PDF _ IB98014 - China's Economic Conditions
21-Sep-2000; Wayne M. Morrison; 17 p.

Update: April 11, 2003


On January 9, 2003, the United Nations reported that in 2002, China had replaced the United States as the world?s largest recipient of foreign direct investment.

On November 8, 2002, Chinese President Jiang Zemin formally proposed at the 16th National Congress of the Chinese Communist Party that the Party constitution be amended to allow private entrepreneurs to join the Party (based on Jiang?s ?Three Represents? theory). The amendment was adopted on November 11.

On November 4, 2002, China and the Association of Southeast Asian Nations (ASEAN) formally agreed to begin negotiations to create a free trade area.


Abstract: Since the initiation of economic reforms in 1979, China has become one of the world?s fastest growing economies. From 1979-2002, China?s real GDP rose at an average annual rate of 9.3%; it rose by an estimated 8.0% in 2002. Many economists speculate that China could become the world?s largest economy at some point in the near future, provided that the government is able to continue and deepen economic reforms, particularly in regards to its efficient state-owned enterprises (SOEs) and state banking system. Progress in reforming these sectors in recent years has been somewhat mixed.

After many years of negotiations, China became a member of World Trade Organization (WTO) on December 11, 2001. WTO accession commits China to significantly reducing a wide variety of tariff and non-tariff barriers over the next few years. Legislation (H.R. 4444) authorizing the President to grant permanent normal trade relations (PNTR) status to China (once it joined the WTO) was enacted into law on October 10, 2000 (P.L. 106-286). Following China?s WTO accession in December 2001, President Bush extended PNTR status to China which became effective in January 2002.

If fully implemented, the terms of China?s WTO accession will likely have a significant impact on China?s economy. The level of Chinese trade protectionism will be greatly diminished over then next few years, and nearly all sectors of China?s economy (including agriculture, manufacturing, and services) will increasingly be subject to great competition. Several of China?s heavily protected industries, such as autos, and certain agricultural sectors, could be negatively affected by China?s WTO membership. China?s laborintensive industries, especially textiles and apparel, will likely benefit significantly with China?s WTO accession. A major challenge for the government is to develop an adequate social safety net to assist laid-off workers.

China?s economy remained relatively healthy in 2002, despite economic slowdowns in other parts of the world. Foreign investment continued to pour into China, and the Chinese government effectively used public spending to boost the economy. However, painful economic reforms will be necessary to keep the economic strong in 2003 and beyond. In addition, the recent outbreak of a mysterious and contagious virus called Severe Acute Respiratory Syndrome (SARS) in Southern China (which has subsequently spread to other countries) has raised serious health concerns over travel to and from China, and therefore could potentially have a negative short-term impact on the Chinese economy. [read report]

Topics: International, Economics & Trade, International Finance

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