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Last updated 05 September, 2008
Note: 1 Real growth 2 Urban investments in fixed assets Sources: The National Bureau of Statistics, Ministry of Commerce, and General Administration of Customs.
Current Economic DevelopmentWith the policy objective of maintaining a stable growth, the central government has taken stabilization measures aiming to moderate investment growth since 2004. Besides raising the deposit reserve requirement ratio for banks, rectifying the land market and consolidating targeted types of investment projects, the People's Bank of China (PBOC) also raised the lending and deposit rates. According to the latest revised figure, GDP grew by 11.9% in 2007. In the first half of 2008, the economy grew by 10.4%, 1.8 percentage points lower than the first half of 2007.
Fixed assets investment is one of the major driving forces of the economy. After growing by 24.5% in 2006, fixed assets investment grew by 25.8% in 2007 and continued to grow by 27.3% in the first seven months of 2008.
Retail sales of consumer goods grew by 13.3% in 2004 and 12.9% in 2005. Continued growth in disposable income has contributed to the steady increase in retail sales. After growing by 13.7% in 2006, retail sales increased by 16.8% in 2007 and accelerated to 21.7% in the first seven months of 2008. The government is aiming to further stimulate consumption and raise its contribution to economic growth. Deflationary pressure began to be reversed since 2003 and the rise in food prices resulted in a 3.9% increase in the consumer price index (CPI) in 2004. In 2005 and 2006, the consumer price index went up by 1.8% and 1.5% respectively. In 2007, the consumer price index went up by 4.8% with food prices increased by 12.3%. While prices of food, housing, household appliances, medical and health care products increased, the prices of clothing, transport and telecommunications continued to decline. In July 2008, CPI went up by 6.3%, down from 8.5% in April 2008. In the first seven months of 2008, CPI went up by 7.7% with food prices increased by 19.5%. Partly due to the state-owned enterprise reforms, urban unemployment rate rose to 4.3% at the end of 2003 and remained at 4.2% at the end of 2004 and 2005 before edging down to 4% at the end of 2007. The Chinese government takes various measures like providing training to displaced workers and promoting development of the private sector to ease the unemployment pressure. Added-value of industrial output (by state enterprises and large enterprises with annual sales exceeding RMB5 million) grew by 16.4% in 2005. In 2006 and 2007, added-value of industrial output grew by 16.6% and 18.5% respectively. In the first seven months of 2008, added-value of industrial output grew by 16.1%. While the output of heavy industries grew by 17.2%, light industries increased by 13.5%. The output of foreign invested companies grew by 13.9% and private enterprises increased by 23.1%. China's non-state sector expands rapidly and experiences healthy development in recent years. The status and economic contribution of private enterprises received official recognition in the 9th National People's Congress held in March 1999. By the end of 2007, there were 5.51 million private-owned enterprises (comparing to 1.76 million at end-2000). Money supply - the growth of M2 (broad money supply) slowed to 16.7% in May 2007 but edged up and remained to grow by over 18% from July to November before slowing down to 16.7% in December 2007. In April 2008, the growth of M2 slowed to 16.9% but accelerated to 18.1% in May before coming down to 16.4% in July. Beginning 21 July 2005, China reformed the Renminbi (RMB) exchange rate regime by moving into a managed floating exchange rate system with reference to a basket of currencies, and the exchange rate of RMB was re-valued to 8.11 per US dollar on 21 July 2005. Effective 21 May 2007, the floating band of RMB against the US dollar is enlarged from 0.3% to 0.5% around the central parity published by the People's Bank of China on each working day. The monthly average exchange rate of RMB was 6.8525 per US dollar in August 2008. China's foreign exchange reserves reached US$1,808.8 billion by the end of June 2008, the largest in the world. Foreign debts amounted to US$392.6 billion at the end of March 2008 (up 5.1% from the end of 2007), of which 39.7% was medium- or long-term debts and 60.3% was short-term debts. In 2006, the number of overseas tourists grew by 3.9% to 125 million, and foreign exchange earning increased by 15.9% to US$33.9 billion. In 2007, the number of overseas tourist increased by 5.6% to 132 million. According to the World Tourism Organization, China remained the 4th most popular tourist-destination (behind France, Spain and the US) in the world in 2006.
In 2007, China's total external trade reached US$2,174 billion, ranked the third in the global economy. In 2007, exports grew by 25.7% to US$1,218 billion (ranked the second in the world) while imports increased by 20.8% to US$956 billion (ranked the third in the world), resulting in a trade surplus of US$262.2 billion. In July 2008, the growth of exports revived to 26.9% from 17.2% in June. In the first seven months of 2008, exports grew by 22.6% and imports increased by 31.1%.
Export-processing trade continued to be the major form of external trade. Export-processing trade accounted for 52.7% of China's total exports in 2006 and dropped slightly to 51% in 2007. In 2007, exports and imports related to processing trade grew at 21% and 14.6% respectively. In the first seven months of 2008, exports and imports related to processing trade increased by 17.2% and 13.3% respectively. In 2007, exports of machinery, electrical and electronic products grew rapidly at 27.7%, while other light consumer goods also showed impressive performance, for example, exports of garment grew by 23.1%, footwear up 16%. In the first seven months of 2008, exports of machinery, electrical and electronic products grew by 24.2% while garments and footwear increased by 3.2% and 14.2% respectively. In 2007, China's top ten trading partners were the US, Japan, Hong Kong, South Korea, Taiwan region, Germany, Russia, Singapore, Malaysia and the Netherlands. China's trade with these ten economies together amounted to US$1,303 billion, i.e. 60% of China's total external trade in 2007. In 2006, exports of foreign-invested enterprises (FIEs) increased by 26.9% while imports grew by 22%. In 2007, FIEs' exports increased by 23.4%, accounting for 57.1% of China's total exports, and imports increased by 18.4%, representing 58.5% of China's total imports. In 2007, the number of newly approved foreign-invested projects (non-financial sectors) declined by 8.7% to 37,871, while utilized foreign direct investment increased by 13.6% to US$74.8 billion. By the end of 2007, China approved a cumulative of 632,286 foreign investment projects, with actual utilized overseas FDI amounting to US$760 billion. The leading sources of investment included Hong Kong, Japan, the US, Taiwan, Singapore and South Korea. By the end of 2006, the cumulative FDI made by Chinese enterprises (non-financial sectors) in overseas markets amounted to US$75 billion. In 2006, the amount of FDI made by Chinese enterprises was US$17.6 billion, an increase of 43.8%. Hong Kong is the largest recipient of capital from Chinese enterprises, accounting for 56.3% of the total outward FDI up to 2006. Business services (mainly investment holdings), wholesale and retail, mining and manufacturing are the leading sectors (non-financial sectors) of China's outward FDI. In 2007, China's outflow of FDI (non-financial sectors) stood at US$18.7 billion (prelininary figure).
As a move to liberalize trade, China has continued to reduce administrative barriers to trade by increasingly switching to the use of tariffs and exchange rates adjustments. Beginning January 2008, one category of import commodities is still subjected to licensing controls (including 10 8-digit product codes), down from 5 in 2004 and 8 in 2003. Since its WTO accession, China has basically fulfilled its tariff reduction commitment. The average tariff rate remains at 9.8% beginning 2008, progressively down from 15.3% in 2001. For exports, beginning from January 2008, there are 48 categories of export products subjected to licensing controls. China has gradually liberalized its foreign trading system. According to the amended Foreign Trade Law which went into effect from July 2004, all types of enterprises, including private enterprises, can register for the trading right. Individual Chinese are also allowed to conduct foreign trade under the amended Foreign Trade Law. In a bid to encourage overseas investment in the central and western regions, beginning from September 1996, local authorities of the central and western provinces were empowered to give approval to overseas-funded projects with total investment capital under US$30 million, up from the previous amount of US$10 million. Since the Chinese government started to implement a strategy of developing the western region in late 1999, more preferential treatments are extended to foreign investment in inland provinces and regions. Upon expiration of the preferential tax polices, foreign-invested enterprises may enjoy 50% reduction of corporate income tax for another three years. On 31 October 2000, the Chinese government officially amended the Laws on Wholly Foreign-owned Enterprises and Sino-foreign Cooperative Joint Ventures to comply with the WTO accession requirements. The Chinese government also passed the amendments to the Law of Sino-foreign Equity Joint Ventures (EJVs). After the amendments, foreign enterprises enjoy greater autonomy in sourcing raw material either in the Chinese Mainland or from elsewhere and are no longer subject to the domestic sales ratio restriction. A new version of the "Catalogue for the Guidance of Foreign Investment Industries" came into effect on 1 December 2007. Foreign-invested projects under the categories of "encouraged" will enjoy tariff-free imports of machinery and equipment for their own use and the import value-added tax will also be exempted. In addition, the central government has also introduced tariff-free and VAT-exemption imports of capital equipment for projects within the hi-tech and priority sectors such as energy, agriculture, transport, infrastructure, production of raw materials, and tertiary industries, as well as in the pillar industries. These moves are targeted to attract high-quality overseas investment, introduce high technologies and know-how to rationalize the country's industrial structure. At the end of 1999, the State Administration of Taxation and Ministry of Finance jointly issued the "Circular on Tax Collection Regarding the Implementation of the Decision Made by the State Council on Strengthening Technology Innovation and High Technology Development". According to the circular, equipment imported for the production of goods listed in the "State Catalogue of New Technology Products" and supporting technology, accessories and parts are exempted from customs duties and VAT on imports. For the import of advanced technology listed in the "State Catalogue of New and High Technology Products", software fees payable outside China are exempted from customs duties and VAT on imports.
Economic Relations with Hong Kong The Chinese mainland and Hong Kong signed the Closer Economic Partnership Arrangement (CEPA) on 29 June 2003 and the implementation details on 29 September 2003. Under CEPA, the mainland began to apply zero tariff to 374 import items of Hong Kong origin from 1 January 2004. On services sectors, the mainland began from 1 January 2004, further liberalised (comparing to WTO commitment or current requirements) 18 services sectors for Hong Kong companies on entering the mainland market. On 27 August 2004, phase 2 of CEPA (CEPA II) was announced. Perpetuating liberalizations in the first phase of CEPA, CEPA II provides zero tariff for 713 additional Hong Kong origin products, and enlarged market access for 11 beneficiary service sectors stated in the first phase of CEPA and 8 new services sectors of Hong Kong. On 18 October 2005, phase 3 of CEPA (CEPA III) was announced. Under CEPA III, the mainland agrees to give all products of Hong Kong origin tariff free treatment. For products which have no agreed CEPA rules of origin at present, Hong Kong will initiate discussions with the mainland twice a year upon requests by local manufacturers. Regarding trade in services, there are 23 liberalisation measures under CEPA III, covering ten areas. On 27 June 2006 (CEPA IV), 15 more liberalisation measures spreading across ten services areas were announced and the number of products with agreed CEPA rules of origin increased to 1,407. On 29 June 2007, CEPA V was announced. Beginning on 1 January 2008, the mainland introduced 40 liberalisation measures in 28 service areas, including 11 new services areas. The number of products with agreed CEPA rules of origin stood at 1,502 at the beginning of 2008. On 29 July 2008, CEPA VI was announced. Beginning 1 January 2009, the mainland will introduce 29 liberalisation measures covering 17 services sectors. The total number of services sectors covered by CEPA will be expanded from 38 to 40. Hong Kong and Guangdong will also implement a package of liberalisation and facilitation measures on an early and pilot basis to enhance mutual economic and trade co-operation. Hong Kong is so far the most important entrepot of the Chinese Mainland. If re-exports to and from the Chinese Mainland are included, about 17% of the Mainland's foreign trade were handled via Hong Kong. The figure will be higher if transshipment of goods to and from the Mainland via Hong Kong is also included. According to the HKSAR government statistics, in 2007, 62% of re-exports were of China origin and 49% were destined for the Chinese mainland. Hong Kong's Direct Investment in the Chinese Mainland
Sources: China Monthly Statistics Hong Kong is the largest source of overseas direct investment in the Chinese Mainland. By the end of 2007, among all the overseas-funded projects registered in the Chinese Mainland, 45.2% were tied to Hong Kong interests. Utilized capital inflow from Hong Kong amounted to US$307.5 billion, accounting for 40.4% of the national total. Chinese Mainland is one of the leading sources of inward investment in Hong Kong. Based on the Hong Kong statistics, the mainland's cumulative direct investment in Hong Kong were HK$2,024.3 billion at end-2006, accounting for 35% of the stock of inward direct investment. As of December 2007, 439 Mainland companies were listed in Hong Kong, comprising H-share, red-chip and private companies with total market capitalization of US$1,544 billion, 58% of the market total.
Hong Kong's Trade with the Chinese Mainland * Hong Kong was the Mainland's third largest trading partner (after the US and Japan) in 2007. According to China's Customs Statistics, bilateral trade between the Mainland and Hong Kong amounted to US$197.2 billion (9% of the Mainland's total external trade) in 2007. Of which exports from the Chinese Mainland to Hong Kong grew to US$184.4 billion, making Hong Kong the second largest export market after the US. The Mainland has been Hong Kong's largest trading partner since 1985. Share of the Mainland in Hong Kong's global trade jumped from 9.3% in 1978 to 47.5% in 2007. The Chinese Mainland was Hong Kong's largest import source accounting for 46% of Hong Kong's total imports, and the largest export market accounting for 48.7% of Hong Kong's total exports in 2007. Hong Kong's trade with the Chinese Mainland is to a large extent related to outward processing activities. In 2007, 34.5% of Hong Kong's total exports (of which 47.3% of Hong Kong's domestic exports and 34.1% of re-exports) to the Chinese Mainland were related to outward processing activities. Meanwhile, 58.6% of Hong Kong's imports from the Mainland and 78.4% of Hong Kong's re-exports of the Mainland origin to all countries other than China were related to outward processing. Hong Kong's Trade with the Chinese Mainland
Sources: Hong Kong Trade Statistics, Census & Statistics Department / Hong Kong Trade Development Council
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