China: Economic and Political Overview
In this page: Economic Outline | Political Outline | COVID-19 Country Response
For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.
China is the second largest global economy, the largest exporter and has the largest exchange reserves in the world. However, even though China has one of the fastest growing GDPs in the world, its economic growth was abruptly slowed to 2.3% in 2020, against 6% in 2019, due to the impact of the COVID-19 pandemic. The 2019 context was already the result of a structural slowdown, as the economy moves away from an investment-led growth model and the government implements policies to reduce financial vulnerabilities. At the time, resilient external demand and robust domestic household consumption bolstered this growth, despite rising concerns about financial risks amid an economic restructuring led by the government. In 2021, growth came back strongly at 8.1%. New sectors like e-commerce and online financial services are gaining momentum in an economy dominated by export-oriented sectors. Nevertheless, growth came back to only 3.2% in 2022. (IMF Economic and Political Outlook, October 2022). The GDP trend is expected to recover at 4.4% in 2023 amid a reopening of the economy, according to Navigating Uncertainty, the latest China Economic Update released today by the World Bank (2023).
China’s economy has strongly rebounded from the deep dive following the COVID-19 outbreak and has returned to its gradually slowing path. The rebalancing from investment to consumption, from manufacturing to services, and from rural to urban migration have all been set back by the pandemic, but need to restart to make growth sustainable and inclusive (OECD, 2023).
By the end of 2022, inflation reached 2.2% and it should stabilise at 2.2% and 1.9% in 2023 and 2024 (IMF, 2023). Public debt is a reason for concern in China. Although the official figure for 2022 was 76.9%, the real number is thought to be much higher and is expected to rise in coming years. According to a report published by the Institute of International Finance, the total stock of corporate, household and government debt in the nation now exceeds 303% of gross domestic product and accounts for about 15% of all global debt. Lately, the government has been targeting spending cuts in its budget and President Xi Jinping has said that curbing loans to bloated state-owned enterprises is “the priority of priorities". Nonetheless, the IMF anticipates an increase in the government debt in the future, reaching 84.1% in 2023 and 89.8% in 2024. Due to the COVID-19 pandemic, government budget balance reached a record low of -8.1% of GDP in 2020 compared to -5.9% the previous year, but then came back to 5.5% in 2021 before reaching in -8% in 2022, a trend that is expected to slow in 2023 and 2024, when it is estimated to remain at -6.5% and -6.9%, respectively. On the other hand, China still has large reserves of foreign currencies, estimated by the Chinese Official reserve assets at USD 3.128 trillion in January 2023, which could serve as a buffer to external sovereign volatility, together with a current account surplus of an estimated USD 275.7 billion in 2022 (IMF, 2022). Consumption is still to recover from the hit caused by the COVID-19 outbreak. Even though sales of luxury goods are booming and box office revenues have reached new highs, the lack of a recovery in employment and falling household incomes mean that prospects for a full consumption recovery are not bright (OECD, 2022).
According to the Minister of Human Resources and Social Security Yin Weimin, the low unemployment rate of these past years is largely due to the new digital economy and entrepreneurship. Many analysts say, however, that the government figure is an unreliable indicator of national employment levels, as it takes into account only employment in urban areas and does not measure the millions of migrant workers that arrive in the country every year. Despite the global context, the unemployment rate slightly decreased from 4.2% in 2020 to 4% in 2021. The IMF expects the rate to return to pre-pandemic levels of 4.1% in 2023 and 3.9% in 2023.
In 2023, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic. Furthermore, China has to face many challenges: an ageing population and shrinking workforce, the lack of openness of its political system and issues of competitiveness in an economy dependent on high capital spending and the expansion of credit. A large gap remains between the living standard of the cities and the countryside, between urban zones on the Chinese coast and the interior and western parts of the country, as well as between the urban middle classes and those who have not been able to profit from the growth of recent decades. These inequalities are becoming increasingly worrisome for both Chinese authorities and investors, hence Xi Jinping's vow to complete the eradication of rural poverty by 2020 followed by his speech the following year, stating that the "arduous task of eradicating extreme poverty has been fulfilled" (BBC News, February 2021), even though the national benchmark used by the Chinese government is slightly higher than the USD 1.90 a day poverty line used by the World Bank to look at poverty globally. The COVID-19 pandemic also highlighted weaknesses in the health and social security systems and pushed many households and firms to the brink of bankruptcy. It further widened inequalities between central provinces that have been hardest hit and the coast; between poorer households that had already been indebted and wealthier households and between the private sector, which has limited access to infrastructure contracts and is hard hit by slackened demand and the state-owned sector. Such divides will need to be addressed by the central government to make growth inclusive and sustainable (OECD, 2023).
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 17,886.33 | 17,700.90 | 18,560.01 | 19,781.70 | 21,059.83 |
| GDP (Constant Prices, Annual % Change) | 3.0 | 5.0 | 4.2 | 4.1 | 4.1 |
| GDP per Capita (USD) | 12,670 | 12,541 | 13,156 | 14,031 | 14,952 |
| General Government Balance (in % of GDP) | -6.6 | -6.6 | -6.7 | -7.0 | -7.4 |
| General Government Gross Debt (in % of GDP) | 77.0 | 83.0 | 87.4 | 91.8 | 95.9 |
| Inflation Rate (%) | n/a | 0.7 | 1.7 | 2.2 | 2.2 |
| Unemployment Rate (% of the Labour Force) | 5.5 | 5.3 | 5.2 | 5.2 | 5.2 |
| Current Account (billions USD) | 401.86 | 271.44 | 250.86 | 224.86 | 207.85 |
| Current Account (in % of GDP) | 2.2 | 1.5 | 1.4 | 1.1 | 1.0 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
China has a highly diversified economy, dominated by the manufacturing and agricultural sectors. China is the most populated country in the world and one of the largest producers and consumers of agricultural products. The agricultural sector is estimated to have employed 24.7% of the active population in 2022 (World Bank, 2023) and accounted for 7.3% of GDP, although only 15% of the Chinese soil (about 1.2 M km²) is arable. China is the leading global producer of cereals, rice, cotton, potatoes and tea. In terms of livestock, it also dominates sheep and pork livestock farming as well as the world’s fish production. A series of plans have been aimed at transforming, modernising and diversifying agriculture to increase productivity. Additionally, the country is rich in natural resources, and has significant coal reserves (the country's primary energy source), which account for two-thirds of the total primary energy consumption. China is the world leader in the production of certain ores (tin, iron, gold, phosphates, zinc and titanium) and has significant petrol and natural gas reserves, making the country the 5th biggest oil producer in the world, with 4.99 million barrels produced per day in 2022.
The industry sector contributed to approximately 34.9% of China's GDP and employed 27% of the population in 2022 (World Bank, 2023). China has become one of the most preferred destinations for the outsourcing of global manufacturing units thanks to its cheap labour market, despite an increase in labour costs in recent years. China’s economic development has coincided primarily with the development of a competitive and outward-oriented manufacturing sector. More than half of the Chinese exports are made by companies with foreign capital. Their share in the sector's added-value varies according to the industry: more than 60% for electronics and less than 20% for the majority of producer goods. The state sector still contributes approximately 39% to the GDP.
The services sector's share in the GDP is approximately 57.8% and it employed around 48% of the workforce in 2022 (World Bank, 2023). Even though the sector's GDP share has been growing in recent years, the service sector as a whole, encumbered by public monopolies and restrictive regulations, has not progressed. The development of the sector has been constrained by the country’s focus on manufactured exports and the substantial barriers to investment in the sector. However, the Chinese government has been focusing more on the services sectors lately, particularly in sub-sectors such as finance, logistics, education, healthcare and it is also aiming to rank among the top exporters for transport, tourism and construction.
Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 24.4 | 28.2 | 47.4 |
| Value Added (in % of GDP) | 7.3 | 39.9 | 52.8 |
| Value Added (Annual % Change) | 4.1 | 3.8 | 2.3 |
Source: World Bank, Latest data available.
Find more information about your business sector on our service Market reports.
The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
See the country risk analysis provided by Coface.
In 2022, the Chinese government continued to reinforce its official political rhetoric and control, both internally and in terms of foreign policy. Weak global demand and strained foreign relations are expected to intensify calls for economic self-sufficiency emphasising the importance of the domestic market. In 2023, China’s most immediate challenges remain related to addressing the economic, social and public health impacts of the COVID-19 pandemic. Reshaping the Chinese economy around the principle of self-reliance is in the current political agenda of the Communist Party of China - who marked its 100th anniversary in 2021 - but it is a complex and multi-year process.
How China handles the unwinding of its zero-covid policy looks to be the most profound question facing the country in 2023. Almost every other issue, from the fate of the economy to the future of climate action, hinges to some degree on how smoothly the government and the nation move from harsh restrictions to a true reopening.
The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Source: Freedom in the World Report, Freedom House
Any Comment About This Content? Report It to Us.
© eexpand, All Rights Reserved.
Latest update: November 2023
