unsophisticated, often working class, investors who had purchased stock based solely on its rapid increase in valuation.^[125] 80% of Chinese stocks are owned by individual investors, many novices.^[126] As of 10 July 2015 efforts by the China Securities Finance Corporation, CFS, a firm created by China's commodities and stock exchanges to finance trades,^[127] had apparently stabilized the market.^[128][129] Major Chinese securities firms were required by the China Securities Regulatory Commission to buy, and hold, a substantial amount of securities affected by the downturn. Using funds supplied by the central bank and commercial banks the China Securities Finance Corporation purchased enough stocks to halt the slide acquiring as much as 5% of the stock in some firms. Lines of credit were extended by CFS to 21 securities firms, some of which also purchased up to 5% of some companies stocks. Some of the small cap stocks acquired may be overvalued.^[127][130]

Chinese stocks fell about 10% during the last week of July 2015 with record breaking losses on Monday.^[131]

Currency system

1 RMB to U.S. dollar since 1981

The renminbi ("people's currency") is the currency of China, denominated as the yuan, subdivided into 10 jiao or 100 fen. The renminbi is issued by the People's Bank of China, the monetary authority of China. The ISO 4217 abbreviation is CNY, although also commonly abbreviated as "RMB". As of 2005 the yuan was generally considered by outside observers to be undervalued by about 30-40%.^[132][133] However the IMF stated that the yuan is now correctly valued.^[134]

The renminbi is held in a floating exchange-rate system managed primarily against the US dollar. On 21 July 2005, China revalued its currency by 2.1% against the US dollar and, since then has moved to an exchange rate system that references a basket of currencies and has allowed the renminbi to fluctuate at a daily rate of up to half a percent.

The rate of exchange (Chinese yuan per US$1) on 31 July 2008, was RMB 6.846, in mid-2007 was RMB 7.45, while in early 2006 was RMB 8.07:US $1=8.2793 yuan (January 2000), 8.2783 (1999), 8.2790 (1998), 8.2898 (1997), 8.3142 (1996), 8.3514 (1995).

There is a complex relationship between China's balance of trade, inflation, measured by the consumer price index and the value of its currency. Despite allowing the value of the yuan to "float", China's central bank has decisive ability to control its value with relationship to other currencies. Inflation in 2007, reflecting sharply rising prices for meat and fuel, is probably related to the worldwide rise in commodities used as animal feed or as fuel. Thus rapid rises in the value of the yuan permitted in December 2007 are possibly related to efforts to mitigate inflation by permitting the renminbi to be worth more.^[135] An article published in International Review of Economics & Finance in 2010 by Mete Feridun (University of Greenwich Business School) and his colleagues provide empirical evidence that financial development fosters economic growth in China.^[121]

During the week of 10 August 2015, against the background of a slowing Chinese economy and appreciation of the U.S. dollar, the People's Bank of China devalued the renminbi by about 5%.^[136] The devaluation was accomplished by pegging the official rate to closing market rates. A market-based "representative" exchange rate against the U.S. dollar is one of the requirements for designation of a currency as one with Special Drawing Rights (SDR) by the International Monetary Fund (IMF), one of China's goals.^[137] Since the late-2000s, China has sought to internationalize the renminbi. As of 2013, the RMB is the 8th most widely traded currency in the world.^[138] In November 2015 in advance of G-20 and IMF meetings, IMF director Christine Lagarde announced her support for adding the yuan to the SDR currency basket. The announcement gave 'green-light' to official approval at the 30 November IMF meeting.^[139]

Agriculture

Peanut harvest in Jiangxia District, Hubei

China is the world's largest producer and consumer of agricultural products – and some 300 million Chinese farm workers are in the industry, mostly laboring on pieces of land about the size of U.S farms. Virtually all arable land is used for food crops. China is the world's largest producer of rice and is among the principal sources of wheat, corn (maize), tobacco, soybeans, potatoes, sorghum, peanuts, tea, millet, barley, oilseed, pork, and fish. Major non-food crops, including cotton, other fibers, and oilseeds, furnish China with a small proportion of its foreign trade revenue. Agricultural exports, such as vegetables and fruits, fish and shellfish, grain and meat products, are exported to Hong Kong. Yields are high because of intensive cultivation, for example, China's cropland area is only 75% of the U.S. total, but China still produces about 30% more crops and livestock than the United States. China hopes to further increase agricultural production through improved plant stocks, fertilizers, and technology.

According to the government statistics issued in 2005,^[140] after a drop in the yield of farm crops in 2000, output has been increasing annually.

Production of wheat from 1961 to 2004 (data from FAO in 2005, y-axis: production in metric tons)

According to the United Nations World Food Program, in 2003, China fed 20 percent of the world's population with only 7 percent of the world's arable land.^[141] China ranks first worldwide in farm output, and, as a result of topographic and climatic factors, only about 10–15 percent of the total land area is suitable for cultivation. Of this, slightly more than half is unirrigated, and the remainder is divided roughly equally between paddy fields and irrigated areas. Nevertheless, about 60 percent of the population lives in the rural areas, and until the 1980s a high percentage of them made their living directly from farming. Since then, many have been encouraged to leave the fields and pursue other activities, such as light manufacturing, commerce, and transportation; and by the mid-1980s farming accounted for less than half of the value of rural output. Today, agriculture contributes only 13% of China's GDP.

Animal husbandry constitutes the second most important component of agricultural production. China is the world's leading producer of pigs, chickens, and eggs, and it also has sizable herds of sheep and cattle. Since the mid-1970s, greater emphasis has been placed on increasing the livestock output. China has a long tradition of ocean and freshwater fishing and of aquaculture. Pond raising has always been important and has been increasingly emphasized to supplement coastal and inland fisheries threatened by overfishing and to provide such valuable export commodities as prawns.

Timber transported from a woodlot in the hills of Zhangpu County, Fujian

Environmental problems such as floods, drought, and erosion pose serious threats to farming in many parts of the country. The wholesale destruction of forests gave way to an energetic reforestation program that proved inadequate, and forest resources are still fairly meagre.^[142] The principal forests are found in the Qin Mountains and the central mountains and on the Sichuan–Yunnan plateau. Because they are inaccessible, the Qinling forests are not worked extensively, and much of the country's timber comes from Heilongjiang, Jilin, Sichuan, and Yunnan.

Western China, comprising Tibet, Xinjiang, and Qinghai, has little agricultural significance except for areas of floriculture and cattle raising. Rice, China's most important crop, is dominant in the southern provinces and many of the farms here yield two harvests a year. In the north, wheat is of the greatest importance, while in central China wheat and rice vie with each other for the top place. Millet and kaoliang (a variety of grain sorghum) are grown mainly in the northeast and some central provinces, which, together with some northern areas, also provide considerable quantities of barley. Most of the soybean crop is derived from the north and the northeast; corn (maize) is grown in the center and the north, while tea comes mainly from the warm and humid hilly areas of the south. Cotton is grown extensively in the central provinces, but it is also found to a lesser extent in the southeast and in the north. Tobacco comes from the center and parts of the south. Other important crops are potatoes, sugar beets, and oilseeds.

Fish ponds near Daye, Hubei

In the past decade, the government has been encouraging agricultural mechanization and land consolidation to raise yields and compensate for the loss of rural workers who have migrated to the cities.^[143] According to the most recent statistics by the UN Food and Agriculture Organization, the annual growth rate of agricultural mechanization in China is 6.38 percent. By 2014, the integrated mechanization rate had risen to nearly 60 percent, with the rate for wheat surpassing 90 percent and that for maize approaching 80 percent.^[144] In addition to standard agricultural equipment like tractors, China's agriculture cooperatives have begun using high-tech equipment, including unmanned aerial vehicles, which are used to spay crops with pesticides.^[145] Good progress has been made in increasing water conservancy, and about half the cultivated land is under irrigation.

In the late 1970s and early 1980s, economic reforms were introduced. First of all this began with the shift of farming work to a system of household responsibility and a phasing out of collectivized agriculture. Later this expanded to include a gradual liberalization of price controls; fiscal decentralization; massive privatization of state enterprises, thereby allowing a wide variety of private enterprises in the services and light manufacturing; the foundation of a diversified banking system (but with large amounts of state control); the development of a stock market; and the opening of the economy to increased foreign trade and foreign investment.

Housing and construction

The real estate industry is about 20% of the Chinese economy.^[146]

Energy and mineral resources

Electricity:

• Production: 6.5 trillion kWh (2017)^[147]
• Consumption: 2.8248 trillion kWh (2006)
• Exports: 18.7 billion kwh (2015)^[148]
• Imports: 6.2 billion kwh (2015)^[148]

Electricity – production by source:

This chart shows the Chinese electricity production by source in time^[1]

1. ^ "Electricity Production By Sources".

• Thermal: 70.4 (67.1% from coal) (2017)^[147]
• Hydro: 17.8% (2017)
• Renewables: 7.3% (2017)
• Nuclear: 3.8% (2017)
• Other: 0.7% (2017)

Oil:

• Production: 3,631,000 bbl/d (577,300 m³/d) (2005)
• Consumption: 6,534,000 bbl/d (1,038,800 m³/d) (2005) and expected 9,300,000 bbl/d (1,480,000 m³/d) in 2030
• Exports: 443,300 bbl/d (70,480 m³/d) (2005)
• Imports: 3,181,000 bbl/d (505,700 m³/d) (2005)
• Net imports: 2,740,000 barrels per day (436,000 m³/d) (2005)
• Proved reserves: 16.3 Gbbl (2.59×10^⁹ m³) (1 January 2006)

Natural gas:

• Production: 47.88 km³ (2005 est.)
• Consumption: 44.93 km³ (2005 est.)
• Exports: 2.944 km³ (2005)
• Imports: 0 m³ (2005)
• Proved reserves: 1,448 km³ (1 January 2006 est.)

Since 1980, China's energy production has grown dramatically, as has the proportion allocated to domestic consumption. Some 80 percent of all power is generated from fossil fuel at thermal plants, with about 17 percent at hydroelectric installations; only about two percent is from nuclear energy, mainly from plants located in Guangdong and Zhejiang.^[149] Though China has rich overall energy potential, most have yet to be developed. In addition, the geographical distribution of energy puts most of these resources relatively far from their major industrial users. Basically the northeast is rich in coal and oil, the central part of north China has abundant coal, and the southwest has immense hydroelectric potential. But the industrialized regions around Guangzhou and the Lower Yangtze region around Shanghai have too little energy, while there is relatively little heavy industry located near major energy resource areas other than in the southern part of the northeast.

Due in large part to environmental concerns, China has wanted to shift China's current energy mix from a heavy reliance on coal, which accounts for 70–75% of China's energy, toward greater reliance on oil, natural gas, renewable energy, and nuclear power. China has closed thousands of coal mines over the past five to ten years to cut overproduction. According to Chinese statistics, this has reduced coal production by over 25%.

Since 1993, China has been a net importer of oil, a large portion of which comes from the Middle East. Imported oil accounts for 20% of the processed crude in China. Net imports are expected to rise to 3.5 million barrels (560,000 m³) per day by 2010. China is interested in diversifying the sources of its oil imports and has invested in oil fields around the world. China is developing oil imports from Central Asia and has invested in Kazakhstani oil fields. Beijing also plans to increase China's natural gas production, which currently accounts for only 3% of China's total energy consumption and incorporated a natural gas strategy in its 10th Five-Year Plan (2001–2005), with the goal of expanding gas use from a 2% share of total energy production to 4% by 2005 (gas accounts for 25% of U.S. energy production). Analysts expect China's consumption of natural gas to more than double by 2010.

The 11th Five-Year Program (2006–10), announced in 2005 and approved by the National People's Congress in March 2006, called for greater energy conservation measures, including development of renewable energy sources and increased attention to environmental protection. Guidelines called for a 20% reduction in energy consumption per unit of GDP by 2010. Moving away from coal towards cleaner energy sources including oil, natural gas, renewable energy, and nuclear power is an important component of China's development program. Beijing also intends to continue to improve energy efficiency and promote the use of clean coal technology. China has abundant hydroelectric resources; the Three Gorges Dam, for example, will have a total capacity of 18 gigawatts when fully on-line (projected for 2009). In addition, the share of electricity generated by nuclear power is projected to grow from 1% in 2000 to 5% in 2030. China's renewable energy law, which went into effect in 2006, calls for 10% of its energy to come from renewable energy sources by 2020.

Mining

See also: Gold mining in China

Energy and mineral resources

Outdated mining and ore-processing technologies are being replaced with modern techniques, but China's rapid industrialization requires imports of minerals from abroad. In particular, iron ore imports from Australia and the United States have soared in the early 2000s as steel production rapidly outstripped domestic iron ore production. Also China has become increasingly active in several African countries to mine the reserves it requires for economic growth, particularly in countries such as the Democratic Republic of the Congo and Gabon.

The major areas of production in 2004 were coal (nearly 2 billion tons), iron ore (310 million tons), crude petroleum (175 million tons), natural gas (41 million cubic meters), antimony ore (110,000 tons), tin concentrates (110,000 tons), nickel ore (64,000 tons), tungsten concentrates (67,000 tons), unrefined salt (37 million tons), vanadium (40,000 tons), and molybdenum ore (29,000 tons). In order of magnitude, produced minerals were bauxite, gypsum, barite, magnesite, talc and related minerals, manganese ore, fluorspar, and zinc. In addition, China produced 2,450 tons of silver and 215 tons of gold in 2004. The mining sector accounted for less than 0.9% of total employment in 2002 but produced about 5.3% of total industrial production.

Hydroelectric resources

Three Gorges Dam

China has an abundant potential for hydroelectric power production due to its considerable river network and mountainous terrain. Most of the total hydroelectric capacity is situated in the southwest of the country, where coal supplies are poor but demand for energy is rising swiftly. The potential in the northeast is fairly small, but it was there that the first hydroelectric stations were built—by the Japanese during its occupation of Manchuria.^[150] Due to considerable seasonal fluctuations in rainfall, the flow of rivers tends to drop during the winter, forcing many power stations to operate at less than normal capacity, while in the summer, on the other hand, floods often interfere with generation.

Thirteen years in construction at a cost of $24 billion, the immense Three Gorges Dam across the Yangtze River was essentially completed in 2006 and will revolutionize electrification and flood control in the area.

Coal

Main article: Coal power in the People's Republic of China

Coal mining in Inner Mongolia

China is well endowed with mineral resources,^[151] the most important of which is coal. China's mineral resources include large reserves of coal and iron ore, plus adequate to abundant supplies of nearly all other industrial minerals. Although coal deposits are widely scattered (some coal is found in every province), most of the total is located in the northern part of the country. The province of Shanxi, in fact, is thought to contain about half of the total; other important coal-bearing provinces include Heilongjiang, Liaoning, Jilin, Hebei, and Shandong.^[152] Apart from these northern provinces, significant quantities of coal are present in Sichuan, and there are some deposits of importance in Guangdong, Guangxi, Yunnan, and Guizhou.^[152] A large part of the country's reserves consists of good bituminous coal, but there are also large deposits of lignite. Anthracite is present in several places (especially Liaoning, Guizhou, and Henan), but overall it is not very significant.^[153]

To ensure a more even distribution of coal supplies and to reduce the strain on the less than adequate transportation network, the authorities pressed for the development of a large number of small, locally run mines throughout the country. This campaign was energetically pursued after the 1960s, with the result that thousands of small pits have been established, and they produce more than half the country's coal. This output, however, is typically expensive and is used for local consumption. It has also led to a less than stringent implementation of safety measures in these unregulated mines, which cause several thousands of deaths each year.^[154]

Coal makes up the bulk of China's energy consumption (70% in 2005), and China is the largest producer and consumer of coal in the world. As China's economy continues to grow, China's coal demand is projected to rise significantly. Although coal's share of China's overall energy consumption will decrease, coal consumption will continue to rise in absolute terms. China's continued and increasing reliance on coal as a power source has contributed significantly to putting China on the path to becoming the world's largest emitter of acid rain-causing sulfur dioxide and greenhouse gases, including carbon dioxide.

As of 2015 falling coal prices resulted in layoffs at coal mines in the northeast.^[155]

Oil and natural gas

Main article: Petroleum industry in the People's Republic of China

Chinese oil reserves

China's onshore oil resources are mostly located in the Northeast and in Xinjiang, Gansu, Qinghai, Sichuan, Shandong, and Henan provinces. Oil shale is found in a number of places, especially at Fushun in Liaoning, where the deposits overlie the coal reserves, as well as in Guangdong. High quality light oil has been found in the Pearl River estuary of the South China Sea, the Qaidam Basin in Qinghai, and the Tarim Basin in Xinjiang. The country consumes most of its oil output but does export some crude oil and oil products. China has explored and developed oil deposits in the South China Sea and East China Sea, the Yellow Sea, the Gulf of Tonkin, and the Bohai Sea.

In 2013, the pace of China's economic growth exceeded the domestic oil capacity and floods damaged the nation's oil fields in the middle of the year. Consequently, China imported oil to compensate for the supply reduction and surpassed the US in September 2013 to become the world's largest importer of oil.^[156]

The total extent of China's natural gas reserves is unknown, as relatively little exploration for natural gas has been done.^[157] Sichuan accounts for almost half of the known natural gas reserves and production.^[158] Most of the rest of China's natural gas is associated gas produced in the Northeast's major oil fields, especially Daqing oilfield. Other gas deposits have been found in the Qaidam Basin, Hebei, Jiangsu, Shanghai, and Zhejiang, and offshore to the southwest of Hainan Island.^[159] According to an article published in Energy Economics in 2011 by economists Mete Feridun (University of Greenwich) and Abdul Jalil (Wuhan University in China), financial development in China has not taken place at the expense of environmental pollution and financial development has led to a decrease in environmental pollution. Authors conclude that carbon emissions are mainly determined by income, energy consumption and trade openness and their findings confirm the existence of an Environmental Kuznets Curve in the case of China.^[160]

Industry and manufacturing

China Railway HXD1B Manufacturing Company

Factory near Yangtze River

Industry and construction account for 46.8^[162]% of China's GDP. Between the years 2011 and 2013, China used more cement than the United States consumed during the entire 20th century.^[163] In 2009 around 8% of the total manufacturing output in the world came from China itself and China ranked third worldwide in industrial output that year (first was EU and second United States). Research by IHS Global Insight states that in 2010 China contributed to 19.8% of world's manufacturing output and became the largest manufacturer in the world that year, after the US had held that position for about 110 years.^[164][165]

In November 2012 the State Council of the People's Republic of China mandated a "social risk assessment" for all major industrial projects. This requirement followed mass public protests in some locations for planned projects or expansions.^[166]

Major industries include mining and ore processing; iron and steel; aluminium; coal; machinery; armaments; textiles and apparel; petroleum; cement; chemical; fertilizers; food processing; automobiles and other transportation equipment including rail cars and locomotives, ships, and aircraft; consumer products including footwear, toys, and electronics; telecommunications and information technology. China has become a preferred destination for the relocation of global manufacturing facilities. Its strength as an export platform has contributed to incomes and employment in China.

Since the founding of the People's Republic, industrial development has been given considerable attention; as of 2011 46% of China's national output continued to be devoted to investment; a percentage far higher than any other nation.^[167] Among the various industrial branches the machine-building and metallurgical industries have received the highest priority. These two areas alone now account for about 20–30 percent of the total gross value of industrial output.^[168] In these, as in most other areas of industry, however, innovation has generally suffered at the hands of a system that has rewarded increases in gross output rather than improvements in variety, sophistication and quality. China, therefore, still imports significant quantities of specialized steels. Overall industrial output has grown at an average rate of more than 10 percent per year, having surpassed all other sectors in economic growth and degree of modernization.^[169] Some heavy industries and products deemed to be of national strategic importance remain state-owned, but an increasing proportion of lighter and consumer-oriented manufacturing firms are privately held or are private-state joint ventures.

The predominant focus of development in the chemical industry is to expand the output of chemical fertilizers, plastics, and synthetic fibers. The growth of this industry has placed China among the world's leading producers of nitrogenous fertilizers. In the consumer goods sector the main emphasis is on textiles and clothing, which also form an important part of China's exports. Textile manufacturing, a rapidly growing proportion of which consists of synthetics, account for about 10 percent of the gross industrial output and continues to be important, but less so than before. The industry tends to be scattered throughout the country, but there are a number of important textile centers, including Shanghai, Guangzhou, and Harbin.^[170][171]

Automotive industry

Main article: Automotive industry in China

Chinese-made car, Geely GC9

By 2006 China had become the world's third largest automotive vehicle manufacturer (after US and Japan) and the second largest consumer (only after the US). Automobile manufacturing has soared during the reform period. In 1975 only 139,800 automobiles were produced annually, but by 1985 production had reached 443,377, then jumped to nearly 1.1 million by 1992 and increased fairly evenly each year up until 2001, when it reached 2.3 million. In 2002 production rose to nearly 3.25 million and then jumped to 4.44 million in 2003, 5.07 million in 2004, 5.71 million in 2005, 7.28 million in 2006, 8.88 million in 2007, 9.35 million in 2008 and 13.83 million in 2009. China has become the number-one automaker in the world in 2009. Domestic sales have kept pace with production. After respectable annual increases in the mid- and late 1990s, passenger car sales soared in the early 2000s. In 2006, a total of 7.22 million automobiles were sold, including 5.18 million units of passenger cars and 2.04 million units of commercial vehicles.

In 2010, China became the world's largest automotive vehicle manufacturer as well as the largest consumer ahead of the United States with an estimated 18 million new cars sold.^[175] However, new car sales grew only by an estimated 1% between 2011 and 2012 due to the escalation in the Spratly Islands dispute, which involved Japan, the world's third largest producer of vehicles.^[176]

China's automotive industry has been so successful that it began exporting car parts in 1999. China began to plan major moves into the automobile and components export business starting in 2005. A new Honda factory in Guangzhou was built in 2004 solely for the export market and was expected to ship 30,000 passenger vehicles to Europe in 2005. By 2004, 12 major foreign automotive manufacturers had joint-venture plants in China. They produced a wide range of automobiles, minivans, sport utility vehicles, buses, and trucks. In 2003 China exported US$4.7 billion worth of vehicles and components. The vehicle export was 78,000 units in 2004, 173,000 units in 2005, and 340,000 units in 2006. The vehicle and component export is targeted to reach US$70 billion by 2010.

The market for domestically produced cars, under a local name, is likely to continue to grow both inside China and outside. Companies such as Geely, Qiantu and Chery are constantly evaluating new international locations, both in developing and developed countries.^[177]

Other industries

Further information: Telecommunications industry in China, Electronics industry in China, Pharmaceutical industry in China, Defense industry in China, and Shipping industry in China

Wind farms in Xinjiang

Substantial investments were made in the manufacture of solar panels and wind generators by a number of companies, supported by liberal loans by banks and local governments. However, by 2012 manufacturing capacity had far outstripped domestic and global demand for both products, particularly solar panels, which were subjected to anti-dumping penalties by both the United States and Europe. The global oversupply has resulted in bankruptcies and production cutbacks both inside and outside China. China has budgeted $50 billion to subsidize production of solar power over the two decades following 2015 but, even at the sharply reduced price resulting from oversupply, as of 2012 cost of solar power in China remained three times that of power produced by conventional coal-fired power plants.^[178]

China is the world's biggest sex toy producer and accounts for 70% of the worldwide sex toys production.^[179] In the country, 1,000 manufacturers are active in this industry, which generates about two billion dollars a year.^[179]

As of 2011, China was the world's largest market for personal computers^[180]

Services

Golden Resources Mall, world's second largest mall

The output of China's services in 2010 ranks third worldwide—after the United States and Japan—and high power and telecom density has ensured that the country has remained on a high-growth trajectory over the long term. In 2010 the services sector produced 43% of China's annual GDP, second only to manufacturing. However, its proportion of GDP is still low compared to the ratio in more developed countries, and the agricultural sector still employs a larger workforce.

Prior to the onset of economic reforms in 1978, China's services sector was characterized by state-operated shops, rationing, and regulated prices—with reform came private markets, individual entrepreneurs, and a commercial sector. The wholesale and retail trade has expanded quickly, with numerous shopping malls, retail shops, restaurant chains and hotels constructed in urban areas. Public administration remains a main component of the service sector, while tourism has become a significant factor in employment and a source of foreign exchange.^[181]

Chengdu, China, is home to the world's largest building—the New Century Global Center, which, at 100 m (328 ft) high, 500 m (1,640 ft) long, and 400 m (1,312 ft) wide, houses retail outlets, a 14-theater cinema, offices, hotels, the Paradise Island waterpark, an artificial beach, a 150 m (164 yd)-long LED screen, skating rink, pirate ship, fake Mediterranean village, 24-hour artificial sun, and 15,000-spot parking lot.^[182]

Telecommunications

Main article: Telecommunications in China

Mobile phones of China Mobile

China possesses a diversified communications system that links all parts of the country by Internet, telephone, telegraph, radio, and television.

China's number of Internet users or netizens topped 137 million by the end of 2006,^[183] an increase of 23.4% from a year before and 162 million by June 2007, making China the second-largest Internet user after the United States, according to China's Ministry of Information Industry (MII). China's mobile phone penetration rate was 34% in 2007. In 2006, mobile phone users sent 429 billion text messages (on average 967 text messages per user). For 2006, the number of fixed-lines grew by 79%, mainly in the rural areas.^[184]

Chinese investment abroad

Outward foreign direct investment is a new feature of Chinese globalization, where local Chinese firms seek to make investments in both developing and developed countries.^[223] It was reported in 2011 that there was increasing investment by capital rich Chinese firms in promising firms in the United States. Such investments offer access to expertise in marketing and distribution potentially useful in exploiting the developing Chinese domestic market.^[224]

Since 2005 when Levono acquired IBM's ThinkPad, Chinese companies have been actively expanding outside of China, in both developed and developing countries. In 2013, Chinese companies invested US$90 billion globally in non-financial sectors, 16% more than 2012.^[225]

Between January 2009 and December 2013, China contributed a total of $161.03bn in outward FDI, creating almost 300,000 jobs. Western Europe was the largest regional recipient of Chinese outward FDI, with Germany receiving the highest number of FDI projects for any country globally.^[226]

There are two ways Chinese companies choose to enter a foreign market: organic growth and Merge & Acquisition (M&A). Many Chinese companies would prefer M&A for the following reasons:

• Fast. M&A is the fastest way for a company to expand into another country by acquiring brand, distribution, talents, and technology. Chinese CEOs has been used to growing at 50%+ speed and do not want to spend capital.
• China market. China has become the world's largest economy. Many Chinese acquire foreign companies and then bring their products/services to China, anything from premium cars to fashion clothing to meat to Hollywood movies.
• Cheap capital access. The huge Chinese domestic market help many Chinese companies accumulated financial capital to do M&A. Chinese government also provides long-term, low-interest capital for companies to expand abroad.
• Low risk. M&A helped Chinese companies avoid risk of failure of organic growth as they got an established company with everything in place.
• Cheap labor. Some companies may move part of the manufacturing in high labor cost countries to China to reduce the cost and make the product more attractive in price.
• Trade and policy barrier. Chinese companies in many sectors face quota limitation and high tax, which prevent them from being competitive in foreign markets.
• Depressed assets. 2008-2010 global economic crisis created liquidity problems for a lot of western companies and reduced their market value. Chinese companies believe it is a great opportunity for them to buy these depressed assets at discount. China's direct foreign investment in non-financial sector growth from US $25 billion in 2007 to US$90 billion in 2013, more than three times.^[227]
• China is growing in investments and influencing power over Europe, and the EU has begun to take notice. ^[228]

At the beginning, state-owned enterprises dominate the foreign acquisition and most of the money goes to oil and minerals. Since 2005, more and more private companies start to acquire non raw material foreign companies. Below is a list of the top 15 outbound deals from Chinese companies:^[229]

However, the fast growth and M&A deals did not change consumers' low quality and low price perception of Chinese goods and brands. According to market consecutive researches by the Monogram Group, a Chicago-based advertising agency, in 2007, 2009, 2011 and 2012, American consumers' willingness to purchase Chinese products across all categories except PC remained the same or became worse during 2007-2012. The only sector in which Americans were more likely to purchase was personal computers, maybe due to the brand building of Lenovo.^[230]

Moreover, many M&A deals have failed because companies underestimated the challenges and failed to restructure the company.

Case 1: Shanghai Auto acquired 48.9% of Korean Ssangyong at US$500 million in 2004, making it the most ambitious acquisition in Chinese auto industry at the time. Shanghai Auto wanted the brand and technology to expand its footprint in China. However, the cultural difference, the objection to transfer the technology and the failed sales of new SUV model put Shanghai Auto's ambition of expansion in jeopardy. It caused huge conflict between Ssangyong employees and Shanghai Auto as things didn't go well as planned. And the 2008 global economic crisis put Ssangyong on a survival mode, let alone expansion. After the negotiation with the labor union to reduce wages failed, Shanghai Auto decided to exit from Ssangyong and didn't get a penny back for their US$500 million investment.^[231][232]

Case 2: In 2004, TCL, the largest TV manufacturer and one of the fastest growing companies in China, acquired TV business including Thomson and RCA brand from Thomson Electronics of France to form a joint vendure called TCL-Thomson Electronics (TTE). For the coming two years, the company recorded huge loss, especially in Europe. Several factors contributed to the failure:

• Failure of Due Diligence. Right after TCL acquired Thomson's TV business, the TV market shifted to LCD technology, put Thomson out of date. As CEO of TCL, Dongsheng Li, said in 2012 "They betted on the wrong thing where the market would go. They thought Thomson's DLP could be the best choice."
• Lack of understanding of rules and regulations. According to the book Resumption of Trading by Chong Chen, soon after acquisition, Thomson found it in a situation that they couldn’t recruit the talents they wanted and can't fire ones they didn't want.
• Underestimate of the challenges in cultural difference. Xuesong Tong, vice president of TTE, said in an interview with "China Operation" newspaper in 2005: "The French look down upon their Chinese boss. For example, they wanted to share the design model with TTE, but French just dislike it even though it is a popular one in US market. Also, French feel superior in their language and don't want to speak English, which created huge problem in communication. It takes hours to discuss simple issues and can't reach agreement."
• According to Scott Markman, president of Monogram, Chinese companies often moved their business model to developed countries and it doesn't work. Thomson has the problem, they are very good and distribution and operation in China but France and Europe is a totally different world.

Mergers and acquisitions

From 1993 to 2010, Chinese companies have been involved as either an acquiror or acquired company in 25,284 mergers and acquisitions with a total known value of US$969 billion.^[233] The number and value of deals hit a new record in 2010. The number of deals that happened in 2010 has been 3,640, which is an increase of 17% compared to 2009. The value of deals in 2010 was US$196 billion, which is an increase of 25% compared to the year before.

Labor force

In 2012, for the first time, according to statistics released by China's National Bureau of Statistics in January 2013, the size of the labor force, people aged 15 to 59, in China shrank slightly to 937.27 million people, a decrease of 3.45 million from 2011. This trend, resulting from China's one-child policy of population control, is anticipated to continue to at least 2030.

On 29 October 2015, Xinhua, China's state news agency, reported a change in the existing law to a two-child policy, citing a statement from the Communist Party of China, and the new law is effective from 1 January 2016 after it was passed in the standing committee of the National People's Congress on 27 December 2015.^[237]