China Case Study
BACKGROUND INFO
● The Chinese economy is the second largest in the world, and is regarded as the fastest
growing economy (with a 6.9% annual change in 2017).
● China has a socialist economy ruled by a communist government, formed after Mao Tse
Tung’s communist forces defeated the nationalists in the Chinese Civil War in 1949.
● Under this communist regime, China attempted to modernise agriculture and industry via the
2 ‘Five Year Plans’ which reflected the policy of the ‘Great Leap Forward’ in the 1950s. This
policy failed to raise national output and resulted in widespread famine and poverty.
● In 1966, The Great Proletarian Cultural Revolution negatively impacted Chinese industrial
production. This was due to frozen wages and lack of bonuses, and the trend of hiring more
workers than needed to combat unemployment. Whilst overall output grew, capital to output
ratios declined.
● After Mao Tse Tung’s death in 1978, Deng Xiaoping became the new chairman who
implemented economic reforms between 1978 and 1997 to improve China’s economic
performance. This created a movement away from China’s centrally-planned economy. These
reforms took China from 9th in GDP (in 1978) to 2nd, within 35 years.
○ In 1997, the ‘one child’ policy was introduced.
○ In 1980 an ‘open door policy’ was adopted towards foreign trade and investment
with Special Economic Zones (SEZs) established in the southern and eastern coastal
provinces of China. These SEZs attracted foreign investment by MNCs through a range
of incentives such as low tax rates, exemption from import duties, cheap labour and
power, and less stringent govt regulations. Inflows of foreign capital increased China’s
access to export markets, transfers of Western technology and management skills,
and created employment in China’s expanding manufacturing sector.
○ In 1994 taxation reforms were introduced by the Chinese government. These reforms
shifted the power to collect taxes away from provincial govts to the central govt in
Beijing, in order to improve the efficiency of tax collection and to finance public
infrastructure spending.
○ Banking laws were introduced in 1995, to develop a system of network banking,
establish stock exchanges, and promote a more efficient capital market to facilitate
saving and investment in China.
○ In 1992, cuts to tariffs and other forms of protection were used to encourage greater
domestic efficiency through direct import competition. China’s average tariff rate
was cut from 32% to 19% in 1996 and reduced to 15% in 2000. These cuts in import
, protection supported China’s drive to attract foreign investment and open its
domestic market to move foreign competition.
● These economic reforms have made China the world’s leading country in manufacturing.
China’s secondary sector (industry and construction) has long held the largest share of GDP. In
January, 2020, the sections were as follows:
Primary Sector Agriculture - $43005 CNY HML
Secondary Sector Construction - $45143 CNY HML
Manufacturing - $233457 CNY HML
Tertiary Sector Services - $376925 CNY HML
Transport - $31894 CNY HML
Economic Growth
● During the GFC (2009), economic growth slowed from 10% to 8.7%
● Limited financial shocks, however real shocks were significant (decrease in aggregate demand
and collapse in commodity markets)
● China’s imports and exports dropped 2.2% and 2.8%
● China implemented a US$585bn fiscal stimulus package in 2008-2010 (infrastructure projects)
to maintain growth target of 8%
● Successful recovery by switching the sources of growth from exports and foreign investment
to domestic consumption (35%) and investment spending
● GDP Growth Rate
○ 2019: 6.1% on average (29 year low). This weak growth rate still within target 6-6.5%
○ 2011: 9.3% (fell due to natural disasters in Japan and the European sovereign Debt
Crisis)
● In 2011 the natural disasters in Japan and the European Sovereign Debt Crisis lowered export
revenue.
BACKGROUND INFO
● The Chinese economy is the second largest in the world, and is regarded as the fastest
growing economy (with a 6.9% annual change in 2017).
● China has a socialist economy ruled by a communist government, formed after Mao Tse
Tung’s communist forces defeated the nationalists in the Chinese Civil War in 1949.
● Under this communist regime, China attempted to modernise agriculture and industry via the
2 ‘Five Year Plans’ which reflected the policy of the ‘Great Leap Forward’ in the 1950s. This
policy failed to raise national output and resulted in widespread famine and poverty.
● In 1966, The Great Proletarian Cultural Revolution negatively impacted Chinese industrial
production. This was due to frozen wages and lack of bonuses, and the trend of hiring more
workers than needed to combat unemployment. Whilst overall output grew, capital to output
ratios declined.
● After Mao Tse Tung’s death in 1978, Deng Xiaoping became the new chairman who
implemented economic reforms between 1978 and 1997 to improve China’s economic
performance. This created a movement away from China’s centrally-planned economy. These
reforms took China from 9th in GDP (in 1978) to 2nd, within 35 years.
○ In 1997, the ‘one child’ policy was introduced.
○ In 1980 an ‘open door policy’ was adopted towards foreign trade and investment
with Special Economic Zones (SEZs) established in the southern and eastern coastal
provinces of China. These SEZs attracted foreign investment by MNCs through a range
of incentives such as low tax rates, exemption from import duties, cheap labour and
power, and less stringent govt regulations. Inflows of foreign capital increased China’s
access to export markets, transfers of Western technology and management skills,
and created employment in China’s expanding manufacturing sector.
○ In 1994 taxation reforms were introduced by the Chinese government. These reforms
shifted the power to collect taxes away from provincial govts to the central govt in
Beijing, in order to improve the efficiency of tax collection and to finance public
infrastructure spending.
○ Banking laws were introduced in 1995, to develop a system of network banking,
establish stock exchanges, and promote a more efficient capital market to facilitate
saving and investment in China.
○ In 1992, cuts to tariffs and other forms of protection were used to encourage greater
domestic efficiency through direct import competition. China’s average tariff rate
was cut from 32% to 19% in 1996 and reduced to 15% in 2000. These cuts in import
, protection supported China’s drive to attract foreign investment and open its
domestic market to move foreign competition.
● These economic reforms have made China the world’s leading country in manufacturing.
China’s secondary sector (industry and construction) has long held the largest share of GDP. In
January, 2020, the sections were as follows:
Primary Sector Agriculture - $43005 CNY HML
Secondary Sector Construction - $45143 CNY HML
Manufacturing - $233457 CNY HML
Tertiary Sector Services - $376925 CNY HML
Transport - $31894 CNY HML
Economic Growth
● During the GFC (2009), economic growth slowed from 10% to 8.7%
● Limited financial shocks, however real shocks were significant (decrease in aggregate demand
and collapse in commodity markets)
● China’s imports and exports dropped 2.2% and 2.8%
● China implemented a US$585bn fiscal stimulus package in 2008-2010 (infrastructure projects)
to maintain growth target of 8%
● Successful recovery by switching the sources of growth from exports and foreign investment
to domestic consumption (35%) and investment spending
● GDP Growth Rate
○ 2019: 6.1% on average (29 year low). This weak growth rate still within target 6-6.5%
○ 2011: 9.3% (fell due to natural disasters in Japan and the European sovereign Debt
Crisis)
● In 2011 the natural disasters in Japan and the European Sovereign Debt Crisis lowered export
revenue.
