China

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Foreign Trade

In 2003, China's import and export trade volume totaled US$850.99 billion, with an increase of 37.1 percent over 2002, ranking 4th in world trade. This compares to China's coming in 32nd in 1978, 15th in 1989, 10th in 1997 and 6th in 2001. At present, more than 220 countries and regions in the world have trade exchanges with China. The 10 major trade partners of China's mainland are: Japan, the United States, the European Union ("EU"), the Hong Kong Special Administrative Region, the Association of Southeast Asian Nations ("ASEAN"), the Republic of Korea, Taiwan Province, Australia, Russia and Canada.

Overseas Investment

According to statistics from the Ministry of Commerce, China by the end of 2002 had a net volume of direct overseas investment that came to US$29.92 billion (not including finance); and a sale's volume for its overseas enterprises for the year that topped US$77.2 billion. In September 2002, China's TCL Corporation purchased the Schneider Company, a German TV set manufacturer. In 2003 TCL teamed with Thomson, the biggest French consumer electronics company, to establish TCL-Thomson Company, which has an annual production capacity of 18 million TV sets, as the biggest TV sets producer in the world. China's largest household electronic appliances producer, the Haier Group, has expanded its refrigerator factory in South Carolina of the United States, making it capable of producing 400,000 to 500,000 refrigerators a year. The Haier Group has also set up 13 factories in Europe and South America. The largest Chinese computer company, the Lenovo Group Limited, also rapidly expanded its overseas market, planning to raise its presently 4 percent export rate to 20 percent before 2007.

Income

Tremendous changes have taken place in the lifestyle of the Chinese people in the past 50 years, especially in the past two decades as average income has increased steadily. People in China today have money to buy or invest in houses and apartments, cars, computers, stock and traveling abroad. China's GDP per capita exceeded US$1,000 in 2003, calculated according to the current exchange rate. Between 1978 and 2003, the net income per rural resident increased from 134 to 2,622 yuan, at the average annual growth rate of 7.1 percent in real terms; and the disposable income per urban resident increased from 343 to 8,472, at an average annual growth rate of 6.8 percent in real terms.

The increase in personal income is reflected in the growth of bank savings deposits. In the first 30 years of the second half of the last century, the balance of residents' savings deposits increased from 860 million yuan in 1952 to 21.06 billion yuan in 1978. In the 20 years after the initiation of reform and opening-up, the balance of personal savings deposits has increased in the geometric progression. In the eight years between 1979 and 1986, the balance of the savings deposits increased 10 times, reaching 223.85 billion yuan, which rose to 2,151.88 billion yuan in 1994. It means within the 16 years, the balance of the savings deposits increased 100 times. Six years later in 2000, the balance of personal savings increased to 6,433.24 billion yuan, or 304 times the 1978 figure. It reached 7,376.2 billion yuan in 2001, 8,691.1 billion yuan in 2002, and 10,361.8 billion yuan in 2003. Personal foreign exchange deposits, stocks, bonds, internal stocks, and cash have all grown by a large margin.

Consumption

Consumers in China today are spending their money on housing, transportation, telecommunications, medical and health care, culture, education and entertainment, leisure and tourism. This is remarkable in that not so long ago basic subsistence was a major concern of many citizens. As expenses for food, clothing and basic necessities dropped, the Engel coefficient (the proportion of food expenses of total consumer spending) of urban residents decreased from 57.5 percent in 1978 to 37.1 percent in 2002; and that of rural residents dropped from 67.7 percent to 45.6 percent. Today urban residents are shopping at supermarkets as well stocked as any of the best in the Western world and are enjoying dining out at fine restaurants. In rural areas, people are less dependent on grains and are eating more eggs and meat. Affordable, ready-made clothes are available everywhere with people dressing in the latest fashion, both Western and Chinese. In terms of housing, transportation and telecommunications — people are buying and replacing old household items and appliances with large-screen, high-definition color TV, refrigerators with freezers and other components, and the latest in washing machines, for example. Air conditioners, home entertainment units, water heater and furniture also are popular consumer items; video cameras, computers and exercise equipment are becoming commonplace in the average home. More people are buying cars. In 2003, the purchase of cars in China increased by 34.5 percent. Of every 100 cars sold, at least 60 were purchased by individuals, and that rate is as high as 80 percent in big cities. The consumption expenditure on housing has also kept growing, with its nationwide increasing rate for 2003 reaching 31.9 percent.

Overview

China's annual GDP growth has averaged more than 8 percent in the past 25 years, and in 2003, its GDP grew by a record-breaking 9.1 percent despite the outbreak last year in China of Severe Acute Respiratory Syndrome ("SARS"). Other signs of China's overall improving economic strength in 2003:

* The total government revenue was 2.17 trillion yuan (US$261.4 billion), 278.7 billion yuan (US$33.58 billion) more than the previous year.

* Foreign trade expanded significantly. Total import and export volume was US$851.2 billion, 37.1 percent more than the previous year, raising China from fifth to fourth place in the world;

* China created more jobs than planned. Some 8.59 million urban residents became employed, with 4.4 million laid-off workers re-employed;

* Personal incomes increased. Urban per capita disposable income grew by 9 percent in real terms, and rural per capita net income rose by 4.3 percent in real terms.

Noting these economic achievements as well as the complete success of China's first manned space flight in 2003, Premier Wen Jiabao in his annual address to the NPC in March 2004 pointed to a national strength that has reached new heights. At the same time, Premier Wen put forward only a moderate 7 percent growth target for the year ahead to seek to improve the socialist market economy through a "people-centered development" that coordinates development of the economy, society and individuals. CPC General Secretary Hu Jintao summed up the approach as a "scientific concept of development."

Economic System

In the first 30 years after the founding of the PRC in 1949, the Chinese government carried out a system of planned economy, and targets and quotas for various spheres of economic development were set by the "planning committees" of the state. Factories produced goods according to state plans, and farmers planted crops also according to state plans. Commercial departments replenished and sold their stocks according to state plans, and the qualities, quantities and prices of the goods were all fixed by planning departments. This system contributed to the stable, planned development of China's economy, but it also limited the development of the economy and sapped its vitality.

China's economic reforms began first in the rural areas in 1978, when the household contract responsibility system was introduced there. Under this system, farmers got the right to use the land, plan farm work and dispose of products independently. Farmers had more choices for selling their agricultural products. State monopoly of the purchase and marketing of agricultural products was eliminated; the prices of the majority of farm products were freed; many policies restricting agricultural development were abolished; and farmers were allowed to engage in diversified business and set up township enterprises. All this greatly increased farm production.

In 1984, the economic restructuring shifted from the rural areas to the cities, and in 1992, after some 10 years of reform and opening-up and with a clearer orientation toward the implementation of reforms and establishment of a socialist market economic system, the Chinese government set forth main principles for economic structural reform as follows:

The development of diversified economic elements will be encouraged while keeping the public sector of the economy in the dominant position.

To meet the requirements of the market economy, the operations of state-owned enterprises should be changed so that they fit in with the modern enterprise system.

A unified and open market system should be established in the country so as to link the rural and urban markets, and the domestic and international markets, and to promote the optimization of the allocation of resources.

The function of managing the economy by the government should be changed so as to establish a complete macro-control system mainly by indirect means.

A distribution system should be established in which distribution according to work is dominant while giving priority to efficiency with due consideration to fairness. This system will encourage some people and some places to become rich first, and then they may help other people and places to become rich, too.

A social security system, suited to China's situation, for both rural and urban residents shall be worked out so as to promote overall economic development and ensure social stability.

In 1987, the Chinese government set out a clear and definite economic construction objective: The first step was to double the 1980 GNP and ensure that the people have enough food and clothing. China attained this by the end of the 1980s. The second step was to quadruple the 1980 GNP by the end of the 20th century. This was achieved in 1995, ahead of time. The third step is to increase the per-capita GNP to the level of the medium-developed countries by the mid-21st century. At this point, Chinese people will have achieved a high standard of living and modernization basically will be realized.

In 1997, the Chinese government stressed that the non-public sectors of the economy were an important component part of the socialist economy of China, in which profitability was encouraged for elements of production, such as capital and technology. By 2002, reform in various fields was achieving remarkable results. A socialist market economic system has taken shape, and the basic role played by the market has been improved in the sphere of resources allocation. At the same time, the macro-control system continued to be perfected.

In March 2003, following the First Session of the 10th National People's Congress, China restructured these key economic ministries:

The State Development and Planning Commission ("SDPC") was renamed the National Development and Reform Commission ("NDRC") and absorbed the duties of the State Council Office for Economic Restructuring and some functions of other ministries;

The operations of the State Economic and Trade Commission ("SETC") and the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") were folded into a new Ministry of Commerce responsible for oversight of all domestic and foreign trade.

A new State Assets Management Commission ("SAMC") assumed responsibility for managing and restructuring state-owned enterprises ("SOEs").

A new China Banking Regulatory Commission ("CBRC") was given responsibility for supervision and regulation of the banking sector.

The pattern in which the public sector of the economy plays the main role and coexists with non-public sectors of the economy such as individual economy and privately owned economy for common development has basically been formed.

Diverse Economic Sectors

In 1978, China had only the public-ownership economy, state-owned enterprises making up 77.6 percent and collectively owned enterprises, 22.4 percent. The policy of reform and opening-up has given extensive scope to the common development of various economic sectors. The individual and privately owned industrial enterprises and enterprises with foreign, Hong Kong, Macao or Taiwan investments have mushroomed.

The reform of state-owned enterprises has always been the key link of China's economic restructuring. The Chinese government has made various experiments, trying every means to solve the problem of long-term, extensive losses incurred by state-owned enterprises. By 2003, some 80 percent of the 4,371 key enterprises in China had undergone reform and adopted the company system, and over 90 percent of the medium- and small-sized enterprises had reformed their systems. After being reorganized into joint stock companies, the economic profit of the state-owned enterprises increased steadily and their overall strength and quality were remarkably improved, gaining continuously in their control, influence and lead in the whole national economy.

In 2003, of the total added value of the state-owned enterprises as well as non-state-owned enterprises which have an annual sales volume of five million yuan or above, the state-owned and state stock holding enterprises took up 47.3 percent; collectively owned enterprises, 6.8 percent; and the rest were taken up by other non-public sectors including enterprises with foreign, Hong Kong, Macao or Taiwan investments, and individual and privately owned enterprises, forming a dynamic situation of the co-existence of diversified economic elements.

In 2003, the State-owned Assets Supervision and Administration of the State Council gave approval to 48 state-owned enterprises to transfer part of their property rights and stock rights which involved some 22.5 billion yuan of the state-owned assets and their rights.

The 10th Five-Year Plan

Strategically, China adopts the "five-year-plan" scheme for its economic development. The 10th Five-Year-Plan starting in 2001 gives China the first blueprint for the new century with main targets for economic and social development as follows:

— Maintaining a fairly rapid growth rate of the national economy, achieving noticeable success in the strategic restructuring of the economy, and making marked improvements in the quality and benefits of economic growth, laying a solid foundation for doubling the 2000 GDP by 2010; making significant progress in establishing a modern enterprise system in state-owned enterprises, improving the social security system and the socialist market economy and taking part in international economic cooperation and competition more extensively and deeply.

— The average annual economic growth rate will be about seven percent. By 2005, the GDP will reach about 12,500 billion yuan, calculated at the prices of 2000, and the GDP per capita will be 9,400 yuan. In the coming five years, the number of urban employees will increase by 40 million, and the number of surplus rural laborers to be transferred will also be 40 million. The registered urban unemployment rate will be controlled at about five percent; the price level as a whole will be basically stable; and the international revenue and expenditure will be basically balanced.

—The industrial structure will be optimized and upgraded, and China's international competitiveness will be strengthened. In 2005, the value increases of the primary, secondary and tertiary industries will be 13 percent, 51 percent and 36 percent of the GDP, respectively; their employees will account for 44 percent, 23 percent and 33 percent, respectively, of the total employees; the national economy and the social IT level will be remarkably improved; the infrastructure facilities will be further consummated; the development disparity between regions will be put under effective control; and the urbanization level will be raised.

— In 2005, the proportion of the research and development funds of the entire society in the GDP will increase to more than 1.5 percent; sci-tech innovation capabilities will be strengthened, and technological progress will be speeded up; the gross enrolment rate of junior high schools will be over 90 percent; and that of senior high schools and higher education, about 60 percent and 15 percent, respectively.

— The natural population growth rate will be less than nine per thousand, and in 2005 China's total population will be no more than 1.33 billion. The forest coverage will be raised to 18.2 percent, and the urban green rate, to 35 percent; the total amount of major urban and rural pollutants discharged will be reduced by 10 percent as compared with that of 2000; and remarkable achievements will be made in the saving and protection of natural resources.

— The average annual growth rate of the disposable income per urban resident and that of the net income per rural resident will both be about five percent; in 2005, the floor space of housing per urban resident will be increased to 22 sq m, and 40 percent of the total households in China will have cable TV; medical and health services in both urban and rural areas will be further improved; and the people's cultural life will be richer and more varied.