China in Need of a New Paradigm

Abstract

China has impressive dimensions. Its population is about 1.3 billion persons and its territory has an area of 9,561,000 square kilometers.⁶ However, its GDP per capita is still significantly lagging at an estimated $1700 in 2006. The rate of inflation declined from 3.9 percent in 2004 to about 2.1 percent in 2005 and is estimated at 2 percent in 2006. Real GDP growth was 9.5 percent in 2005, 9.3 percent in 2005 and is growing at 10.9 percent in mid-2006. The growth of China is driven by industrial production, which grew in percentages by 11.1 in 2004, 9.7 in 2005 and 17.7 percent in mid-2006. China is revising its national accounts to include smaller private activity. This revision raises its output by 17 percent and increases its past growth rates. Government expenditure is 22.2 percent of GDP and the budget is estimated to be in deficit in 2006 by 1.1 percent of GDP. China is a major presence in world trade. Its exports are estimated to reach $889 billion in 2006. However, only 20–30 percent of these exports consist of value actually added in China because of the high content of re-exports. The share of the United States in total Chinese exports is about 21 percent and the share in imports is 8 percent. However, 34 percent of Chinese exports are to Asian countries (17 percent to Hong Kong, 12.4 percent to Japan and 4.7 percent to South Korea).