China

Politics:

• Analysis

  China politics: A talker or a walker?

  The new prime minister: A talker or a walker?

  Despite sounding ebullient, Li Keqiang manages expectations downwards

  AFTER the National People's Congress made him prime minister on March 15th, Li Keqiang declared that "screaming yourself hoarse" was not as good as "rolling up your sleeves and getting to work". This appeared to be an attempt by Mr Li to distance himself from his predecessor, Wen Jiabao, who stepped down after ten years in the job.

  Some critics inside the Communist Party call Mr Wen's time in office China's lost decade. He always talked about the need for bold change, including political reforms, but fell short in actions. It did not help that his wife and relatives appear to have accumulated assets worth billions of dollars during his time in power.

  Mr Li, who is 57, takes over an economy that has grown tremendously. But the problems which Mr Wen inherited have only got worse. They include official corruption; environmental damage; widening gaps between rich and poor, cities and countryside; and growth that is overly reliant on investment and credit flowing to state-owned enterprises. He also inherits an unwieldy political system that makes it hard to deal with these problems.

  The prime minister is just one of a collective of overstretched party leaders. Policy changes must overcome opposition from any number of vested interests, including local governments, state banks and rich, politically connected families. Unlike Mr Wen, Mr Li appears to be managing expectations downwards. "Sometimes," he said at his inaugural press conference, "stirring vested interests may be more difficult than stirring the soul".

  Mr Li has an advantage in coming to office with apparently little wealth. His wife, a respected academic, is reckoned to have no business dealings. In what some see as a jab at his predecessor (and, indeed, at much of the political establishment), Mr Li said that "clean government should start with oneself. Only if one is upright himself should he ask others to be upright." After entering public service, "we should give up all thought of making money."

  The son of a local party official in east-central Anhui province, Mr Li was sent to work in the countryside towards the end of the Cultural Revolution. He went on to earn a PhD in economics at Peking University, where he began his rise through the ranks of the Communist Youth League. He eventually led the league, as his patron, the outgoing president, Hu Jintao, had done.

  Caution coupled with hard work, much more than bold action, leads to promotion in the Communist Party. In 1998 Mr Li became governor of Henan province in central China, extending a cover-up of the government's complicity in a provincial blood-buying scheme that infected tens if not hundreds of thousands of people with HIV, the virus that causes AIDS. Towards the end of his tenure in Henan, however, Mr Li called for more money for treating AIDS patients and schooling orphans.

  As vice-prime minister for the past five years, Mr Li helped expand rudimentary health insurance to hundreds of millions of rural dwellers. But the boldest reforms associated with Mr Li exist only on paper. Last year he gave his imprimatur to a radical report, by Chinese standards. "China 2030", co-authored by the World Bank and a Chinese government think-tank, urges sweeping structural changes, including to state-owned enterprises and to an apartheid-like system of household registration that discriminates against country-born folk in favour of city residents. It is unclear how hard Mr Li will push for such changes now that he is at the apex of power. At his ebullient, if scripted, press conference, he stressed that actions speak more than style. Now he will have to prove it.

  March 23, 2013

• Background

  China: Key figures

  Hu Jintao

  China's president, and also general secretary of the Chinese Communist Party (CCP), Mr Hu has disappointed those who hoped for bolder political reform. Conservative by instinct, he sees greater openness and accountability as a means of improving the quality of governance in China rather than as an initial move towards democracy. Under Mr Hu's leadership, social and environmental concerns have risen up the agenda, in line with his ideology of "scientific development". Mr Hu's policymaking approach is normally cautious. The large number of protégés that Mr Hu has installed in important posts leave him well positioned to maintain his influence on Chinese politics from behind the scenes after 2013.

  Wen Jiabao

  The premier since 2003, Mr Wen appears to work well with Mr Hu and is the human face of the latter's "harmonious society" policy agenda. Mr Wen is the senior leader with the most frequent exposure to international media. He has described reform as an urgent task, and has repeatedly warned of the threats to future economic growth and social stability posed by political inertia. However, he has struggled to garner wider support within the party on these issues, and has consequently failed to deliver meaningful changes during his period in power.

  Xi Jinping

  China's vice-president since 2008, Mr Xi is a former governor of Fujian province and ex-party secretary of Zhejiang province. As the son of a former high-ranking official, he belongs to the "princeling" wing of the CCP. In 2007 he was appointed to the party's politburo standing committee (PSC, China's main policymaking body), assuming the role of heir-apparent to Mr Hu. He has remained discreet about his political views, but, once his promotion has been secured, he will make efforts to set out a policy agenda that subtly distinguishes him from his predecessors. His experience working in China's trade-oriented eastern provinces, where the private sector is traditionally strong, suggests that he will be supportive of further economic liberalisation. Mr Xi is thought to be less influenced by consensus attitudes than Mr Hu, and his privileged family background has given him an extensive personal network that may help him to implement decisions.

  Li Keqiang

  Mr Li, a former party secretary of Henan and Liaoning provinces, was elected to the PSC in 2007 and became China's executive vice-premier in 2008. Having failed in his bid to be chosen as heir-apparent to Mr Hu, Mr Li is now being lined up to take over as premier from March 2013, in an appointment that will bring with it responsibility for macroeconomic policy. Mr Li has a reputation as a reformer and has shown a deep interest in a range of social issues, such as affordable housing and public healthcare. However, his reputation remains tainted by the legacy of official efforts to cover up a scandal in Henan province involving the infection of blood donors with HIV, which took place while he was provincial party secretary during 2002-04.

  Wang Qishan

  Mr Wang, a princeling, served as mayor of China's capital, Beijing, before his elevation in 2008 to the position of vice-premier with responsibility for financial issues. A member of the politburo, he is expected to be promoted to the PSC as part of the next leadership transition. He is likely to play a leading role in implementing financial sector reforms and overseeing economic relations with China's main trading partners.

  Li Yuanchao

  The head of the Central Organisation Department (the body responsible for managing China's bureaucracy) and an ally of Mr Hu, Mr Li has constructed a valuable network of connections during his time in his current position. He previously served as party secretary for Jiangsu province, having also been party leader of the provincial capital, Nanjing. Mr Li is on course to become a member of the PSC at the next reshuffle, and is likely to become responsible for internal party discipline.

  April 27, 2012

• Structure

  China: Political structure

  Official name

  People's Republic of China

  Form of government

  One-party rule by the Chinese Communist Party (CCP)

  The executive

  The State Council, whose membership is approved by the legislature. State Council members, including the premier, may serve no more than two consecutive five-year terms

  Head of state

  A president and a vice-president are approved by the legislature for a maximum of two consecutive five-year terms

  National legislature

  The unicameral National People's Congress (NPC), whose 2,989 delegates are selected by provinces, municipalities, autonomous regions and the armed forces. The NPC approves the president and members of the State Council, as well as the membership of the standing committee of the NPC, which meets when the NPC is not in session. All arms of the legislature and the executive sit for five-year terms

  Regional assemblies and administrations

  There are 22 provinces, four municipalities directly under central government control and five autonomous regions. These elect local people's congresses and are administered by people's governments

  National elections

  The current government line-up was approved at the NPC meeting in 2008. A new party leadership was unveiled at the 18th national congress of the CCP in November 2012. The new government line-up will be announced in March 2013 at the NPC, when Xi Jinping and Li Keqiang are expected to take over from Hu Jintao and Wen Jiabao as president and premier respectively

  National government

  The politburo (political bureau) of the CCP decides on policy and controls all administrative, legal and executive appointments; the seven-member politburo standing committee is the focus of power

  Main political organisation

  The CCP, of which Mr Xi is the general secretary

  Politburo standing committee members

   Xi Jinping

   Li Keqiang

   Zhang Dejiang

   Yu Zhengsheng

   Liu Yunshan

   Wang Qishan

   Zhang Gaoli

  Heads of selected state ministries and commissions

  President: Hu Jintao

  Vice-president: Xi Jinping

  Premier: Wen Jiabao

  Vice-premiers:

   Li Keqiang

   Hui Liangyu

   Zhang Dejiang

   Wang Qishan

  Commerce: Chen Deming

  Finance: Xie Xuren

  Foreign affairs: Yang Jiechi

  National Development & Reform Commission: Zhang Ping

  Central bank governor

  Zhou Xiaochuan

  March 05, 2013

• Outlook

  China: Key developments

  Outlook for 2013-17

  • The handover of power to a new generation of leaders, which began at the November 2012 congress of the ruling Chinese Communist Party (CCP), will be completed at the March meeting of the National People's Congress.
  • Although the elevation of a younger set of leaders will lead to some shifts in government policy, the relatively conservative line-up unveiled at the party congress suggests that prospects for political liberalisation in 2013-17 are low.
  • Moves to raise incomes, and thus spending, among the less well-off will form part of the government's efforts to expand the role of consumption in driving economic growth in the forecast period.
  • Monetary policy will return to a tightening stance in 2013 as inflation and economic growth accelerate. The authorities will gradually liberalise interest rates in 2013-17, and this will result in rates drifting higher.
  • Economic expansion will average 7.6% a year in the forecast period. Private consumption, rather than investment, will be the main driver of growth.
  • The current account is forecast to move into deficit from 2016, from an estimated surplus equivalent to 2.6% of GDP in 2012, as growth in imports of goods and services outpaces that of exports.

  Review

  • The anti-graft drive launched by the new CCP leadership has showed few signs of being effective. A corrupt former deputy party secretary of Shanxi province, Hou Wujie, was released early from prison in February.
  • China said that it was "firmly opposed" to a suspected nuclear test carried out on February 12th by North Korea. But it also called for a "calm response" to the incident, highlighting its unwillingness to abandon its long-term ally.
  • In a sign that it may be tightening monetary policy, in mid-February the People's Bank of China (the central bank) withdrew liquidity from the economy through open-market operations for the first time since June 2012.
  • On February 5th the State Council (the cabinet) published a list of guidelines aimed at reducing income inequality. Many of the policies put forward are vague or bear resemblance to existing plans.
  • China's official manufacturing purchasing managers' index (PMI) slipped fractionally in January, to 50.4, from 50.6 in the previous month. However, the PMI produced by HSBC strengthened to reach a two-year high.
  • China's exports grew in value by 25% year on year in January, according to the country's customs bureau, while imports climbed by 28.8%. The trade figures were distorted by the timing of the Chinese New Year.

  March 05, 2013

Economy:

• Background

  China: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	1,320.7	Population growth	0.6
  GDP (US$ bn; market exchange rate)	7,211.9b	Real GDP growth	10.5
  GDP (US$ bn; purchasing power parity)	11,452.8	Real domestic demand growth	11.4
  GDP per head (US$; market exchange rate)	5,461	Inflation	3.7
  GDP per head (US$; purchasing power parity)	8,672	Current-account balance (% of GDP)	9.2
  Exchange rate (av) Rmb:US$	6.46b	FDI inflows (% of GDP)	4.5
  a Economist Intelligence Unit estimates. b Actual.

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  Background: The People's Republic of China was founded in 1949 by the Chinese Communist Party (CCP). The CCP chairman, Mao Zedong, then led the country for nearly three decades. After coming to power in 1978, two years after Mao's death, Deng Xiaoping introduced economic reforms. From 1989 to 2002 Jiang Zemin presided over a more collective leadership, a trend strengthened under his successor, Hu Jintao. The transition to a new generation of leaders, headed by Xi Jinping, began in November 2012.

  Political structure: The CCP dominates the government. Mr Xi is general secretary of the CCP and chairman of the Central Military Commission, which controls the armed forces. Wen Jiabao leads the government as premier and Mr Hu is state president. The politburo standing committee is the main decision-making body. The National People's Congress is the largely rubber-stamp legislature. The Chinese People's Political Consultative Conference, a prominent advisory body, contains representatives of political, social and religious groups. There is no formal political opposition to the CCP.

  Policy issues: China's leaders want continuing economic liberalisation and sustainable growth alongside enduring political control. They recognise that many people have been left behind by recent economic reforms and that growing social inequality constitutes a political liability. Accordingly, the emphasis in economic development is being altered in favour of social priorities. Another challenge facing the government is to rebalance the economy, which has been dangerously dependent on high levels of investment spending. Rapid income growth will gradually boost the contribution of domestic consumption to economic expansion, but difficult reforms (particularly in the financial sector) will be required if household spending is to be fully unleashed.

  Taxation: The standard rate of corporate income tax is 25%. China has a progressive income tax system, with marginal rates as high as 45%, but tax evasion is rife. Indirect tax is the main source of tax revenue, but the burden will increasingly be shifted to taxation of personal income, and particularly that of high earners.

  Foreign trade: China's trade surplus (in balance-of-payments terms) fell to US$243.5bn in 2011, from US$254.2bn in 2010. Exports totalled just over US$1.9trn in 2011, while imports were worth around US$1.7trn.

  Major exports 2012	% of total	Major imports 2012	% of total
  Machinery & transport equipment	47.1	Machinery & transport equipment	35.9
  Miscellaneous manufactures	26.1	Mineral fuels & lubricants	17.2
  Manufactures classified by material	16.3	Crude materials	14.8
  Chemicals & related products	5.5	Chemicals & related products	9.9
  Leading markets 2012	% of total	Leading suppliers 2012	% of total
  US	17.2	Japan	9.8
  Hong Kong	15.8	South Korea	9.3
  Japan	7.4	US	7.3
  South Korea	4.3	Taiwan	7.3

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  March 06, 2013

• Structure

  China: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 05, 2013

• Outlook

  China: Country outlook

  China: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The political dominance of the Chinese Communist Party (CCP) is not expected to be challenged in 2013-17. Factional struggles within the party are more likely to be a source of political instability. However, with the battle for the most senior positions having been settled by the outcome of the CCP congress in November 2012, the risk of an outbreak of severe factional conflict will be low in the early part of the forecast period. The transition to a new generation of political leaders will be completed at the annual meeting of the National People's Congress (the legislature) in March 2013.

  ELECTION WATCH: Since China's outgoing administration, headed by the president, Hu Jintao, and the premier, Wen Jiabao, came to power a collective-style government has emerged. A reconfiguration of the political leadership began in November 2012, when the CCP's 18th congress selected its new party leadership. Xi Jinping, who succeeded Mr Hu as CCP general secretary at the conclave, will also replace him as China's president in March 2013, when the installation of a new state leadership takes place. The current executive vice-premier, Li Keqiang, who is ranked second on the PSC, will succeed Mr Wen as premier. The fact that Mr Xi and Mr Li are set to serve three terms each on the PSC, retiring in 2022, will put them in an advantageous position over the other members of the committee, who will serve only one term because of CCP age limits. Mr Xi's authority has also been strengthened by Mr Hu's decision to hand to him control of the CCP committee that oversees the military in November 2012.

  INTERNATIONAL RELATIONS: China will be a crucial participant in international negotiations on a range of economic and diplomatic issues, but it is highly sensitive to perceived slights, interference in its internal affairs and what it characterises as attempts to curb its rise. Its ability to deal effectively with other major powers is hampered by the weak influence within China of the Ministry of Foreign Affairs.

  POLICY TRENDS: Rebalancing the economy further away from its dependence on investment will be a crucial goal over the next few years. The reluctance of the authorities to relax the tight policies governing the housing sector, or to launch a big stimulus drive, in response to the economic slowdown in 2012 was a sign of its commitment to this aim. To boost the role of consumption in driving economic growth in 2013­17, the government will look to raise the incomes of the less well-off. Redistributive tax reforms could be enacted, and officials will support workers' efforts to secure substantial pay increases. The household registration (hukou) system, which prevents migrant workers from accessing state welfare services in localities other than their place of birth, may also be relaxed in order to encourage urbanisation. Despite growth in spending on health, education, pensions and poverty alleviation in the forecast period, these services will remain underdeveloped.

  ECONOMIC GROWTH: Real GDP growth slowed to 7.8% in 2012, from 9.3% in 2011. Weak demand for Chinese exports, and decelerating growth in property investment (as well as activity in associated sectors), held back economic expansion in 2012, but strong growth in income continued to support private consumption. Looser monetary policy and investment in government-backed infrastructure projects drove an acceleration in real GDP growth in the fourth quarter of 2012. As this momentum carries over, economic expansion will accelerate to 8.5% in 2013. Investment will further benefit from a modest upturn in real-estate development, and external demand will pick up slightly, in line with marginally faster global GDP growth.

  INFLATION: The rate of consumer price inflation slowed to 2.6% on average in 2012, reflecting a deceleration in economic growth and moderating global commodity prices. However, in the forecast period strong liquidity growth and booming demand will generate upward inflationary pressures. The Economist Intelligence Unit expects inflation to average 4.1% a year in 2013-17, but there are upside risks to our forecast. Food and transport costs in China are exposed to volatility in global oil prices. Local agricultural costs, meanwhile, are dependent on the vagaries of the weather, and pork prices entered a new cyclical upswing in early 2013.

  EXCHANGE RATES: China's trade surplus as a proportion of GDP is forecast to fall to modest levels in the forecast period, while the current account will move into deficit in 2016. The country will thus be in a strong position to resist external pressure to allow a faster rate of currency appreciation. The renminbi is now probably close to a market-determined level, with the consequence that greater volatility in its value, including bouts of depreciation, is likely in the next five years. The renminbi's daily trading band against the US dollar is likely to be widened further, thereby permitting market forces to play a greater role in determining the currency's value.

  EXTERNAL SECTOR: China's current-account balance is expected to move from an estimated surplus equivalent to 2.6% of GDP in 2012 to a deficit of 1.2% by 2017. Merchandise exports will grow by 9.4% a year on average in 2013-17, more slowly than in recent years, owing to the erosion of the country's price competitiveness. A large proportion of China's imports consist of components that are assembled locally before being shipped overseas, and imports and exports therefore tend to expand at similar rates. However, a growing proportion of imports are used to make goods for local consumption. Partly as a result, merchandise import growth will outpace export expansion in the forecast period, with imports increasing by 12.5% a year on average.

  March 05, 2013

• Forecast

  China: Country forecast summary

  Country forecast overview: Highlights

  • The vice-president, Xi Jinping, assumed leadership of the ruling Chinese Communist Party (CCP) at the party congress in 2012 and will take over from the current president, Hu Jintao, in 2013. Li Keqiang will become state premier in 2013, replacing Wen Jiabao. The CCP's new politburo standing committee has a conservative tilt, suggesting that it will be reluctant to take on vested interests in the state-owned sector or to introduce substantive political reform.
  • Modern technology and a more politically engaged youth will put China's authoritarian political system under pressure in 2013-17. However, unrest is likely to remain localised and pose little threat to national stability. Strengthening its control over China's regions will also be a priority for the central government, but unrest will persist in Tibet and Xinjiang.
  • China's growing geopolitical power will generate tensions with the US, which is looking to enhance its presence in Asia. China will press its maritime territorial claims more assertively, and the risk of clashes in the East China Sea has risen, particularly following the election of a more nationalist government in Japan in late 2012. Economic relations with Taiwan will deepen.
  • Real GDP growth will slow in 2013-17, but will still be strong at 7.5% a year on average. Progress will be made on rebalancing the economy as private consumption grows rapidly. However, fixed investment will remain an important driver of economic expansion. Net exports will subtract from GDP growth throughout the forecast period.
  • Labour shortages will support wage growth, while rising input costs and the shrinking area of agricultural land will drive up food prices. Against this background, the danger of high inflation will be a cause for concern in 2013-17.
  • The renminbi will appreciate by a relatively modest average of 0.9% a year against the US dollar in 2013-17. The government's desire to turn the renminbi into a global currency will provide impetus to exchange-rate liberalisation. As the renminbi nears its market-determined level, it is likely to be subject to greater bouts of volatility, including periods of depreciation, in the next five years.
  • The current account will move into deficit in 2016. Merchandise export growth will slow in 2013-17 and strong domestic growth will boost import demand. The export competitiveness of China's manufactured goods will be eroded by the renminbi's appreciation and rising domestic input costs. Income from Chinese investment abroad will grow during the forecast period.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	7.8	8.5	7.8	7.7	7.3	6.5
  Consumer price inflation (%; av)	2.6	4.3	4.1	3.9	4.2	4.0
  Budget balance (% of GDP)	-1.6	-2.0	-1.9	-1.9	-1.8	-1.3
  Current-account balance (% of GDP)	2.6	1.8	0.8	0.2	-0.5	-1.2
  Commercial bank prime rate (%; year-end)	6.0	6.8	7.5	7.5	7.8	7.8
  Exchange rate Rmb:US$ (av)	6.31	6.26	6.23	6.16	6.10	6.04
  Exchange rate Rmb:¥100 (av)	7.89	6.75	6.59	6.40	6.25	6.26

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  March 06, 2013

View detailed map

Country Briefing

Land area

9,561,000 sq km

Population

1.35bn (end-2011; official estimate)

Main towns

Population (millions) of metropolitan areas. (Economist Intelligence Unit Access China estimates, 2011)

Shanghai: 16.4

Chengdu: 8.8

Beijing (capital): 14.4

Wuhan: 8.5

Shenzhen: 11.5

Xi'an: 7.1

Tianjin: 9.5

Zhengzhou: 7.1

Chongqing: 9.5

Nanjing: 6.4

Guangzhou: 9.4

Changsha: 5.6

Climate

Continental, with extremes of temperature; subtropical in the south-east

Weather in Shanghai (altitude 4 metres)

Hottest months, July and August, 23-33°C (average daily minimum and maximum); coldest month, January, -1 to 9°C; driest month, September, less than 5 mm average rainfall; wettest month, June, 160-165 mm average rainfall

Language

Mainly putonghua, or Standard Chinese, based on northern Chinese (the Beijing dialect known as Mandarin); local dialects and languages are also used

Measures

The metric system is used alongside certain standard Chinese weights and measures, of which the most common are:

1 jin = 0.5 kg 2,000 jin = 1 tonne

1 dan = 50 kg 20 dan = 1 tonne

1 mu = 0.0667 ha 15 mu = 1 shang = 1 ha

Currency

Renminbi (Rmb), or yuan. Rmb1 = 10 jiao = 100 fen. Average exchange rate in 2011: Rmb6.46:US$1

Fiscal year

January-December

Time

8 hours ahead of GMT

Public holidays

New Year, January 1st-3rd; Chinese New Year, February 9th-15th; Qingming Festival, April 4th-6th; Labour Day, April 29th-May 1st; Dragon Boat Festival, June 10th-12th; Mid-Autumn Day, September 19th-21st; National Day, October 1st-7th. All public holidays are technically one day long except for Chinese New Year and National Day, which are three days long. When the holiday covers weekdays in excess of this figure, they are compensated for by working weekends around the holiday

January 01, 2013