China has what type of economy

Several economists have concluded that productivity gains i. The improvements to productivity were caused largely by a reallocation of resources to more productive uses, especially in sectors that were formerly heavily controlled by the central government, such as agriculture, trade, and services.

For example, agricultural reforms boosted production, freeing workers to pursue employment in the more productive manufacturing sector. China's decentralization of the economy led to the rise of non-state enterprises such as private firms , which tended to pursue more productive activities than the centrally controlled SOEs and were more market-oriented and more efficient.

Additionally, a greater share of the economy mainly the export sector was exposed to competitive forces.

Local and provincial governments were allowed to establish and operate various enterprises without interference from the government. In addition, FDI in China brought with it new technology and processes that boosted efficiency.

However, as China's technological development begins to converge with major developed countries i. Several developing economies notably several in Asia and Latin America experienced rapid economic development and growth during the s and s by implementing some of the same policies that China has utilized to date to develop its economy, such as measures to boost exports and to promote and protect certain industries.

However, at some point in their development, some of these countries began to experience economic stagnation or much slower growth compared to previous levels over a sustained time, a phenomenon described by economists as the "middle-income trap. The World Bank classifies development levels of economies using a per capita gross national income GNI methodology. The Chinese government projects that China can cross the high-income threshold by It hopes to achieve this largely by making innovation a major source of future economic growth.

Skeptics contend that innovation growth in China will be hard to achieve, especially if it is mainly state-driven and imposes new restrictions on foreign firms,. Figure 5. Notes: Bar in red indicates the level China would need to reach to become a high-income economy. For some years thereafter, EIU projects U. GDP growth to be greater than China's Figure 6. Figure 6. The Chinese government has indicated its desire to move away from its current economic model of fast growth at any cost to more "smart" economic growth, which seeks to reduce reliance on energy-intensive and high-polluting industries and rely more on high technology, green energy, and services.

China also has indicated it wants to obtain more balanced economic growth. These issues are discussed in more detail later in the report. The rapid growth of the Chinese economy has led many analysts to speculate if and when China will overtake the United States as the "world's largest economic power. Measured in U. Many economists contend that using nominal exchange rates to convert Chinese data or those of other countries into U.

To illustrate, one U. This is because prices for goods and services in China are generally lower than they are in the United States. Conversely, prices for goods and services in Japan are generally higher than they are in the United States and China. Thus, one dollar exchanged for local Japanese currency would buy fewer goods and services there than it would in the United States.

Economists attempt to develop estimates of exchange rates based on their actual purchasing power relative to the dollar in order to make more accurate comparisons of economic data across countries, usually referred to as purchasing power parity PPP.

According to the IMF which uses price surveys conducted by the World Bank , prices for goods and services in China are about half the level they are in the United States. China's economic ascendency as the world largest economy has been impressive, especially considering that in , China's GDP on a PPP basis was only one-tenth that of the United States see.

Figure 7. Table 1. Comparisons of Chinese, Japanese, and U. Dollars and a Purchasing Power Parity Basis: According to a study by economist Angus Maddison, China was the world's largest economy in , accounting for an estimated However, foreign and civil wars, internal strife, weak and ineffective governments, natural disasters some of which were man-made , and distortive economic policies caused China's share of global GDP on a PPP basis to shrink significantly.

By , China's share of global GDP had fallen to 5. The adoption of economic reforms by China in the late s led to a surge in China's economic growth and helped restore China as a major global economic power. Even with continued rapid economic growth, it would likely take many years for Chinese living standards to approach U. China has emerged as the world's largest manufacturer according to the World Bank.

Figure 8 lists estimates of the gross value added of manufacturing in China, the United States, and Japan expressed in U. Gross value added data reflect the actual value of manufacturing that occurred in the country i. In , the value of China's manufacturing on a gross value added basis was Manufacturing plays a considerably more important role in the Chinese economy than it does for the United States. In , China's gross valued added manufacturing was equal to Figure 8.

In its Global Manufacturing Competitiveness Index, Deloitte an international consulting firm ranked China as the world's most competitive manufacturer out of 40 countries , based on a survey of global manufacturing executives, while the United States ranked second it ranked fourth in The index found that global executives predicted that the United States would overtake China by to become the world's most competitive economy, largely because of its heavy investment in talent and technology e.

As a result, China was projected to fall to the second-most competitive manufacturer by More broadly, the World Economic Forum WEF produces an annual report that assesses and ranks based on an index the global competitiveness of a country's entire economy, based on factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can achieve.

The decline in China's working age population may have contributed rising wages in China. As indicated in Figure 9 , China's average monthly wages converted into U.

S levels. In , China's unit labor production costs were Figure 9. Notes: Because data are listed in U.

However, such data may reflect average labor costs in dollars that U. Figure Notes: The labor cost of producing one unit of output, indexed to U.

China's trade and investment reforms and incentives led to a surge in FDI beginning in the early s. Such flows have been a major source of China's productivity gains and rapid economic and trade growth. There were reportedly , foreign-invested enterprises FIEs registered in China in , employing That level rose from 2.

At their peak, FIEs accounted for The sharp increase in China's global FDI outflows in recent years appears to be largely driven by a number of factors, including Chinese government policies and initiatives to encourage firms to "go global. Table 2. A key aspect of China's economic modernization and growth strategy during the s and s was to attract FDI into China to help boost the development of domestic firms.

Investment by Chinese firms abroad was sharply restricted. However, in , China's leaders initiated a new "go global" strategy, which sought to encourage Chinese firms primarily SOEs to invest overseas. One key factor driving this investment is China's massive accumulation of foreign exchange reserves. Traditionally, a significant level of those reserves has been invested in relatively safe but low-yielding assets, such as U.

Treasury securities. On September 29, , the Chinese government officially launched the China Investment Corporation CIC in an effort to seek more profitable returns on its foreign exchange reserves and diversify away from its U. Investing in foreign firms, or acquiring them, is viewed as a method for Chinese firms to obtain technology, management skills, and often, internationally recognized brands, needed to help Chinese firms become more globally competitive.

Table 3. Note : Ranked according to the top seven destinations of the stock of Chinese FDI outflows through These data differ significantly from official U.

Economic reforms and trade and investment liberalization have helped transform China into a major trading power. China's rapidly growing trade flows have made it an increasingly important and often the largest trading partner for many countries. According to China, it was the largest trading partner for countries in However, China's exports and imports fell by China's trade recovered in and , with export growth averaging However, since that time, China's trade growth slowed sharply.

From to , China's exports and imports grew at an average annual rate of 7. From to exports and imports fell by an average rate of 4.

However, in , China's exports and imports rose by 6. Exports and imports in rose by 9. However, during the first three months of , China's exports grew by 1. In , China overtook Germany to become both the world's largest merchandise exporter and the second-largest merchandise importer after the United States.

In , China overtook the United States as the world's largest merchandise trading economy exports plus imports. As indicated in Figure 17 , China's share of global merchandise exports grew from 2. Table 4. China's Global Merchandise Trade: China's Merchandise Trade: Note : Data are in U. Note: Data are in U. China's Share of Global Merchandise Exports: Table 5 lists official Chinese trade data on its seven largest trading partners in based on total trade.

China's trade data differ significantly from those of many of its trading partners. These differences appear to be largely caused by how China's trade via Hong Kong is counted in official Chinese trade data. China treats a large share of its exports through Hong Kong as Chinese exports to Hong Kong for statistical purposes, while many countries that import Chinese products through Hong Kong generally attribute their origin to China for statistical purposes, including the United States.

Table 5. China's Major Merchandise Trading Partners in Note s : Rankings according to China's total trade in China's bilateral trade data often differ from that of its trading partners.

China's abundance of low-cost labor has made it internationally competitive in many low-cost, labor-intensive manufactures. As a result, manufactured products constitute a significant share of China's trade.

A substantial amount of China's imports is comprised of parts and components that are assembled into finished products, such as consumer electronic products and computers, and then exported. Often, the value-added to such products in China by Chinese workers is relatively small compared to the total value of the product when it is shipped abroad. China's top 10 imports and exports in are listed in Table 6 and Table 7 , respectively, using the harmonized tariff system HTS on a two-digit level.

Major imports included electrical machinery and equipment; 44 mineral fuels; nuclear reactors, boilers, and machinery such as automatic data process machines and machines to make semiconductors ; ores; and optical, photographic, medical, or surgical instruments. China's biggest exports were electrical machinery and equipment; nuclear reactors, boilers, and machinery; furniture; plastics; and vehicles.

Table 6. Major Chinese Merchandise Imports in Optical, photographic, cinematographic, measuring checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof. Note : Top 10 imports in , two-digit level, harmonized tariff system. Table 7. Major Chinese Merchandise Exports in Source: World Trade Atlas , using official Chinese statistics. Note : Top 10 exports in , two-digit level, harmonized tariff system.

China is currently undergoing a major restructuring of its economic model. Policies that were employed in the past to essentially produce rapid economic growth at any cost were very successful.

However, such policies have entailed a number of costs such as heavy pollution, widening income inequality, overcapacity in many industries, an inefficient financial system, rising corporate debt, and numerous imbalances in the economy and therefore the old growth model is viewed by many economists as no longer sustainable. China has sought to develop a new growth model "the new normal" that promotes more sustainable and less costly economic growth that puts greater emphasis on private consumption and innovation as the new drivers of the Chinese economy.

Implementing a new growth model that sustains healthy economic growth could prove challenging unless China is able to effectively implement new economic reforms. Many analysts warn that without such reforms, China could face a period of stagnant economic growth and living standards, a condition referred to by economists as the "middle-income trap" Several of these challenges are discussed below.

Despite China's three-decade history of widespread economic reforms, Chinese officials contend that China is a "socialist-market economy. According to the World Bank, "China has become one of the world's most active users of industrial policies and administrations. The perception of China since the s as a predominantly low-cost manufacturing hub, where it effectively served as an inexpensive producer for global brands, is changing as the economy grows.

As a result, while cost rationalisation is still an attractive feature of the China market, global and local businesses are now starting to change strategies to tap China as an engine for growth.

Currently, approximately one-third of global business leaders rank China among their top three regions for generating growth over the next year.

However, the recent cooling of the Chinese economy has blunted the wages surge after a double-digit increase in , as noted by the International Labour Organisation. Nevertheless, average real wages in stateowned and other urban-based enterprises grew by 9 per cent in , while those of workers in private enterprises climbed 8 per cent in Accompanying this new wealth, however, were sharply increased living costs.

For Australian businesses, opportunities in China have sprouted across a huge — some might even say bewildering — range of industries, market sectors and geographic locations. Rapidly rising income levels in China and mass migration from rural to urban areas have created an abundantly large class of urban consumers demanding improved housing, a cleaner environment, overseas travel, better education, a higher protein diet and an enhanced choice of financial services.

From the sophisticated consumers of developed cities such as Beijing, Guangzhou and Shanghai, to the growing middle classes in lesserknown inland cities, the newly industrialised China is a veritable smorgasbord of opportunity. This is not to say that doing business in China is without unique challenges and complications. A prominent characteristic of the socialist economy is that the goods and services are produced based on usage value.

This usage value is subject to the needs of the society, hence preventing underproduction and overproduction. This is completely different from the common capitalist economic system, in which goods and services are produced to generate profit and capital accumulation , rather than being based on their usage and value.

A socialist market economy is a system of government that attempts to strike a balance between pure capitalism and social welfare. Both communism and socialism are based on a vision of a classless society in which goods and services are shared equitably. In both, the means of production and distribution are owned by the workers, either directly or through government agencies.

Socialism can be compatible with individual liberty, democratic government, and freedom of choice. Communism is imposed by an authoritarian state in which individual rights and liberties are held to be inferior to the rights of the people as a whole. Most advanced democracies contain some elements that could be termed socialist.

Nationalized healthcare, mass transit systems, and even public libraries all are examples of government services that are owned and run by government agencies, subsidized by taxpayers, and available to all. Communism calls for the elimination of private property ownership and thus effectively abolishes wealth accumulation.

Socialism calls for public ownership of essential services and levies the high taxes that are needed to support them. The gap in the quality of life between the richest and the poorest narrows.

The two biggest experiments in communism in the 20th century were the Union of Soviet Socialist Republics U. The U. China remains a one-party state, and that state is the Communist People's Party. Nevertheless, it has introduced government reforms that have made its system a hybrid of communism and socialism with a dash of pure capitalism. A socialist economy offers collective ownership, usually through a state-controlled agency, worker cooperative, or outright state ownership with delegation to representatives.

Socialist market economies generally discourage private ownership. In addition, in socialist market economies, goods and services are produced for their usefulness, with the aim to eliminate the need for a demand-based market. In this way, it discourages accumulation, which is assumed to be the root cause of wealth imbalance. Interestingly, no pure socialist, pure capitalist, or pure communist economy exists in the world today.

Cuba has a mostly state-run economy including a national healthcare program, government-sponsored education free for its citizens at all levels, subsidized housing, utilities, entertainment, and even subsidized food programs. Together, these social programs are meant to compensate for the low salaries of Cuban workers, making them better off than their international counterparts in many other countries.

The reason is that Cuba's economy was in disarray. GDP was registered at 2. In addition, the country has experienced shortages of consumer staples, energy rationing, and price inflation. As of today, Cuba operates with a parallel financial system; one that operates on the usual social programs in critical sectors while allowing a free-market economy in the tourism, export, and international business sectors. The country has continued to introduce reforms through new laws aimed at bringing in higher foreign investment , which was a shift from being a complement of the economy to an essential part of it.

A significant portion of the Chinese economy is still government-controlled, although the number of government programs has declined significantly. How has China managed to grow its economic influence? Policies allow entrepreneurs and investors to take profits but within the controls of the state. North Korea—the world's most totalitarian state—is another prominent example of a socialist economy.

Like Cuba, North Korea has an almost entirely state-controlled economy, with similar social programs to those of Cuba. There is no stock exchange in North Korea either. Around mid, North Korea was better educated and more productive than China based on international trade per capita.

However, the economic and social situation has been precarious in North Korea since a massive famine hit the country between and Today, many world powers have discontinued aid and trade with North Korea due to the many human rights abuse allegations of the totalitarian government.