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Economic and Social Development in

China Since Reform :


Performance, Problems and Challenges

Prof. Dr. Chun DING,


Jean Monnet Chair Professor
Director,Centre for European Studies,
Fudan University
Shanghai, 17th Nov, 2014

Basics of China

3
4
4

Chinas Economic and Social Development


Existing Problems and challenges

Measures of New Leadership

0Basics of China

Total land area : 9.6 million sq. km


Total sea area : 4.73 million sq. km
Rank 3rd in the world , roughly equal with the United States
Terrain descending from west to east
Topographic map of China

Heihe

Area: 43%
Population: 94%
GDP: 96%

Meters

Tengchong

Natural Resources
Reserves of many natural resources of China are ranked among
the largest in the world. Due to a large population the per capita
average share of natural resources are relatively low
Land resources

Cultivated Land : 13%


Forests 20%
Water area in land 2%
Grassland 42%
Others 23%

Mineral resources:
Total value of proven mineral resources: rank 3rd in the world
Per capita: less than of the world average

Water resources:
Per capita: of the world average
Almost half of 670 cities in China are facing the problem of water

shortage

Demographic Situation
Population:1.385 bill.(2012)

Mainland:1.354 bill.
Hong Kong: 7.17 mill.
Macau: 0.58 mill.
Taiwan:23.3 mill.

Population growth rate: 4.95


Birth rate: 12.10 births/1,000 population
Death rate: 7.15 deaths/1,000 population
Net migration rate: -0.4 migrant(s)/1,000 population
Age & Gender structure (Mainland):

0-14 years: 16.6%


15-59 years: 70.14%
60 years and over: 14.3%(2012)
Male/Female: 105.13:100

Basics of China

Chinas Economic and Social Development

Problems faced by China

44

Overview of main economic regions

2. Chinas Economic and Social Development


Evolution course
Central-planned
economy
(1949-1978)

The central-planned economy was established, the


economy was controlled by government completely.
Adopted Soviet Model

Economic reform:
Market Economy
(1978 till Now)

Establishment stage1978 - 1992


Market function was bring into economic system step by
step
Developing stage1992 - 2002
Market mechanism played a major role in economy
Perfecting stage2002 till now
Relevant supporting systems undergo further reforms

Chinas Economic Reform


Timeline

Overall Economic Achievements since the Reform

2nd biggest economy in the world (2012)

GDP 8.23trillion U.S. dollars 51.93 trillion RMB

40 times of its GDP in the year 1978 (0.216 trillion)

Share of Chinese GDP in the World(1978-2012):

1.8% - 11.5%

Average annual Growth rate of GDP (1978 -2011)

About 9.97%

Source: World Databank of World Bank

Four significant Changes


Marketlization: Economic transformation from central-planned system to marketoriented system has been largely completed
Nearly zero non- SOEs in 1978, about 80% non- SOEs in 2008

Globalization: Chinas economy has been converted from isolated structure in the
past to the opening system at present
Share of Chinese Foreign Trade in the world ( 0.79%-export & import,1978; 10.4%-

export,9.5%-import,2011) Export volume rank 1ST, Import volume rank 2nd, (2011)
FDI absorbed by China
0.92bill(1983) -111.7bill( 2012)
Foreign Reserve:
3.31 trillion. US$,(2012) Rank 1ST

Urbanization: The pace of urbanization has been tremendously accelerated


52.57% ratio of Urbanization,2012 (from 17.9% in 1978)

Industrialization: The process of industrialization speeded up


(Primary: Secondary: Tertiary in total GDP)28.2:47.9:23.9% - 10.2:46.8:43% (1978

2010)

Great improvement of Chinese people's living standard


Ranking of China in terms of GNI per capita
Rank 175 in 188 (1978) Rank 115 in 214 (2011)

Per capita income


Disposable income of urban residents: 8.95 times (1978-2009)
Net income of rural residents: 8.61 times (1978-2009)

Engel's Coefficient: (the proportion of income spent on food falls, even


if actual expenditure on food rises).
57.5% reduced to 36.3% (1978-2011) urban residents
67.7% reduced to 40.4% (1978-2011) rural residents

Life-expectancy on average
68 years - 73.5 years(1981-2011)

Average years of education for population above 15


Over 9 years (2012)

Popularization of Education
Average years of education for population above 15, over 9 years;
In 2013, college graduates, over 7 million.

Total health care expenditure and government budget for


health expenditure
100million yuan

Middle Class

Institutional Arrangements of traditional Social Security System


Urban Area

Rural Area

Scheme

Government
Insurance
Scheme (GIS)

Labor Insurance
Scheme (LIS)

Rural Cooperative
medical scheme
(RCMS)

Financing

Governmental
financial
agencies at all
levels

Enterprise welfare
fund

Collective investment,
joint investment by
collectives and
individuals, and
individual investment

Eligibility /
Beneficiaries

Working staff
members of
non-profit
institutions,
students and
retirees

Working staff
members of stateowned and
collective owned
enterprises, and
their spouses,
retirees

97% Peasants joined


voluntarily

Structure of Chinas social security system


Social Insurance
Social Welfare
Special Care & Placement
Social Relief
Housing Security
Social Security
in Rural Areas

Old-age Insurance
Medical Insurance
Unemployment Insurance
Insurance for Work-related Injuries
Maternity Insurance
social welfare homes
old-age homes
sanatoriums
childrens welfare homes
the Minimum Living Standard security system
for Urban Residents
Natural Disaster Relief
Relief for Urban Vagrants & Beggars
Social Mutual Help
Rural pension Insurance System
Rural Cooperative Medical Service
The Minimum Living Standard security system
for rural Residents

Process of Reform and Reconstruction


Time

Content

1984

Pension insurance system

1986

urban unemployment insurance system

1994

maternity insurance system

1996

employment injury insurance system

1998

Housing security system

1998

medical insurance system reforms

1999

the Minimum Living Standard Security System

2003

New Rural Cooperative Medical Insurance

2007

Rural Minimum Living Standard Security program

2007

Urban Residents Basic Medical Insurance

2009

New Medical Insurance system

2009

New Rural Old-age Insurance System

2010

Social Insurance Law of the P.R.C.

2011

New Urban Social Old-age Insurance System

Institutional arrangement of old age insurance for employees of urban


enterprise
Financing

Pension Payments
Social Pooling
Fund

Employer

20
%

Private Saving
Account

Employee

20% - 35% of average monthly


wage
1/139 accumulation in individual
accounts

8%

Institutional arrangement of new rural old age insurance & Old age
insurance for urban residents
Financing

Pension Payments

Central & local


government
Insured:
min : 100yuan/year

Min:
55yuan/month
Min:30yuan/yr
Private Saving
Account

1/139 accumulation in individual


accounts

Institutional Arrangement of urban Health Care Reform 1998


Reimbursement

Financing

Self
payment

6%*70%
Employer
6%

Social Pooling
Fund

Self
payment

Co-pay/Co-insurance

4.2%

6%*30%
Employee
2%

Ceiling (4 times of
annual average salary
of local working staff
members)

Private Saving
Account
3.8%

Out of
Pocket

Deductible (10%
of annual
average salary of
local working
staff members)

The Coverage of Main Social Insurance Schemes(2011,2013)

Medical Insurance
(including Urban Employees Basic Medical Insurance, Urban Residents
Basic Medical Insurance, New Rural Cooperative Medical Insurance)
over 95%,2013
New Rural Cooperative Medical Insurance
832 million Rural Residents, 97%,2013
Old-Age Insurance
820 million population
Work-related Injury Insurance
170 million
Unemployment Insurance
140 million
Housing security
36 million families

Anti-Poverty in rural areas


impoverished population in rural areas (1978-2007)
year

1978
1990
1995
2000
2001
2003
2005
2006
2007

poverty
threshold(RMB)
100
300
530
625
630
637
683
693
785

impoverished
population
250.0m
85.0m
65.4m
32.09m
29.27m
29.0m
23.65m
21.48m
14.79m

SourceChina Statistics Yearbook 2008

percentage of
impoverished population(%)
30.7
9.4
7.1
3.5
3.2
3.1
2.5
2.3
1.6

impoverished population in rural areas (2008-2011)


year

2008
2009
2010
2011

poverty
threshold (RMB)
1067
1196
1274
2300(6.3/day)

impoverished
population
40.07m
35.97m
26.88m
128.0m

percentage of
impoverished population(%)
4.2
3.8
2.8
13.4

International poverty line:


$1.25 per day at 2005 purchasing-power parity (PPP), World Bank,2008
Source: China Statistics Yearbook

Basics of China

3
4
4

Chinas Economic and Social Development


Existing Problems and challenges

Measures of New Leadership

3Problems and Challenges


Unsustainable economic growth-model (economical)

Decreased efficiency of government investment


High dependency on foreign trade (Imp.&Exp./GDP, 59.2%,2008)

Uneven benefit distribution, widened wealth gap (social)

Gini Coefficient 0.24 - 0.474 (1984 2012)

Excessive resources consumption, Deteriorating environment


(ecological)
Created 8%GDP of the world. Consumed: energy 18%steel 44%cement
53% of the world (2009)
Thick haze, 1.43 million square kilometer, Jan. Feb. 2013

Problem of ageing (demographical)

Ageing society since 1999,(11% above 60)

Rising expectations (political)


- Becoming richer and better educated, expectations of the public are rising
drastically such as political reform, anti-corruption, Transition of better governance,
and protection of national rights internationally

Peaceful development (International )


- concern and fear led disputes, etc.,

Position of Chinas industry on the smile curve

Chinese
case

Jump over the middle income trap

Aging Problem
Demographic Structure in Forecast (%)
2000

2010

2020

2030

2040

2050

0-14

24.84

20.25

18.83

17.17

16.21

16.09

15-59

65.07

67.49

64.34

59.23

56.22

53.93

60 and over

10.10

12.26

16.83

23.60

27.57

29.95

80 and over

0.89

1.33

1.85

2.71

4.43

7.00

100 and over

0.009

0.002

0.0045

0.0092

0.0172

0.0338

year

Workers population to retirees

1978

301

1983

101

1990

61

2025

31

Basics of China

3
4
4

Chinas Economic and Social Development


Existing Problems and challenges

Measures of New Leadership

Recent Economic Problems


Economic growth decline;

first quarter of 2011,2012,2013: 9.7%, 8.1%, 7.7%

Excessive capacity (steel, cement, solar, etc); Average capacity


utilization rate, 75%

Ke-qiang index is in stagnation (real economy);

electricity consumption, rail-freight traffic, credit supply

Financing shortage in real economy when money supply


increase quickly; (financial bubbles, shadow banking system)
Fiscal revenue decrease, risk of local government debt increase.

fiscal revenue of central government, -0.2%,first quarter, 2013.


total amount of local government debt:20 trillion RMB, 40% GDP

Enterprises faces difficulties, such as high financing cost, high


labor cost, heavy tax burden.

Likonomics
"Likonomics" was coined at the end of June by Barclays
Capital to describe a series of measures adopted by the
State Council, led by new Premier Li Ke-qiang.

It stands for:
1. No (mini) stimulus.
2. Deleveraging.
3. Structural reform

Measures of Macro Management


1Pursuing steady growth
Fiscal policy,

kept deficit from expanding,


readjusted the expenditure structure,
cut down administrative expenditures,
accelerated spending, increased support for the central and western
regions and for improving people's wellbeing,
granted preferential tax treatment to small and micro businesses.

Monetary policy,
did not relax or tighten the monetary policy in spite of the short-term
fluctuation in the money market,
properly managed liquidity,
strengthened supervision and improved regulation to prevent and
defuse potential risks in the fiscal and financial sectors,
taking pertinent measures to regulate and address local government
debt problem in an orderly fashion.

Policy Combination Options of Likonomics


GDP growth rate (Lower Limit): 7.5%
Inflation rate :3.5%
Unemployment rate : 5%

GDP> 7.5%,CPI<3.5%;
structural adjustment, enhance reforms, stabilize growth;

GDP> 7.5%,CPI>3.5%;
control inflation, structural adjustment, enhance reforms;
GDP< 7.5%,CPI<3.5%;
stabilize growth, structural adjustment, enhance reforms;
GDP< 7.5%,CPI>3.5%;
stabilize growth, control inflation, enhance reforms.

2Conducting structural readjustment


industrialization, new type of urbanization, IT application

and modernization of agriculture,


develop the service sector,
develop infrastructure in urban areas, and railways in the

central and western regions,


invest more in energy conservation and environmental
protection,
promote technological innovation and deep integration of
science and technology with the economy,
promote old age care, health, cultural, educational and
other public services.

3Promoting reform
transforming government functions,
business-to-value added tax pilot reform(),
market-based interest rates reform,

reforms on pricing of resource products and government

procurement of public services,


develop a mixed economy,
relaxed market access in the financial, oil, electricity, etc.
signed FTA agreements with Switzerland and Iceland,
upgrade the China-ASEAN Free Trade Area,
China (Shanghai) pilot free trade zone

the negative-list approach,


Pre-establishment National Treatment,
easier investment access and greater openness in trade in services,
to facilitate foreign.

4. Improve the Well-being


Pension system:
Establishment of a nationwide basic pension system with
Merge the pension system for urban residents and rural citizens
820,mill.(498 mill.3.2mill)

Healthcare system
Promoting the 3 layer healthcare system
(570 mill,800 mill,> 95%)
Social insurance for catastrophic illness nationwide

Social relief
5.9%
100 mill medical relief

China s Exploration : ChinaShanghai


Pilot Free Trade Zone
Chinas determination to deepen opening-up;
Respect trade partners deep concerns on service
trade;
Advance comprehensive economic reform.

36

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