CHINA

People's Republic of China

Zhonghua Renmin Gongheguo

COUNTRY OVERVIEW

LOCATION AND SIZE.

China is situated in the eastern part of Asia, on the west coast of the Pacific Ocean, in the southeastern part of the Eurasian continent, bordering the East China Sea, Korea Bay, Yellow Sea, and South China Sea, between North Korea and Vietnam. Its border countries include Afghanistan, Bhutan, Burma, (Hong Kong), India, Kazakhstan, North Korea, Kyrgyzstan, Laos, (Macau), Mongolia, Nepal, Pakistan, Russia, Tajikistan, and Vietnam. The land area consists of 9,596,960 square kilometers (3,696,000 square miles), the third largest in the world after Russia and Canada. The country's coastline is 14,500 kilometers (9,010 miles) long. China is divided into 22 provinces, 4 municipalities, 5 autonomous regions, and 2 special administration regions (Hong Kong and Macau). Beijing, the capital, is also the cultural and educational center of China. The city has an area of 65 square kilometers (25 square miles) and is partially surrounded by walls that were built in the 15th century.

POPULATION.

The population of China was estimated at 1,262 million in July of 2000, an increase of 10.36 percent from the 1990 population of 1,143 million. In 2000 the population growth rate was estimated at 0.9 percent, the birth rate was 16.12 per 1,000, and the death rate was 6.73 per 1,000. With a projected annual population growth rate of 0.9 percent between 2000 and 2010, the population is expected to reach 1,392.5 million in 2010. A simulation study conducted by the China State Statistics Bureau indicates that country's total population will peak at 1,402 to 1,550 million in the 2030s or 2040s.

The population of China consists of 56 ethnic groups. Han Chinese make up 91.9 percent while Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu, Mongol, Buyi, Korean, and other ethnic minorities make up 8.1 percent. The great majority, 68 percent of the population, is between ages 15 and 64; while 25 percent is at the age of 14 or below, 7 percent is at 65 or older. The life expectancy at birth in 2000 is estimated at 71.4 years (total population), 69.6 years (male) and 73.3 years (female). The country's high life expectancy and low infant mortality rates are envied by much richer nations.

In 1949, when China became a communist nation, the population was about 541 million. Over the following 10 years, it increased by another 118 million. It continued to rise through the 1960s. The government encouraged this increase so China could develop water control and communication infrastructures. The government also thought increased production could help produce more food and strengthen the nation's defense. Twenty years later, the millions born during that period contributed to another baby boom. By 1970, there were roughly 830 million Chinese. The over-growing population had generated serious problems and negatively affected the national economy.

To slow the population growth the government introduced a one-child-per-family policy in the late 1970s. The policy was created not only to deal with the huge population problem but as a prerequisite for the social and financial planning necessary in a socialist system. The policy is more strictly enforced in urban areas and is unpopular in the rural areas where male children are more important. However, it is enforced enough to make most couples obey it. With the introduction of the one-child policy, the population growth has slowed, with probably 250 million fewer births since 1979. Two types of obvious changes in population have taken place. First, the people are aging. The number of people 65 or older is estimated at 87.8 million in 2000 and is expected to be 167 million by 2020, compared with an elderly population of 66 million in 1990. Second, the population is becoming more urban. For instance, the urban population was at 297 million in 1990, up 90 million from 1982. During the same period, the populations of the 2 largest cities, Beijing and Shanghai, have increased 17 percent and 13 percent respectively.

Overpopulation is the number-one global problem. Many people question controlling population through legislation. Even after the 20 years that the Chinese civilization has trusted this solution to solve their problem, some still violate the policy. However, this does not imply that legislative control is wrong, especially when dealing with the extremes facing China. Backers of China's population policy say that such state-mandated birth control and family planning is necessary not only for the well-being of China but for that of the whole world.

OVERVIEW OF ECONOMY

China's economy has grown increasingly faster since the 1978 introduction of economic reforms. The Chinese official statistics show that real gross domestic product (GDP) from 1979 to 1999 was growing at an average annual rate of 9.7 percent, making China one the world's fastest growing economies. According to the World Bank, China's rapid development has raised nearly 200 million people out of extreme poverty.

Since its establishment in 1949 and until the end of 1978, China maintained a centrally planned, or command, economy. The state directed and controlled a large share of the country's economic output; the state set production goals, controlled prices, and allocated resources throughout most of the economy. By 1978, nearly three-fourths of the country's industrial production was produced by centrally controlled state-owned enterprises (SOEs) according to centrally planned output targets. There were almost no private enterprises or foreign invested firms in China. It was estimated that China's real GDP grew at an average annual rate of about 5.3 percent from 1960 to 1978. Because the central planning economic systems and government economic policies put little emphasis on profitability or competition, the country's economy was relatively stagnant and inefficient. As a result the Chinese living standards were substantially lower than those of many other developing countries. The Chinese government took steps to improve economic growth and raise living standards in the late 1970s.

The first of China's economic reforms started in 1978 when Den Xiaoping came into power again. The reforms concentrated on the agricultural production system in rural areas. The central government initiated price and ownership incentives for farmers; for the first time, farmers were able to sell a portion of their crops on the free market. In addition, the reforms tried to attract foreign investment, boost exports, and begin the importation of high technology products into the country. To do this, the government established 4 special economic zones (SEZs). Additional reforms followed in stages that sought to decentralize economic policymaking in several economic sectors, especially trade. As a part of the decentralization of economic policymaking, provincial and local governments took economic control of various enterprises, allowing them to operate and compete on free market principles.

The economic reforms had produced such promising economic growth that by the middle of 1980s the government selected additional coastal regions and cities as open cities and development zones to test more free market reforms and to offer tax and trade incentives to attract investment from overseas. Moreover, the state gradually eliminated the price controls on a wide range of products. Agricultural output doubled in the 1980s, and industry also demonstrated major gains, especially in coastal areas close to Hong Kong and opposite Taiwan, where foreign investment helped stimulate output of both domestic and export goods. Even more reforms were initiated in late 1993 when China's leadership approved additional long-term reforms which would allow the state enterprises to continue to dominate many key industries in what was now termed "a socialist market economy."

The transition of the country's economic system from a command to a market-based economy helped fuel a strong average growth. Between the start of an economic reform program in 1978 and 1995, the GDP growth was 8.0 percent a year. The growth remained strong from 1996 to 2000. In 1999 China became the second largest economy in the world, after the United States. But China's GDP per capita of US$3,800 was much less than the United States.

China's trade and investment reforms as well as its incentives led to a surge in foreign direct investment (FDI), which has served as a major source of China's capital growth. Annual utilized FDI in China grew from US$636 million in 1983 to US$45.6 billion in 1998 (but dropped to an estimated level of US$40.5 billion in 1999), making China, in the late 1990s, the second largest destination of FDI (after the United States). About two-thirds of FDI in China comes from Hong Kong and Taiwan. The United States is the third largest investor in China, accounting for 8.0 percent (US$24.6 billion) of total FDI in China from 1979 to 1999.

Since the reforms, China has made great strides in improving its social welfare. Both consumption and saving have more than doubled, and the poverty rate has declined. According to the World Bank, about 200 million Chinese who used to live in absolute poverty have been raised above the minimum poverty line. And only 10 percent of the country's population of 1.25 billion were illiterate.

Although the reforms were encouraging, the Chinese government experienced various difficulties. It struggled to collect revenues due from provinces, businesses, and individuals; to reduce corruption and other economic crimes coinciding with the reforms; and to maintain daily operations of the large state-owned enterprises. Many of the state-owned enterprises had not participated in the vigorous expansion of the economy, and some of them had lost the ability to pay full wages and pensions.

POLITICS, GOVERNMENT, AND TAXATION

China's form of government is a communist state known as a People's Republic. The Chinese Communist Party (CCP) is the leading political party in China. Unlike parties in Western democracies, CCP is a tightly organized political force that controls and leads society at all levels. The party sets policy and controls its execution through government officials who are required to be CCP members. It is organized as a hierarchy, with power concentrated at the top. Above the local units, or cells, is a pyramid-like structure of party congresses and committees at various levels, culminating in the National Party Congress.

Generally, CCP's national congress is supposed to meet every 5 years, though this has not always been the case. When it is not in session, direction of the party is in the hands of a Central Committee of about 200 members, which is symbolically elected by the congress according to the name list distributed by the congress board. The symbolically elected Central Committee, in turn, elects the Political Bureau. It is within the Political Bureau and its elite Standing Committee that power is concentrated, which make the state's highest-level decisions. There is also a secretariat, which carries on the day-today business of the party.

Theoretically, party membership is open to anyone over 18 years of age who accepts the party program and is willing to work actively in one of its organizations. In reality, only those who are deemed to be fellows of local CCP branch leaders will have the chance to be recruited into the party. Members are expected to abide by the party's discipline and to serve as model citizens. The backbone of the party consists of full-time paid workers known as cadres (Chinese, ganbu ). The term cadre is also used for public officials holding responsible positions, who may or may not be members of the party.

The People's Republic was first governed according to the "Common Program" and organic laws adopted in 1949. Since 1954, 4 constitutions followed, each reflecting shifts in policy and the balance of power among factions of the top leadership. The government structure forms a pyramid, ranging from local units such as residents' (urban) and villagers' committees through counties, prefectures, and then to the 22 provinces, 5 autonomous regions, and 4 special status municipalities (Beijing, Shanghai, Tianjin, and Chongqing), each with its own people's congress and administrative organs, and 2 special administration regions (Hong Kong, Macau). At the top of the government structure is the national government in Beijing.

The chief of state is President Jiang Zemin, who has served as president since 1993. The president and vice-president are elected to 5-year terms by the National People's Congress. The head of government is Premier Zhu Rongji, who has served in his position since 1998. The president nominates the premier who is confirmed by the Congress.

The National People's Congress is the legislature of China and serves annual sessions with 5-year terms. The Standing Committee of the Congress exercises its functions between sessions. The highest administrative organ is the State Council (similar to the United States Cabinet), headed by the premier. The court system parallels the administrative system. However, the Chinese have traditionally tended to resolve conflicts through social rather than legal or judicial mediation, and the rule of law as it is known in Western countries is currently not well-known. The number of lawyers is very small compared with many Western countries, and legal methods are not familiar to most Chinese.

The judiciary is headed by the Supreme People's Court, which consists of 1 president and 1 vice president, who each serve 4-year terms. Other courts include Special People's Courts and Local People's Courts. Supreme People's Procuratorates and Local People's Procuratorates enforce laws.

Tax policies are administered by the Ministry of Finance (MOF) and the State Administration of Taxation (SAT). The SAT is the central tax authority at ministerial level. Tax policy is the exclusive domain of the central government although the local government may input some efforts in taxation. With the adoption of a new tax system in 1994, the country adopted a tax revenue-sharing system. This means that some taxes, mostly direct taxes , are assigned to local government, while other taxes, such as value-added tax (VAT), are shared between the central government (75 percent) and local government (25 percent). Shared taxes are levied on the same tax base and then allocated between different levels of governments at pre-determined ratios.

The ratio of the total tax revenue to GDP has declined over the 1990s, although the total tax revenue has increased substantially. The main reason for the decline is the rapid growth of the service sector, whose tax burden is lower than that of manufacturing, and an increase in foreign investment, mostly in special zones where very generous tax incentives have been granted. The 1994 tax reform emphasized taxation on consumption, and currently efforts are being made to fine tune these indirect taxes , particularly the administration and collection of VAT. The abuse of invoices is a serious, continuing tax fraud problem. The main tax types for business, citizens, foreign enterprises, and foreigners in China are value-added tax (VAT); consumption tax; business tax; foreign enterprises income tax ; individual income tax; customs duties ; urban estate tax ; vehicle and vessel usage and license plate tax; land appreciation tax; stamp duties; resources tax; and deed tax.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Infrastructure in China varies from fairly good to very poor. Resources for industry are currently heavily constrained by infrastructure shortages. The government

recognizes infrastructure as the key to achieving full-industrialized status and to offsetting a diminishing cheap labor advantage. Energy and transportation needs in particular have stalled growth and fueled inflation , while telecommunications is acknowledged as a requirement for further economic growth.

RAILWAYS.

China has an estimated 69,412 kilometers (43,131 miles) of railroad. Every province-level administrative unit except Tibet was served by rail, and plans were being made to extend a line south from the Lanzhou-Urumqi line to Lhasa, in Xizang (Tibet). Railways have been the most important tools for transportation in China. For example, more than 50 percent of the country's traffic is moved by the railroad system. China's railway network consists of a series of north-south trunk lines, crossed by a few major east-west lines. Most of the large cities are served by these trunk lines, forming a nationwide network, with Beijing as its hub.

ROADS AND HIGHWAYS.

China has 1,209,800 kilometers (751,894 miles) of highway in total, among which 271,300 kilometers (168,586 miles) are paved (with at least 24,474 kilometers or 15,200 miles of expressways). The network of all-weather roads and highways is not a unified national system with consistent standards; the conditions of many of the roads are poor. Despite its shortcomings, the road network is probably adequate to meet the country's current needs. China has a small number of cars, trucks, and buses as compared with the United States or Japan. In the early 1990s there were about 7 million motor vehicles, two-thirds of which were trucks and buses. It produces about 200,000 trucks annually and limited automobiles. An increasing number of cars are owned privately, which will lead fast demand for qualified highways. The highway network accounts for only about 2 percent of total freight traffic.

AIR TRANSPORTATION.

China set up the General Administration of Civil Aviation of China (GACAC) after 1949, which has continued to serve as the nation's domestic and international air carrier. Most major cities are served by domestic flights, and a few large cities like Guangzhou, Shanghai, and Beijing have international service. GACAC planes fly to Europe, Japan, the United States, and South Asia. Some provincial and urban authorities operate intercity airlines that carry passengers and freight. There are 206 airports (1996 est.), among which 192 have paved runways.

SHIPPING.

China has 110,000 kilometers (68,354 miles) of navigable waterways and 1,746 ships (merchant marine). It has 9,070 kilometers (5,636 miles) of crude oil pipelines, 560 kilometers (348 miles) of petroleum products pipelines and 9,383 kilometers (5,830 miles) of natural gas pipelines (1999 est.).

POWER.

China's power sector has performed impressively in support of economic growth during the past twenty years. Faced with the need to expand its power capacity, the state is investing heavily in the construction of new power plants and self-financing capability. Equally significant in the development of the national power sector are the establishment of regional power grids and the implementation of an electricity tariff reform to tackle the problems of inefficient power distribution and usage. Electrical power is supplied mainly by the state-owned enterprises. China has effectively restructured its power industry by closing a large number of small thermal power plants with high coal consumption, heavy pollution, and poor economic efficiency. According to the official statistics, the country generated 1.16 trillion kilowatt hours (kWh) of electricity in 2000, a 6 percent increase from the previous year; the country has made headway in building and renovating 87 urban power grid projects and 1,590 rural ones. China has also developed its enormous hydroelectric potential so that a larger share of its domestic demand for electric power can be met with renewable hydropower. Renewable hydropower is tapped from moving water such as waterfalls and fast-moving streams.

The reform and opening up policies have brought great leaps and bounds to the development of the country's nuclear power industry. Meanwhile, China attracts foreign funds to supplement the domestic shortage of funds in power construction and to upgrade the technological equipment of the power industry. According to the statistic communiqué of the PRC on the 1998 national economic and social development issued in February of 1999, the newly-increased annual production capacity in 1998 through capital construction projects included 16.9 million kilowatts of power generation by large and medium-sized generators and 47.26 million kilovolt-amperes of power transformer equipment (including 7.79 million kilovolt-amperes of updated power grid in urban and rural areas). China is the country to deliberate the biggest nuclear power station construction plan in the world. According to the central government's plan, by year 2020, China will possess 40,000,000 KM of nuclear power installed capacity.

COMMUNICATION.

Considerable effort has been expended on the postal and telecommunications systems in China since 1949, but they are still far from meeting Western standards of speed and efficiency. The mail is mainly carried by the nation's railroad. As is the case with transportation, the telecommunications system is sufficient enough to meet the needs of a growing economy. There were 110 million main lines in use (1999 est.) and 23.4 million mobile cellular phones in use (1998). Domestic and international services are increasingly available for private use; an unevenly distributed domestic system serves principal cities, industrial centers, and most small and middle-sized towns. Domestically, inter-provincial fiber-optic trunk lines and cellular telephone systems have been installed; a domestic satellite system with 55 earth stations is in place. Internationally, China has 5 Intelsat (4 Pacific Ocean and 1 Indian Ocean), 1 Intersputnik (Indian Ocean region), and 1 Inmarsat (Pacific and Indian Ocean regions), as well as several international fiber-optic links to Japan, South Korea, Hong Kong, Russia, and Germany. The country had 673 radio broadcast stations—369 AM, 259 FM, 45 shortwave—and 417 million radios. In 1997, the country had 3,240 television broadcast stations, (of which 209 are operated by China Central Television, 31 are provincial TV stations and nearly 3,000 are local city stations), and 400 million televisions. In 1999, the country had 3 Internet service providers (ISPs).

ECONOMIC SECTORS

Over the years, China has become gradually more industrialized. Like other modernizing countries, for instance, the contribution of China's agricultural sector to its GDP has kept decreasing, from 37.9 percent in 1965 to 28.4 percent in 1985 and then to 18.4 percent in 1998— a net decrease of 19.5 percent in the 3-decade period. At the same time, the contribution of the industrial sector to GDP has kept increasing, from 35.1 percent in 1965 to 43.1 percent in 1985 and then to 48.7 percent in 1998, a net increase of 14.6 percent in the 3-decade period. The contribution of tertiary industry (service) to the GDP has increased from 27.0 percent in 1965 to 28.5 percent in 1985 and then to 32.9 per cent in 1998, a total increase of only 5.9 percent in the same period.

The world's economic development history indicates that as a country heads toward modernization, the ratio of agriculture to its GDP is set to drop, the ratio of service to its GDP will go up, while the ratio of industry to its GDP will first go up and then drop. China's economic development followed the same patterns. For instance, the ratio of agriculture's value added to the world's GDP was 7 percent in 1980 and fell to 5 percent in 1998. The ratio of agriculture's value added to the GDP of developed countries is normally 2 to 3 percent. The popular development model also demonstrates that when the GDP annual per capita income stood between US$300 and US$500, the proportions of agricultural and industrial sectors were virtually similar in the GDP while the employment proportion was higher in agricultural sector; when the annual per capita income reached US$1,500, the proportions of the industrial sector and service sector were basically similar in the GDP while the employment proportion in agricultural sector fell to the lowest proportion. However, China's situation varies somewhat from the traditional development model. For instance, in 1999, the per capita income in China exceeded US$1,000 (using the purchasing power parity method), while the proportion of the employment in the agricultural sector was still as high as 50 percent.

As shown above, non-agricultural industries' value amounts to the main body of the national economy, but the proportion of employees in the agricultural sector dominates the workforce at present and will do so in the future. The conflict of a dual economic structure is still obvious. It is reflected in the enlarged income gap between industry and agriculture, rising from 2.12 in 1991 to 5.25 in 1995, and its estimated value will reach 5.62 in 2005. Obviously, the changes of the industrial structure and employment structures are not consistent with other developing countries. The Chinese government and scholars have noticed this phenomenon, and many efforts have been made to reshape the structure more properly.

AGRICULTURE

In the thousands of years that farming has been practiced in China, the Chinese have refined and perfected their agricultural techniques. Traditional Chinese agriculture is labor intensive; the emphasis is on using many workers to increase the crop yield per unit of land rather than on increasing the productivity of the individual worker. Chinese agricultural practices have been shaped by the a shortage of farmland in the country, at least relative to the population.

Agriculture and rural activities are important in China for many reasons. First, farming provides the food and fiber needed for the sustenance of China's people. At the same time, nearly 65 percent of the people depend on agriculture or other rural economic activities for their livelihood. Second, agriculture has always provided the means of employment for most new workers entering the labor force . With between 12 and 16 million new workers entering the labor force annually since the 1980s, agriculture must continue to absorb tremendous numbers of new workers while continuing to find ways to use these workers productively. Finally, the agricultural sector has been an important source of investment money. If, through hard work, good management, and the application of sound, scientific farming, Chinese agriculture can be more productive, capital surpluses can be created and invested in other sectors of the economy, which could accelerate the rate of economic growth and ultimately benefit all of China's people.

China's grain output hit over 500 million tons in recent years, while current annual consumption is 463.5 million tons. Grain reserves now stand at historically high levels. However, it is true that the weak and fragile foundations of the agricultural system remain basically unchanged. Grain supply is still threatened by a series of unfavorable factors in production, circulation, consumption and foreign trade. A recent detailed estimate forecasts that the country's grain consumption requirements in the year 2030 would be between 632.8 and 725.8 million tons, with projected production at that time of 662.5 million tons. So even faced with the maximum shortfall of 63.3 million tons, the country would still be able to satisfy 90 percent of its own needs. Over the past decades, China has imported about 12 million tons annually, or 3 to 4 percent of consumption. Considering the trend of grain shortages in the medium and long term, China might need to import about 5 percent of its grain demand, or 20 million tons, in regular years.

CROPS AND LIVESTOCK.

China's principal food crops are rice, wheat, corn, gaoliang (Chinese sorghum), millet, barley, and sunflower seeds. China is the world's largest producer of rice, and rice accounts for almost half of the country's total food-crop output. Rice, wheat, and corn together make up more than 90 percent of China's total food grain production, and these crops occupy about 85 percent of the land under cultivation. Grain production has risen steadily since rural economic system reform started in 1978. There has also been a steady rise in the output of industrial crops, the most important of which are cotton, oil-bearing crops (such as peanuts and rapeseed), sugar (both cane sugar and beet sugar), tobacco, baste fiber (for cordage, matting, and similar uses), tea, and fruits. Poultry and livestock production, though rising, remains the weakest sector of Chinese agriculture. Livestock numbers are high, but the amount of meat produced per animal is low. Thus, China has 15 percent of the world's livestock and about 40 percent of its pigs, but it provides only 7 percent of the meat products and 15 percent of the pork.

FORESTRY.

Despite China's large land area, its forest resources are modest. Much of the western interior is too high or too dry to support dense forest stands. In the humid east, the forests were harvested for centuries for building material and firewood; limited effort was made to regenerate them. In 1949, it was estimated that about 8 percent of the total surface of the country was covered with forests. Since then, an active program of forestation has been undertaken, and it is estimated that the forested area has been increased to 12 to 13 percent. In recent years about 2.5 million acres (1 million hectares) of forestland have been added annually. The state is aiming to have 20 percent of the country's surface in forest. In contrast, more than 30 percent of the United States is forested.

FISHING.

China has a long tradition of ocean and freshwater fishing and of aquaculture. Pond raising has always played an important role and has been increasingly emphasized to supplement coastal and inland fisheries threatened by over-fishing. China produces about 17.6 million tons yearly, first among the world's nations. More than 57 percent of the total catch is from the ocean. The remainder comes from rivers, canals, lakes, and ponds. China's coastal zone is rich in fish. All the coastal seas have extensive areas of shallow water over the continental shelf. In these seas, especially the Yellow River and East China River, cold and warm ocean currents mix, creating an environment that is particularly suitable for many species of ocean fish, including croakers, mackerels, tuna, herring, and sharks. Several varieties of shell-fish and specialties such as squid and octopus are also produced.

INDUSTRY

Since 1949 when the People's Republic of China was established, and especially since 1978, China's transformation from a traditional agricultural society to a modern industrial society has been greatly accelerated by a rapid industrial restructuring. China's industrial structure developed according to the objective of industrialization, which aimed at the proportion of agriculture being declined ceaselessly, the proportion of the industrial sector being ascended continually, and the proportion of the services sector being ascended greatly. The industrial goods produced in China all range from capital goods to consumption goods currently, though certain consumer products remain in short supply.

China's factory outputs extend from textiles to railway locomotives, jet planes, and computers. China is the largest producer of inexpensive cotton textiles in the world and exports large quantities of textiles and garments. Food processing is very important, and many agricultural goods are exported. China is one of the leaders of cement production in the world. Iron-and steel-making has declined recently, the production having dropped somewhat to about 44 million tons annually. Other industrial products include television sets, bicycles, cars, trucks, and washing machines. The product quality and production technology lag behind those made in Japan, the United States, and the European countries. The processing and manufacture of chemicals, including fertilizers, petroleum products, and pharmaceuticals, is another large and expanding segment of Chinese industry.

China has become an industrialized country to some extent. The pillar industries, such as the auto industry and the housing industry, in the interim of industrialization have developed by leaps and bounds. Iron and steel manufacturing are also major industries in China. The most important export products are machinery and electric equipment; while the most important import products are raw materials. In recent years, due to economic extro-version, China's industry has competed internationally, and as a result, the country's industrial development is increasingly influenced by international economic environments. On one hand, exporting becomes more difficult and export prices keep declining; on the other hand, market share of foreign products and foreign-invested enterprises' products keeps growing. The above 2 factors increase the difficulties for the country's domestic industry in terms of producing and selling; the state-owned enterprises are impacted particularly. In fact, textile and other light industries have slowed their growth since 1985. Since 1989, the production capability of durable consumption goods has become idle; after the mid-1990s, bottleneck sectors including steel, oil, and raw material began to fall into market saturation. Large-scale IC chips account for only 40 percent of all IC chips made in China; 80 percent of the Chinese telecom equipment and instrument market is taken by foreign enterprises.

Generally, China's industrial system has a low level of technology; the high-tech industries are simply in their starting periods. The technologies of major industrial sectors are poor and lack self-equipment capability. Average life cycle for more than 2000 kinds of Chinese leading products is 10.5 years, 3.5 times that of the same products in America. And fewer Chinese work in the information sector than do U.S. citizens, for example. About 45 percent of the American workforce is involved in information technology, but only 10 percent of the Chinese workforce is. Chinese technological level of industries needs to be raised, particularly high-tech oriented industries, so that the country's industries can be advanced toward a knowledge economy in the 21st century.

MINING.

With one of the largest and richest stocks of minerals of any country, China has enough minerals to support a modern industrial state. Mining of all types of minerals is expanding rapidly. The most significant minerals are coal, iron, tin, copper, lead, zinc, molybdenum, tungsten, mercury, antimony, and fluorspar. China has the world's largest coal reserves, which are estimated at more than 600 billion tons. These reserves would keep the country supplied with coal for about 500 years, if usage were to continue at its present level.

PETROLEUM.

The country also has substantial petroleum reserves, both on land and offshore. Offshore prospecting is under way in several locations, with a number of Western and Japanese petroleum companies assisting China. Such minerals as tungsten, aluminum, titanium, and copper have export possibilities. Extensive deposits and promising sites were located in 1960s. The main production centers are in the North China Plain and in the Northeast. For instance, Daqing petroleum production basis in Heilongjiang Province is one of the largest petroleum producers in the country. Since the mid-1970s, China has been ranked as one of the ten largest oil-producing countries in the world, with the capacity to produce more than 1 billion barrels yearly. A small quantity of this output has been exported for earning foreign currency.

MANUFACTURING.

Chief manufactured products include cement, rolled steel, chemical fertilizer, paper and paperboard, sulfuric acid, sugar, cotton yarn, cotton fabrics, cigarettes, television sets, and washing machines. Generally, the Chinese industrial structure has a higher level of manufacturing although it is far from high manufacturing in terms of productivity. Since 1978, the proportion has decreased, largely of output of low-level manufacturing sectors in light industry with agricultural products as raw material and mining sectors in heavy industry, but low-level expansion and repetitious construction in these sectors are still very serious. Product quality upgrade is still behind the demand of structures' upgrade, which in turn leads to the dependence on import of high-level manufactured goods for economic growth. The proportion of the 2 preceding sectors dropped from 34.1 percent and 8.19 percent in 1985 to27.16 percent and 5.97 percent in 1998, dropping in total by 7.03 percent and 2.22 percent respectively. Compared with the United States and other developed countries, the horizontal industrial expansion with low levels of manufacturing causes low-level malignant competition in the domestic manufacturing sector. The same effects can be found in high-level consumption of energy and raw materials. For this reason inflated demands bring about a large increase of sectors with low technology content and delay upgrade of industrial structures.

SERVICES

According to a State Development Planning Commission (SDPC) document entitled Report on China's National Economic Growth and Social Development for the Year 2000, China's fast growing service sector has become the country's key employer. Preliminary statistics indicate that the service sector created 5.71 million new jobs in 1999, making up 70 percent of China's total new employment in the year. The service sector employed the majority of the country's urban new labor force and at the same time rehired the redundant labor force from the other 2 sectors. The SDPC data show that employment in the service industry by the end of 1999 rose 0.6 percent from 1998 to 192.5 million people, accounting for 27.3 percent of the total national workforce.

The service industry has become a major factor in boosting national economic growth. The key growth areas for the service industry in recent years include community services, domestic tourism, higher and non-compulsory education, information, culture and other intermediary services. In the first 4 years of China's 9th 5-Year Plan (1996 to 2000), the average contribution of the service industry to the GDP was 40.8 percent, a 10.4 percentage point increase over the 8th 5-Year Plan (1990-95). The state aimed at encouraging more involvement by the private sector in the development of the service industry by channeling more private investment into the industry.

FOOD SERVICE.

Dining out is one of the most important social activities for both personal and business reasons in China. The food service can be categorized as fine dining, family restaurants, neighborhood restaurants, quick-serve restaurants, street vendors, food courts, and cafeterias operated by the institutions or corporations. Since the 1980s, Western-style chain restaurants have been the driving force for the development of service, quality, value and distribution in the Chinese food service industry. A recent survey indicates that China has approximately 2.2 million restaurants and cafeterias. With the growth of China's economy, the changing life styles, and increased disposable incomes for the potentially largest group of middle-income families in the world, China is expected to be the new leader in the growth of the food service industry in the 21st century.

TOURISM.

China is a world-class destination that offers several thousand years of history and brilliant cultural achievements. Tourism has been designated as an important growth area under the current national restructuring. Remarkable progress has been made in China's tourism since 1978, when it barely existed as an industry. In 1978, on the eve of the open-door policy, China received a mere 760,000 tourists and US$260 million in tourism-related foreign exchange earnings.

During the 1980s, the state council strengthened its management over tourism and adopted a policy of enlisting support from all quarters—the state, the collectives, related ministries or departments, individuals and foreign investors. China began the construction of a large number of tourist hotels by using foreign capital and also improved the ability of its travel agencies to solicit tourists. In 1988, the national tourism industry earned US$2.24 billion in foreign exchange, or 10 times the figure in 1978. Meanwhile, efforts have continued to open up new scenic spots, tap new visitor sources and improve tourism-related rules and laws. Drawing experience from developed countries, China improved its management skills and the overall quality of employees to optimize the environment for tourism expansion.

In the 1990s, the country began to design special tourism projects. The Visit China '97 program was a big success, with overseas visitors hitting 57.6 million and foreign exchange earnings reaching US$12.074 billion, thus catapulting China's place in world tourism earnings from 41st to 11th. At the same time domestic tourism also reached a new record with the number of tourists jumping to 644 million and earnings reaching US$27 billion. As a result, tourism income in the year totaled over US$38 billion, or 4.1 percent of the GDP. Massive infrastructure investments and rising living standards helped to stabilize the basic tourism market and improve the overall environment for tourism expansion. China's tourism earnings in the year 2000 were estimated as US$43.9 billion, or 5 percent of the GDP, with US$14 billion in foreign exchange earnings from overseas.

RETAIL.

Retail was one of the fastest growing sectors in China in the earlier 1990s. Since retail industry reforms began in 1992, the government has adopted some new policies highlighted by the proclamation of the Provisional Rules on Retailing and Wholesaling in June 1999. These policies have propelled the retail industry through a process of fundamental transformation. While shopping in the past meant visiting a run-down department store and choosing from a limited range of low-quality products, currently the Chinese consumer is exposed to a growing number of sophisticated retail formats and wooed by a wide range of foreign and domestic products. The existing retail formats in China are warehouse/discount stores, supermarkets, department stores, convenience stores, franchised service or chain-store outlets, specialty stores, shopping centers, catalogue sales, TV home shopping, and recently developed e-commerce .

One eye-catching development is that local governments, in spite of central regulations, approved a large number of joint commercial ventures. Some Chinese retail stores in large cities are even beginning to hire foreign managers or are being contracted to a foreign management team. Large multinational corporations have made considerable inroads into China's consumer markets. They do so by forming joint ventures with domestic manufacturers to produce and sell their own brand-name products. By doing so they effectively take over the well-developed distribution channels of the domestic firms, and consequently their market shares improve steadily. In this area, Asian businesses (especially overseas Chinese ones) again enjoy an edge because of their familiarity with the Chinese consumption culture. They are not deterred by the lack of policy transparency and inadequate legal infrastructure. They thrive on personal connections cultivated with state officials and often regard these as a better guarantee for security. In 2000, the activities of foreign-invested retailers remained subject to tight regulation although the government took its first steps towards opening the retail sector to real foreign participation in 1992. A pilot program restricted Sino-foreign retail joint ventures to 11 cities, with only 2 such ventures allowed in each pilot site.

INTERNATIONAL TRADE

International trade has been used to bring in new equipment and technologies and to meet scarcities in the domestic economy since China has sought to modernize its economy. Exports have been used as a means of producing foreign earnings to pay for the imports. The state has sought to maintain an even balance of trade so that the country can pay for imports rather than buying on credit. With 1.2 billion people and the world's fastest growing major economy, China is hailed as potentially the "market of all markets," which has helped to attract investments from around the world at such a magnitude that China is now the second largest recipient of foreign capital (next only to the United States). However, it has also given the government more reasons to carefully guard its market. The issue of market entry has been a contentious one, bogging down its negotiations to join the General Agreement on Tariffs and Trade and the World Trade Organization for over a decade.

The total volume of China's exports was US$232 billion ( f.o.b. , 2000), according to the CIA World Fact-book. The country's principal commodities are machinery and equipment, textiles and clothing, footwear, toys and sporting goods, and mineral fuels. The United States bought 21 percent of China's exports, Hong Kong 18 percent, and Japan 17 percent; Germany, South Korea, the Netherlands, the United Kingdom, Singapore, and Taiwan are other main export partners.

China exports agricultural commodities and goods (about one-third of total exports) and manufactured goods (about half), as well as mineral products such as oil and coal. Foodstuffs account for about 6 percent of total imports, and industrial supplies and materials such as crude steel and chemicals account for about 50 percent. The remainder consists chiefly of expensive capital goods such as machinery, precision instruments, and transportation equipment.

In 1998, machinery and transport equipment took the first place among the exports, amounting to 50.2 billion dollars. The proportion of it is 48.4 percent, much higher than the proportion of light and textile industrial products (26.5 percent). On the other hand, export structure of machinery and transport equipment is changing for the better. The proportion of more technologically-intensive products is growing up, and labor-intensive products are slowing down. Also, the interim structure of traditional export products, such as light and textile industrial products, changed tremendously. Resource and labor-intensive, low value-added, low-technological products declined, lower labor-extensive but higher technological and value-added products increased.

China imports a total volume of US$197 billion (2000). The principal commodities China imports are machinery and equipment, mineral fuels, plastics, iron and steel, and chemicals. Japan provides the main source (20 percent) of China's imports. The United States provides 12 percent, Taiwan 12 percent, and South Korea 10 percent. Other trading partners include Germany, Hong Kong, Russia, and Singapore.

The 5 top import products of China during the first semester in 1999 included mechanical and electrical products at US$35 billion (up 28 percent from 1998); plastics in primary form at US$4.1 billion (up 3.9 percent from 1998); steel products at US$3.4 billion (up 14.6 percent from 1998); computer parts at US$1.8 billion (up 18.7 percent from 1998); and crude petroleum oil at US$1.6 billion (down 23.6 percent from 1998). The commodities China imports are materials essential to modernizing China's economy and increasing export-oriented industries.

MONEY

China embarked on its open-door economic policy in 1979 by reforming the agricultural sector and establishing several special economic zones (SEZs). The high export-led growth rates in the SEZs contributed to an annual inflation rate of over 10 percent in the 1980s. As a result the economy was overheating. The monetary authorities were ineffective in dealing with inflation. Fiscal revenues declined during the reform period and pressed the Ministry of Finance (MOF) to sell bonds to the central

bank in exchange for currency to cover its budget deficit and to release aggravating inflationary pressures. By 1994, laws were passed to create a more consistent and more transparent tax system, which would reverse the steady decline in fiscal revenues. The new laws also banned fiscal overdrafts on the financial system. In reflecting tighter monetary policies and stronger measures to control food prices, inflation dropped sharply between 1995 and 1999.

Financial reform first appeared in 1984, when the People's Bank (monobank) discarded its commercial banking functions to become a central bank. The 3 specialized banks were reformed as commercial banks, passing on their policy lending to newly established policy banks. The banking system was decentralized, and inter-bank competition was allowed. Urban and rural credit cooperatives were established as alternative banking institutions. Interest rates remained under government control; preferential lending rates have been removed in certain sectors but continue in many others. Although lending rates are a highly political issue for the impact on state-owned enterprise (SOE) debt-servicing obligations, deregulating lending rates and deposit will be on the official agenda. Various ministries, including the monobank and the State Planning Commission, are in charge of a credit plan that involves a multi-step, highly negotiated process in which lending quotas are allocated to the state banks (lenders) based on their balance of deposits against borrowings. A re-lending facility allows the central bank to reallocate deposits from surplus to deficit ones at bank levels or regional levels. The mechanism is funded by reserves set at 20 percent of deposits; thus, deposit-poor lenders are assured that their allocated funding requirements will be covered by monobank loans.

Under the re-lending facility the loans are generally rolled over, which make up 30 percent of state banks' liabilities and are estimated to equal 3 to 4 percent of the GDP. The continuing injection of funds to SOEs under the credit plan allowed many profitless SOEs to remain in business, some SOEs even staying while making a net loss. Many of the loans to SOEs could not be called back and eventually became the bank's liabilities, which suggests that any financial sector reform and resolution of the SOE debt problem are intricately linked. Moreover, the continued reliance on state bank loans to support SOEs has also exacerbated the government's fiscal weakness, as it causes the lack of funds for much-needed enterprise and welfare reforms.

China used 2 systems of currency between 1979 and 1994: Renminbi and Foreign Exchange Certificates (FEC). Foreign exchange could be obtained through either FEC exchange centers (FECs) or foreign exchange adjustment centers (FEACs) until the 1994 currency unification. There were over 100 FEACs, or swap centers, where foreign currency was exchanged at a floating rate that varied widely among the centers in the 1980s. By 1993, 80 percent of all foreign exchange transactions were handled by FEACs. With the currency unification of 1994 came the gradual, complete withdrawal of FECs altogether from foreign exchange. The yuan's exchange rate is determined by the swap centers. It is noticeable that the movements toward convertibility of the current account have allowed foreign firms to make their transactions through designated foreign exchange banks and through FEACs. However, the domestic firms must sell all of their foreign exchange holdings to designated banks.

BANKING.

The financial sector's main regulatory authority is the People's Bank of China (PBOC), the country's central bank. The PBOC controls the money supply, determines interest and deposit rates, and handles foreign exchange reserves through its division, the State Administration of Exchange Control. The PBOC also supervises banks' operations, uses the credit plan to administratively control overall lending, and oversees the People's Insurance Company of China as well as through its branches, trust and investment companies (TICs).

China has 4 state banks and eleven commercial banks. The state banks were created in 1984, when specialized banks and part of the monobank were transformed into commercial banks. The Agricultural Bank of China provides finance services in rural areas. The People's Construction Bank of China is responsible for medium- and long-term finance for capital construction. The Bank of China functions as the main international and foreign exchange bank, and the Industrial and Commercial Bank of China, the largest state bank, extends working capital loans to SOEs for fixed-asset investment. State banks with a network of branches, newly created affiliates, and special departments are responsible for implementing the credit plan.

More than 60,000 urban and rural credit cooperatives were established as an alternative to banks by 1999. Urban cooperative banks, small and manageable, are structured in a 2-tier system: the upper tier interfaces with capital markets and acts as a supervisor for the system, while the lower tier, a number of small-scale banks, handles deposits and loans. The rural or agricultural cooperative banks, acting under the guidance of the Agricultural Development Bank, have limited autonomy in management and lending decisions. Their clients are mainly rural townships and enterprises.

The state-owned People's Insurance Company of China (PICC) used to be a monopoly insurer. In 1993, it still handled over 95 percent of China's total insurance business. The new insurance law of 1995 limited the PICC to commercial insurance business and transferred its social insurance business to the Ministry of Labor. Currently, although the PICC and several government financial authorities own 17 regional life insurers, there are 3 other regional insurers and 2 independent national insurers. The market for life insurance and household casualty insurance is still small in China, and corporate customers purchase most casualty insurance. Most assets have to be deposited with domestic banks in interest-bearing accounts, while other investments need to be spread among safe investments and are limited to short-run commitments.

STOCK EXCHANGES.

The Shanghai and Shenzhen Stock Exchanges, China's only 2 stock exchanges currently, were established in 1990 and 1991, respectively. No cross listing exists between these 2 exchanges. Since their founding, securities markets have grown rapidly, especially in the later 1990s. Securities exchange centers, limited to government and corporate bond trading only, exist in 18 larger cities. Securities exchange centers were established in the mid-1980s when SOEs were allowed to sell bonds to employees, other companies, and, to some extent, to the public. Securities exchange centers are linked to the stock exchanges through electronic trading networks.

Chinese companies offer 2 types of shares: A shares, which are exclusively sold to Chinese nationals, and B shares, denominated in Renminbi but traded and purchased in foreign currency exclusively by foreigners originally. By March 2001, B shares could also be purchased by Chinese citizens using foreign currency. B shares are restricted to limited liability shareholding companies. To be qualified, companies must have been profitable for at least 2 consecutive years; must possess sufficient foreign exchange revenues to pay dividends and cash bonuses; must be able to provide financial statements and earning forecasts for 3 consecutive years and at the time of listing; and must have a price-earning ratio of less than 15.

The state planning commission formulates quotas for stock and debt listings, which sets a figure for the aggregate offering price of issuances in a given year. The formulated quotas are then allocated on a provincial level. This process generates some problems, such as politicized selection and approval process, lowered quality of issuer with a large number of small issuers, the lack of predictability in the schedule of announcements of annual quotas, and the fact that announced quotas change yearly according to market conditions. Furthermore, the quota system pushes non-quota activity into unofficial and semi-official channels such as the securities exchange centers. Because of these problems, it is widely agreed that the Chinese stock markets are far from formal and mature and, thus, are full of myth and risks.

FOREIGN PARTICIPATION.

Foreign banks are generally restricted to hard currency operations, although the government has announced its intention to partially open a local currency business to foreign banks in its bid to join the WTO. Foreign banks are allowed to set up branches and local subsidiaries and to establish joint venture banks with Chinese partners in selected cities and SEZs. However, their activities must be limited to wholesale banking and only a limited number of foreign exchange transactions such as foreign exchange deposits and loans for joint ventures, foreign exchange investments and guarantees, and the settlement of import and export accounts. Foreign non-bank financial institutions consist of 6 finance companies and 6 fully-licensed insurance companies. Generally, it takes about 3 years for foreign insurance companies to obtain a PBOC-issued insurance license.

POVERTY AND WEALTH

In the early decades after the communist state was founded in 1949, incomes were low and roughly the same. However, according to a newly conducted investigation, economic reforms over the past 20 years have created a substantial class of very wealthy Chinese, with more than 5.3 million families boasting annual incomes of US$6,000 or more. The average annual urban income is about US$600, and the average earned by rural residents is about US$230. Private businessmen and managers make up the core of the newly affluent. Others include

scientists who own patents, teachers who tutor privately, consultants, securities traders, entertainers or advertising executives. There are roughly 30 million Chinese considered to be well off, which makes only a small fraction of China's population of 1.2 billion. Heavily concentrated in major cities such as Beijing and Shanghai, the affluent Chinese represent a newly emerging market for all sorts of luxuries. China is counting on the desire of the well-to-do for better housing and consumer goods to help keep the economy growing.

URBAN-RURAL INCOME INEQUALITY.

Economic reforms have made substantial improvements in the living standards of rural residents. Since 1978, the farmers boosted their incomes by engaging in specialized agricultural activities such as animal husbandry, agriculture, and orchard production, in addition to raising traditional crops. Furthermore, township and village enterprises (TVEs) accounted for the bulk of increased wage income earned by the rural residents. As the result, the disposable income among rural residents has increased dramatically since the early 1980s. However, in spite of these improvements, the rise in income of rural residents is markedly small when compared to that of urban areas. The total rural incomes are only 40 percent of urban incomes in China when in most countries rural incomes are 66 percent or more of urban income. The gap in income between rural and urban residents has grown at an increasing rate since the late 1980s. In fact, such disparity has been the most important contributor to the problem of social equity in China, followed by inter-regional disparity.

REGIONAL INCOME INEQUALITY.

Decades of strict central planning created serious disparities in incomes among citizens in different regions. The average annual income is high, for example, in Jiangsu province located in the eastern region, but Guizhou, located in the western region, has a low income level. The difference is quite enormous. For instance, in 1996, per capita annual income of Jiangsu was 2613.54 yuan while in Guizhou it was 609.80 yuan; the ratio between the two was 4.3:1. In the same year, per capita GDP and the total GDP of the eastern region were 1.9 times and 5.5 times larger, respectively, than those of the western region.

INTRA-URBAN INCOME INEQUALITY.

In addition to the gap between urban and rural areas, city dwellers also feel the income inequality among themselves. According to the Urban Socio-Economic Survey Organization of the State Statistics Bureau, in the middle 1990s the per capita income of the top 20 percent income earners was 4.2 times greater than the bottom 20 percent, worsened from 2.9 times in the later 1980s. Although many enterprises in urban areas have either stopped working or closed down, many of the idle employees who have been laid off are waiting for future employment that would provide them the minimum incomes to maintain the basic standard of living in the urban areas. Currently, many idle workers are either receiving low incomes or no incomes at all. The wage level of retired employees is also quite low, and, considering the effects of inflation, their living standard is falling.

POVERTY REDUCTION.

About 10 percent of the Chinese population lives below the poverty line. One of the largest challenges in China is poverty alleviation and elimination. According to the World Bank, due to aggressive measures, China has achieved great success in its anti-poverty struggle in the past 2 decades. The impoverished population dropped from about 250 million in 1978 to 125 million in 1985 because rural areas experienced economic growth. The Chinese government has been planning and organizing a number of large-scale anti-poverty programs all over the country since 1986. By the end of 1992, the poverty population of rural China was reduced to 80 million, reducing the poverty rate to 8.8 percent.

In 1994, in order to accelerate the poverty alleviation and ultimately eliminate poverty by the end of last century, the Chinese government launched the "8-7 Plan," the main point of which was to eliminate absolute poverty in 7 years through the tax favorite policy, financial support, and social-economic development program. For the convenience of implementing the "8-7 Plan," the central government selected the 592 poorest counties from the more than 2000 counties nationwide and designated them as "national poor counties." It was estimated that more than 70 percent of the 80 million poor concentrated in these 592 counties had very bad natural environments and under-developed social-economic conditions.

After 4 years, the poor population of rural China was reduced to 42.1 million, and the poverty rate was 4.6 percent by the end of 1998. The Chinese government spent 24.8 billion yuan (US$3 billion) on poverty alleviation in 1999, 30 times more than in 1980. Rural per capita income among China's 870 million rural residents in 1999 was 2,210 yuan. Only 3 percent of the rural population remained impoverished or living below the 635-yuan standard, making China's rural poverty rate the lowest among developing nations. In 2000, China announced that it had eliminated "absolute poverty."

WORKING CONDITIONS

China has the largest labor force in the world. According to Chinese official data, over 700 million people were employed by the end of 1990s. More than half of its labor force is engaged in agriculture, although that sector accounts for less than 20 percent of China's GDP. In other words, China's agricultural labor force is over 100 times as large as its U.S. counterpart. By the middle of the 1990s, most of China's urban workers were employed in state-owned enterprises (SOEs). In the 1990s, China's increasingly dynamic service sector employed more workers than industrial enterprises for each of the last 3 years. Latest sources from the State Statistics Bureau show that 6.4 percent of labor force in rural China shifted to the country's secondary and tertiary industries in 1999. With 0.5 percent of its rural labor force having made a change in their life from agricultural to non-agricultural labor, the net shifting amount of rural labor force was placed at 5.9 percent of the rural total, up 0.4 percent over the same period in 1998. According to one official survey, as many as 50 million people leave rural areas in search of urban jobs every year. Of this number, approximately 30 million people leave their home provinces.

Shifting labor forces experienced a big rise in proportion on a provincial, regional, or municipal scale. About 79 percent of surplus labor force became locally employed in the industrial and service sectors in the country in 1999, up 11 percentage points over 1998. East China remains the hottest destination for drawing rural laborers, although more people began to focus on west China. Among the rural laborers leaving their native place to seek employment in other provinces, 79.8 percent headed for the East in 1999, down 2.5 percentage points compared with the same period of 1998. About 10 percent chose central China for employment, up 0.6 percentage points. More than 10.2 percent went to the country's west, up 1.9 percentage points over 1998. Most of the laborers are young or people in their prime. People ages 18 to 40 accounted for 77.3 percent. Of these, 57.9 percent were between 18 and 30 years of age.

EMPLOYMENT PROBLEMS.

Chinese labor has benefitted significantly from economic reforms. During the 8th 5-Year Plan (1991-95), real incomes increased by 7.7 percent annually in urban areas and 4.5 percent annually in the countryside. However some serious problems existed in the labor market, which threatened to impede economic reforms and to disrupt social stability. Increased lay-offs (officially labeled as "temporarily losing a job"), placing workers "off post" ( xiagang ), as well as delayed wage and pension payments, resulted in a number of demonstrations by workers and retirees in several Chinese cities. Within a certain period, typically 1 year, these "laid off" workers are usually encouraged to take other types of jobs, generally with less pay and/or status than their original positions. Many workers also take second jobs. Some continue to draw a basic salary and benefits from their previous employer for whom they do little or no real work. By 2001, the problems caused by the increasing lay-offs from SOEs, along with several other issues, became the first worries of the nation's leaders.

The official unemployment rate was officially reported to be 6 percent by the end of 1990s. Labor officials readily admitted that the official unemployment rate did not include 2 large and important groups that are effectively unemployed, redundant state sector workers and rural surplus laborers. By official estimate, the underemployed population in the countryside, defined as those with productive employment less than half of the year, exceeds 200 million people. Some probably more accurate estimates of urban unemployment vary anywhere between 10 and 23 percent. Even according to the official unemployment criteria, a report completed by China's State Commission for economic restructuring in early 1997 projected that China could have 15 to 20 million unemployed urban workers by 2000. Meanwhile, it is estimated that between the years 2000 and 2010 over 40 million new entrants will be brought into the urban workforce.

LABOR LAW.

A national labor law effective 1 January 1995 codified earlier regulations and provides a framework for labor reform. New provisions in the law require workers at all types of businesses to sign labor contracts with the employers; establish arbitration and inspection divisions at all levels of government; set out a preliminary framework for collective bargaining at all types of enterprises; and empower managers to dismiss workers for economic reasons. However, the local governments are less effective in enforcing strict worker safety and overtime provisions of the Labor Law. As the result, industrial accidents, particularly in the mining sector, claim a high number of lives every year.

The Labor Law also requires localities to establish local minimum wages. For instance, the monthly minimum wage in Beijing at the end of 1996 was RMB 270 (approximately US$33); RMB 300 (approximately US$36) in Shanghai; RMB 398 (approximately US$48) in Shenzhen; and RMB 140 (approximately US$17) in Guizhou province. Other parts of China, including Guangdong, Jiangsu, and Shandong provinces, have created a sliding scale of minimum rates for different trades and localities. The minimum wage level determinations are generally higher than the local poverty relief ceiling but lower than the current wage level of the average worker.

Labor disputes, including delayed wages and strikes, have been increasing over the last several years in China. The upward trend has made some labor and union officials become defensive. The official media continuously pay attention to worker abuse, invariably at small, export-oriented foreign ventures with Asian (Hong Kong, Taiwan, South Korea) investment. However, many unofficial observers indicate that working conditions are generally worse in private Chinese enterprises and in domestic small town and village enterprises, which are often owned by local government. Most labor disputes are solved through arbitration and recently some cases reached the courts. According to official statistics, based on National Mediation Center and Labor Bureau records, 48,121 labor disputes occurred nationwide in China during 1996.

ALL-CHINA FEDERATION OF TRADE UNIONS (ACFTU).

For the most part, unions in China maintain their primary function of enhancing production and sustaining labor discipline, rather than supporting worker rights. Local unions also perform a variety of social and welfare functions, such as handling disability benefits and housing funds and operating clubs, eating facilities, nurseries, and schools. The All-China Federation of Trade Unions (ACFTU), the country's only officially recognized workers' organization, remains focused on the state sector. There is still little evidence to suggest that ACFTU is being positioned to assume the new role of worker advocate mandated by article seven of the labor law, although some union officials at the working level may be increasingly interested in representing the interests of workers, particularly on safety issues.

For the ACFTU, improving labor discipline and mobilizing workers to achieve party and government goals are their primary objectives. However, since the early 1980s, additional objectives have been to increase productivity and encourage participation in, and support for, economic reforms. Generally, the membership is limited to the workers in SOEs. Over half of the country's non-agricultural workers are not members of the ACFTU, those who are outside the state industrial structure in collectives, private and individual enterprises, foreign-in-vested enterprises, and township and village enterprises.

WORKING CONDITIONS.

The working conditions are generally poor in China, especially in the rural areas. The rate of industrial accidents had remained high until 1996 when, according to Ministry of Labor statistics, for the first time in many years the number of industrial accidents actually dropped. Total accidents stood at 18,181, 13.5 percent less than in 1995, with total fatalities at 17,231, a 13.9 percent drop from 1995. By 2001, there was no evidence to confirm whether this decline represents a permanent trend. The official media continue to criticize the overall high number of work-related accidents and fatalities. The majority of industrial accidents in China occur in mines, particularly in poorly regulated small-scale private, township, and village mines. For instance, in 1996 there were 7,695 mining accidents and 9,974 workers were killed.

Work safety issues attracted the attention of senior government leaders; occupational safety and health became the subject of constant campaigns. All work units are required to designate a safety officer. Since 1991, the Ministry of Labor has conducted an annual "industrial safety week" during May, to promote safety consciousness among managers and workers. As of mid-1997, the Ministry of Labor fulfilled new National Occupational Safety and Health legislation. Labor Ministry officials have also indicated that they have the responsibility of drafting improved National Mine Safety legislation. However, much evidence demonstrates that enforcement of existing regulations, rather than the drafting of new legislation, is what is needed most. Moreover, pressures for increased output, lack of financial resources to maintain equipment, lack of concern by management, poor enforcement of existing regulations, and a traditionally poor understanding of safety issues by workers, all make it difficult, if not impossible, to lower the high rate of accidents.

On 1 May 1995 China reduced the national standard workweek from 44 to 40 hours, excluding overtime. The Labor Law mandates a 24-hour rest period weekly and does not allow overtime work in excess of 3 hours a day or 36 hours a month. The Labor Law also sets forth a required scale of remuneration for overtime work that is set at no less than 150 percent of normal wages. Enforcement of these regulations varies according to region and type of enterprise. The official media regularly report cases of workers required to work long overtime hours at small-scale foreign-invested enterprises, particularly in special economic zones and other areas of Southeast China. Similar abuses in non-state sector enterprises are also widely acknowledged to occur.

WOMEN IN THE WORKFORCE.

Economic reforms have increased employment opportunities for both men and women in China. The growth of the less regulated non-state sector and the declining role of the government in job assignments has also increased the likelihood that women will face employment discrimination in China. In 1995 while hosting the U.N. Fourth World Conference on Women (FWCW), China pledged to pay more attention to the problems faced by women in the work-force. The state council promulgated the national program for Chinese Women's Development in August 1995 with the goal of increasing enforcement of the right to education and employment and asserting the status of women. Responding to the hesitancy demonstrated by government ministries to hire women at a Beijing job fair in early 1996, the All-China Women's Federation (ACWF) called for stricter safeguards of women's rights.

In SOEs, women are more likely to be forced into early retirement or placed "off-post." A joint study of sample enterprises in 5 cities performed by the Ministry of Labor and the ILO in early 1995 indicated that 70 percent of workers described as "surplus" were women. According to an official survey completed in Shanghai in August 1996, women were the first to be affected by unemployment in the city because of their overall lower level of skills. The 1988 Women's Protection Law provides a minimum of 3 months of maternity leave and additional childcare benefits for women. The law also provides exclusion for breastfeeding mothers from certain categories of physical labor and night shifts. However, the regulations are designed to provide additional incentives to women workers of childbearing age to abide by family planning policies, which do not affect rural workers.

AGE DISCRIMINATION.

China perhaps is one of few countries that discriminates against middle aged and older workers in terms of re-entering employment after being laid off. Many employers will state openly in their job advertisements that they would not hire those who are over 45 years old. Older workers are also finding it increasingly difficult to compete. Some managers complain that older workers do not have the skills needed for the current marketplace; others note that older workers are in poor health. Older workers are likely to be the first to be affected by downsizing in the state sector. By all accounts, older women have an especially difficult time maintaining their employment. Many older women are poorly educated upon entry into the job force and receive little opportunity to upgrade their skills thereafter. While managers may want to keep on a certain number of experienced men, most view older women simply as a burden. Older women find the differences in China's statutory retirement age especially rankling. The retirement age for men is 60, while for women it is 50 in industry and 55 elsewhere. Although traditional views hold that women want to retire early to take care of grandchildren, women today, especially educated women, prefer to make this decision themselves and not be forced out of the workforce before they are ready.

CHILD LABOR.

In theory, child labor is forbidden in China. For instance, the 1995 National Labor Law specifies, "No employing unit shall be allowed to recruit juveniles under the age of 16." Administrative review, fines, and revocation of business licenses of those businesses that hire minors are specified in article 94 of the Labor Law. Chinese children are entitled to receive 9 years of compulsory education and to receive their subsistence from parents or guardians. Laborers between the ages of 16 and 18 are referred to as "juvenile workers" and are prohibited from engaging in certain forms of physical work including labor in mines. The Labor Law mandates the establishment of labor inspection corps at all administrative levels above county government. The rapid growth of China's non-state sector has outpaced the evolution of government inspection and enforcement regimes. However, in poorer, isolated areas, child labor in agriculture is widespread given the few options available to minors who have completed their primary school education at approximately 13 years of age. According to official statistics, 10 million children between the ages of 6 and 14, two-thirds of whom were girls, dropped out of Chinese primary schools during 1996. Presumably they ended up performing some type of labor to help the family's financial well-being.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

2205-1783 B.C. Early Bronze Age occurs, as does use of metal.

1783-1134 B.C. Economy is based on agriculture, with some hunting and animal husbandry. More advanced bronze metallurgy appears. Silk fabric appears.

1134-770 B.C. Feudalistic society appears. Routine taxation on agriculture begins. Systematic irrigation, fertilization, and animal-drawn plows are used in farming. Iron tools appear in farming and mining. Cowry shells, silk, jade, pearls, leather, and pieces of silver are used in trading.

770-246 B.C. Commerce improves through coinage and technology.

246-206 B.C. Standardization of legal codes, bureaucratic procedures, coinage, writing, philosophical thought, and scholarship take place. Walls from warring states are combined to make a Great Wall. Public works projects begin, including an imperial road.

206-1 B.C. Merchant class grows wealthy due to agricultural enterprises (cereals and rice), cattle, fish farming, cloth mills, private foundries, lacquer factories, shops, and money lending. State foundries appear in most areas. Technological advances occur, noticeably in paper and porcelain.

1-88. Government supports free, no-interest loans to curb usury. Regional commissions set prices on staple goods. Granaries hold surplus food in case of famine. State Wine Monopoly is formed. State monopolies in iron and salt are abolished.

89-166. Embassies from various nations are established.

220-265. Advances in medicine, astronomy and cartography occur. State supports silk weaving workshops, each with thousands of workers. Gunpowder is introduced in fireworks.

300-399. Oil wick lamps and umbrellas appear. Coal is used in lieu of wood in making cart iron.

400-499. Harness with paddle-horse collar is invented. Fusion process is used in making steel. First true porcelain is made in China.

552. Byzantine emperor, Justinian, sends missionaries to China to smuggle out silk worms and mulberry leaves.

600. Man-powered paddle-wheel boat appears. Merchants from 27 different lands meet at Zhang-ye on silk road to discuss trade.

618-907. Tang Dynasty adopts function of state affairs over public administration, finances, rites, army, justice, and public works. A censorate ensures compliance of governmental performance with plans. Use of receipts of deposit, for exchange of commercial transactions, begins. Earlier restrictions on business activities are ignored. Tang dynasty recognizes middle class over peasants.

894-1300. Japan severs all relations with China; however, it allows informal commercial visits by private traders with luxury goods.

960-1126. K'ai-feng becomes a major city, under the Northern Song Dynasty, with broad roads, wide canals, all-day markets, eateries, and restaurants, merchants, vendors, and entertainers. Invention of navigational compasses, astronomical instruments, celestial globes, water-driven mechanical clocks, blast furnace using coke, and spinning wheel occurs. Government prints promissory notes. Civil servants manage state monopolies. The government recognizes association of merchants and artisans and "chambers of commerce." Silk working machinery aids production. Specialization in pottery occurs. Tea and cotton are major cultivated crops.

1000-99. Large-scale iron and steel complexes are built in the north using blast furnaces and employing some 3,000 workers. An industrial complex is built to mass-produce ceramic for imperial court.

1068-85. Under emperor Shen Tsung, provincial money taxes are substituted for labor obligation to reduce peas-ant's dependence on moneylenders. A financial bureau reduces budget by 40 percent. Government loans cash or grain to poor to protect usury on crop loans.

1100-99. Intaglio printing is used in money printing to prevent counterfeiting.

1260-94. Kublai Khan rules over the Mongol empire, Central Asia, Persia, North China, and Mongolia. He retains the salt and iron monopolies. Discrimination against the Huns begins. Three types of paper money are established: one based on silk and two based on silver. Fixed taxes are adopted and large levies of Song Dynasty are abolished. Government is reorganized to include a bureau of imperial manufactures (industrial matters), a secretariat (civilian matters), a privy council (military matters), a censorate (evaluating officials), and offices of personnel, revenue, rites, war, justice, and public works. Banners are used to advertise wine. Pawnshops are first seen.

1277. Marco Polo is appointed agent to the imperial council.

1287. Kublai Khan replaces paper money with new currency to fight against rapid inflation.

1295. Marco Polo returns to Italy, incites interest in trade with China.

1342. Weapons, fans, screens, laquerware, and books are traded during Japanese trading expeditions.

1368-1644. Ming Dynasty begins, and government is re-organized. Silk is reserved for imperial use. Nationwide tax system is implemented, and corrupt Mongols are replaced. Slavery is abolished. Large estates are confiscated and poor peasants rent land. The wealthy are taxed heavily. Contact with foreigners is restricted. Elementary school system is established.

1420. Ming navy produces combat vessels. More than 250 are capable of long-range voyages.

1421. Beijing becomes the capital. The imperial workshop employs more than 27,000 craftsmen in trade and foreign relations.

1557-97. Chinese allow Portuguese colonization and development on Macau.

1637. First English factory is established in Canton.

1644-1912. Manchu overthrow Ming Dynasty, and China enters Qing Dynasty.

1800. China produces 33.3 percent of the world manufacturing output. Foreign merchants exchange opium for goods.

1842. Treaty of Nanking is signed; Britain gets control of Hong Kong. Shanghai and other coastline cities are open to foreign settlements.

1873-90. Modern non-military enterprises begin to form, owned and operated by Chinese compradors and merchant middlemen.

1900-01. Boxer Rebellion tries to force foreigners out, suppressed by Britain, United States, France, and Japan. China pays US$330 million in restitution.

1916-31. Japanese receive commercial rights to Inner Mongolia and Southern Manchuria and create the puppet state of Manchuria.

1937. Japanese forces invade and eventually occupy Beijing.

1949. People's Republic of China is formed when Communists take over the government. A mass exodus of entrepreneurs to Hong Kong and nationalists to Taiwan occurs.

1958. Great Leap Forward begins by creating communes to increase production and increase collectivism. However, it fails to increase economic growth.

1966. Great Cultural Revolution is launched, attacking bourgeoisie ideology and capitalist thought, which leads to rioting and instability. These events have a devastating impact on the economy.

1976. The death of Mao Zedong and arrest of Gang of Four end Great Cultural Revolution.

1980. Special Economic Zones are extended for capitalist enterprises north of Hong Kong. The country's first management program is established and forms the Chinese National Center for Industrial Science and Technology at Dalian Institute of Technology.

1985. The development of consumer-based industry occurs. The first stockbroker in Shanghai trades with 10 corporations.

1989. The first Beijing International Fair opens, which is the first and the biggest international fair held independently by China. Growing student objections to official corruption lead to violence after a demonstration in Tiananmen Square.

1990. The 4th Asian Trade Promoting Meeting is held in Beijing. Official census counts 1 billion people. China is granted observer status in GATT.

1991. China Stock Association announces its establishment in Beijing.

1992. China announces that the goal of the economic reform is to set up a socialist market system.

1993. Electric power groups (North, East, Middle, Easter-North, and West-North) were permitted to be set up by the State Council.

1994. The launching ceremony of Yangtzi River Three Gorges is held and its construction started.

1995. The China Investment Association announces its establishment in Beijing.

1996. With sharp economic growth and controlled inflation under control, China achieves the goal of macro economic control.

1997. China decreases tariffs and promises to reduce the average tariff of the industrial products to 10 percent.

1998. In order to protect China's growing economy from the Asian economic crisis, Chinese government issues 1,000 billion national debts for the construction of domestic infrastructure and civil services.

1999. China resumes the collection of tax on the interest of personal savings.

2000. China successfully completes the 9th 5-Year Plan for economic growth; and the country's GDP reaches US$10,000 billion.

FUTURE TRENDS

Since 1978, China's economic system has undergone a market-oriented reform and begun its open-door policy. In more than 20 years, although system devolvement and structural transformation were mostly driven by domestic factors, China has been increasingly influenced by economic globalization and worldwide industrial upgrade. In the 21st century, it is estimated that Chinese economic development will be influenced by world economy, especially the economy of the Asian area. The Chinese economy will depend on the attitude and strategy China will take toward being involved in the globalization process.

OUTLOOK FOR CHINA'S ECONOMY.

The long-term outlook for the Chinese economy remains unclear. China's commitment to join the WTO appears to represent a major commitment on the part of the Chinese government to significant economic reform and greater access to its domestic markets. Some observers believe that the Chinese government views accession to the WTO as an important, though painful, step towards making Chinese firms more efficient and competitive in the world market. In addition, the government hopes that liberalized trade rules will attract more foreign investment to China. It is expected that over the long run a more open market system would boost competition, improve productivity, and lower costs for consumers, as well as for firms using imported goods as inputs for production. Economic resources would be redirected towards more profitable ventures, especially those in China's growing private sector. As a result, China would likely experience more rapid economic growth than would occur under current economic policies. It is estimated that WTO membership would double China's trade and foreign investment levels by the year 2005 and raise real GDP growth by an additional 0.5 percent per year.

In the short run, due to increased foreign competition, widespread economic reforms (if implemented) could result in disruptions in certain industries, especially unprofitable SOEs. As a result, many firms would likely go bankrupt and many workers could lose their jobs. How the government handles these disruptions will greatly determine the extent and pace of future reforms. The central government appears to be counting on trade liberalization to boost foreign investment and spur overall economic growth; doing so would enable laid-off workers to be employed in higher growth sectors, especially in the growing private sector. However, the Chinese government is deeply concerned about maintaining social stability. If trade liberalization were followed by a severe economic slowdown, leading to widespread bankruptcies and layoffs, the central government might choose to halt certain economic reforms rather than risk possible political upheaval.

In February 1998 the officials announced their intentions to spend US$750 billion on infrastructure development over the next 3 years, although many analysts have questioned China's ability to obtain funding for such a massive financial undertaking in such a short period of time. It is likely that China intends to attract foreign investment for much of its infrastructure needs.

However, Chinese restrictions on ownership, profits, and operational control of major projects, China's demands for subsidized financing and sharing of technology, and uncertainties regarding obtaining approval from Chinese officials at the central and local levels have made foreign investors reluctant to invest in major Chinese infrastructure projects.

WEST REGION DEVELOPMENT.

The central government has decided to accelerate the economic development in its west regions over the next few decades. China will build more highways in its western region, including 2 linking the heartland with the Tibet Autonomous Region, over the next 5 to 10 years. There are already 3 highways linking the inland areas with Tibet. China will also build another 14 main highways in the western region in the coming 10 years. China will have completed a modern highway network in the west by 2030. At the moment, roads in the western region are poor and insufficient. There are only 7.8 kilometers of highways per 100 square kilometers in the region, only half the national average. China has made the improvement of infrastructure the priority in its program to develop the vast western region. This development is expected to become one of the most dynamic forces in the country's economic growth.

ENVIRONMENTAL PROTECTION.

The last 2 decades of rapid economic growth, urbanization, and industrialization have been accompanied by steady deterioration of the environment in China. The concentration of both air and water pollutants are among the highest in the world, causing damage to human health and lost agricultural productivity. Some major Chinese cities have particulate and sulfur levels from 2 to 5 times World Health Organization and Chinese standards. Soil erosion, deforestation, and damage to wetlands and grasslands have resulted in deterioration of the national ecosystems and pose a threat to future agricultural sustainability.

China has already taken some steps to reduce pollution and deforestation and has staved off an abrupt worsening of environmental conditions in general. A system of pollution control programs and institutional networks for environmental protection is being constructed at the national and local levels. As part of the recent government reorganization, China's environmental agency, the State Environmental Protection Agency (SEPA), has been upgraded to full ministerial rank and its coverage expanded to include the "green" issues. For better urban and industrial pollution control, China has focused increasingly on river basin management, greater use of economic incentives, and increased use of public information campaigns. Issues of vehicle emissions in urban areas are being tackled through improved traffic management, public transport initiatives, changes in transport fees, and phasing out of leaded gas, which has already been implemented in the largest city centers. Coastal zone management has been introduced, and energy conservation efforts and the development of renewable sources of energy have been expanded.

DEPENDENCIES

China has no territories or colonies.

BIBLIOGRAPHY

Cao Yuanzheng. "World Economic Restructuring and China's Economic Transformation." Paper Presented at 6th Meeting of the Trilateral Forum, Sponsored by Berkeley Roundtable on International Economy. Berkeley, California, 28-29 January 2000.

Economist Intelligence Unit. Country Profile: China. London: Economist Intelligence Unit, 2001.

Economist Intelligence Unit. Financing Foreign Operation: China. London: Economist Intelligence Unit, 1992.

Embassy of the People's Republic of China in the United States of America. <http://www.china-embassy.org/eng/index.html>. Accessed October 2001.

Han, Taejoon. "China: A Shared Poverty to Uneven Wealth?" The George Washington University. <http://www.hfni.gsehd.gwu.edu/~econ270/Taejoon.html>. Accessed February 2001.

Holmes, William D. "China's Financial Reforms in the Global Market." Paper presented at the Conference on Regulation of Capital Markets and Financial Services in the Pacific Rim, Washington. Georgetown University Law Center, 11-13 November 1996.

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U.S. Department of the Treasury. National Treatment Study. Washington: Government Printing Office, 1994.

—Robert Guang Tian

Camilla Hong Wang

CAPITAL:

Beijing (Peking).

MONETARY UNIT:

Chinese Renminbi (in Chinese "Renminbi" means "People's Currency") Yuan (RMB). One yuan equals ten jiao; one jiao equals ten fen. Paper bills include 1, 2, 5, 10, 20, 50, and 100 yuan; 1 jiao, 2 jiao, 5 jiao; 1 fen, 2 fen, 5 fen. There are coins of 1 yuan; 1 jiao, 2 jiao, 5 jiao; 1 fen, 2 fen, and 5 fen.

CHIEF EXPORTS:

Crude oil, textile yarn, fabrics, chemicals, coal, soybeans, vegetable oil, rice, and small machinery.

CHIEF IMPORTS:

Machinery, steel and other metals, wheat, chemicals, and fertilizers.

GROSS DOMESTIC PRODUCT:

US$4.8 trillion (purchasing power parity, 1999 est).

BALANCE OF TRADE:

Exports: US$194.9 billion (f.o.b., 1999). Imports: US$165.8 billion (c.i.f.,1999).