China: Economic Review and Outlook 2013 - 2020

Present and Future Macroeconomic Situation in China Based on In-Depth Literature Review

Research Paper (undergraduate) 2014 24 Pages

Economics - Case Scenarios


Table of Content




2.1 Demographics
2.1.1 Age
2.1.2 Gender
2.1.3 Income Levels and Distribution of Wealth
2.1.4 EthnicGroups
2.1.5 Outlook
2.2 The Real Sector
2.2.1 TheEconomy'sStructure
2.2.2 Purchasing Power and Consumption
2.2.3 Outlook
2.3 The Public Sector
2.3.1 Public Budget Performance
2.3.2 Public Debt
2.3.3 State Involvement & Economic Barriers
2.3.4 Outlook
2.4 The Monetary Sector
2.4.1 Price Stability, Inflation and Monetary Policy Trends
2.4.2 InterestRates
2.4.3 Outlook
2.5 The External Sector
2.5.1 Balance ofPayments
2.5.2 ExchangeRates
2.5.3 Outlook
2.6 The Labour Market
2.6.1 LabourAvailability: Workforce Structure and Employment Status
2.6.2 Labour costs, Wages, Productivity and Unionization
2.6.3 Outlook



Table of Figures

Figure 1: Regional GDP per capita (PPP), 2009

Figure 2: China's Population in Millions by Five - Year Age Bracket, 1950-2050

Figure 3: Number of Urban Households by Annual Household Income (in %)

Figure 4: Developmentof China's GDP, 2001-2011

Figure 5: China's Current Account Balance as Percentage of GDP 2005-2011

Figure 6: Education Level of China's Workforce in Percent of Population (2008)

List of Abbreviations

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1 Introduction

This paper will describe the present and future macroeconomic situation in China based on in-depth literature review. It covers the five sectors of economy (real sector, public sector, monetary sector, external sector, labour market) and demographic development.

The People’s Republic of China, established in 1949, is a socialist one-party state ruled by the Chinese Communist Party (CCP). In the late 1970s, China started to shift from a centrally planned economy to a market based economy. Its export- and investment-led growth model has transformed China into the second largest economy in the world.[1]

Despite its economic success, China remains a developing country and its market reforms are incomplete. The gross national income per capita is still only 50% of the world average and over 120 million people of its 1.3 billion population still live below the US$1.25-a-day international poverty line.[2] The country is experiencing a strong inequality, not just among the income of its population, but also among the regions: The three wealthiest and most important economic regions are all on the east coast, while the west of the country is generally poorer (cf. figure 1).

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Figure 1: Regional GDP per capita (PPP), 2009[3]

In March 2013, a new government came to power. Xi Jinping is China’s new president and Li Keqiang was appointed as new premier. They will have to fight problems such as a rapid rise of income inequality and major environmental problems. Also, China’s growth model will have to be changed and become more consumption-driven instead of investment-driven.[4]

“China’s 12th Five-Year Plan (2011-2015) forcefully addresses these issues. It highlights the development of services and measures to address environmental and social imbalances, setting targets to reduce pollution, increase energy efficiency, improve access to education and healthcare, and expand social protection. Its [moderate] annual growth target of 7% signals the intention to focus on quality of life, rather than pace of growth.“ [5]

In the following, the macro environment of companies in China will be evaluated as it has major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and hence the extent of business growth and expansion; exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy. The framework to review the macro environment is an economic review and outlook in which the demographic situation, the real sector, the public sector, the monetary sector, the external sector, and the labour market are described and the future situation is predicted.

The time frame for future outlooks is t=7 years (2013-2020).

2 Economic Review and Outlook

2.1 Demographics

2.1.1 Age

17.4% of China’s population are in the age of 0-14 years. The share from 15­24 years is 16.1%, 46.5% of the people are 25-54 years old, citizens in the age of 55-64 years account for 10.9%, and 9.1% are 65 years and over.[6]

As a result of the one-child-policy that was introduced in 1978, birth rates in China fell from 6 births per woman in the 1950s to 1.7 in 2005. At the same time life expectancy rose dramatically, which led to a rapid aging of China’s population (compare figure 2).[7]

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Figure 2: China’s Population in Millions by Five-Year Age Bracket, 1950-2050[8]

2.1.2 Gender

Due to the one-child policy and the importance of having a son in the family, a great gender imbalance has been created. In 2012, males accounted for 51.5% of the Chinese population. The ratio of new-born males to females was 119.25 to 100, whereas the global norm at birth is 105 boys to 100 girls.[9]

“Despite this historic bias toward male children, women are playing an increasing role in the economy. Their participation in the workforce is already high - 67% compared with 33% in India, [...] and 58% in the United States in 2009. The one-child policy has freed many women from caring for large families, indicating that workforce participation rates will rise further.“[10]

2.1.3 Income Levels and Distribution of Wealth

The economic growth of China has enhanced the wealth of its people and reduced poverty significantly during the last decade. In 2005, almost 16% of the population was living below the poverty line (living on less than US$1.25 a day), while the value has declined to 9% in 2012. The Human Development Index (HDI) was 0.699 and therefore, China was ranked 101 of 187 in the UN Human Development Report of 2012.[11]

In 2012, the GINI Index (a measure of statistical dispersion intended to represent the income distribution of a nation's residents) reached a level of 47.4, which indicates that the family income is not equally distributed among the population. According to the CIA World Factbook’s register of the 140 most unequal distributed countries of the world, China is ranked in the upper midfield as number 29.[12]

10% of the urban population in 2010 have been considered as poor and have lived from less than US$6,000 per year (see figure 3). The majority (about 82%) of the population has lived in households with an annual disposable income of between US$6,000 and US$16,000, which is just enough to cover their basic needs. Relatively wealthy households with annual disposable income of between US$16,000 and US$34,000 form a very small group by comparison.[13] “There are fewer than 14 million such households, representing only 6% of the urban population. A tiny group of “affluent” consumers, whose household income exceeds US$34,000, comprises only 2% of the urban population [...].”[14]

2.1.4 Ethnic Groups

The majority of the Chinese population (92%) belongs to the Han Chinese ethnic group. The rest is divided into 55 other ethnic groups, numbering approximately 105 million people.[15]

2.1.5 Outlook

The population’s median age will rise from 34 to 37 until 2020, similar to the median age of 36.6 in the U.S. in 2010.[16] The imbalance in gender that has been caused by the one-child policy is going to get bigger: by 2020, there will be 13 million more men than women between the ages of 25 and 34.[17]

Incomes in China are rising very rapidly, and this trend will continue in future: According to McKinsey, the share of income of urban Chinese households is likely to change dramatically by 2020: Only 7% of the urban population will be considered as poor, about 36% of the population will live in households with an annual disposable income of between US$6,000 and US$16,000. The share of relatively wealthy households with annual disposable income of between US$16,000 and US$34,000 will increase from 6% in 2010 to 51% in 2020. The group of households with more than US$34,000 income a year will rise to 6%.[18]


[1] Cf. Rabobank (2013), p.3.

[2] Cf. World Bank World Database (2013).

[3] Central Intelligence Agency (2013).

[4] Cf. Rabobank (2013), p.3.

[5] World Bank World Database (2013).

[6] Cf. Index Mundi (2013).

[7] Cf. McKinsey (2012), p. 17.

[8] Hayutin, A. (2009), p. 7.

[9] Cf. Hayutin, A. (2009), p. 7.

[10] McKinsey (2012), p. 17.

[11] Cf. Bertelsmann Stiftung (2012), p.11.

[12] Cf. Central Intelligence Agency (2013).

[13] Cf. McKinsey (2012), p. 13.

[14] McKinsey (2012), p. 13.

[15] Cf. Tang, W., He, G. (2010), p.4.

[16] Cf. Hayutin, A. (2009), p. 7.

[17] Cf. Hayutin, A. (2009), p. 7.

[18] Cf. McKinsey (2012), p. 13.


ISBN (eBook)
ISBN (Book)
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Institution / College
Technical University of Applied Sciences Mittelhessen
China Makroökonomie macro environment Wirtschaft real sector public sector monetary sector external sector labour market demographic development



Title: China: Economic Review and Outlook 2013 - 2020