China: Economic and Political Overview

Economic Overview

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 Sectors of Industry

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.

Source: World Bank, Latest data available.

Indicator of Economic Freedom

Score:

58,4/100

World Rank:

107

Regional Rank:

20

Business environment ranking

Score:

5.99/10

World Rank:

55/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

Sources of General Economic Information

Ministries

Ministry of Commerce
Ministry of Finance
Ministry of Foreign Affairs

Statistical Office

National Bureau of Statistics of China

Central Bank

Bank of China

Stock Exchange

Shenzen Stock Exchange

Other Useful Resources

Chinability
China Economic Net

Main Online Newspapers

China Daily
Economic Observer Online
Global Times
South China Morning Post

Economic Portals

Alibaba

Political Outline

Current Political Leaders

President: XI Jinping (since 14 March 2013); president and vice president indirectly elected by National People's Congress for a 5-year term. Nevertheless, a constitutional change was passed by the 2018 annual sitting of parliament, the National People's Congress, approving the removal of the two-term limit on the presidency, effectively allowing Xi Jinping to remain in power for life.
Vice President:  WANG Qishan (since 17 March 2018)

Next Election Dates

Presidential: 2027
National People's Congress: 2027

Current Political Context

Overall, the political situation in China has been stable, with the Chinese Communist Party (CCP) firmly in power. China's current leader, Xi Jinping, holds a triple title as CCP general secretary, Central Military Commission chairman and state president. After assuming these functions in 2012-13, he was reappointed to them in 2017-18. Following the abolition of presidential term limits in early 2018, he is set to keep them beyond the expiry of the current terms - President Xi Jinping was appointed to a third term at the 2022 Communist Party Congress - and is seen as the most powerful Chinese leader since Deng Xiaoping.

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.

Main Political Parties

The only political party in the country is the CCP (Chinese Communist Party). There are eight other registered small parties, but they remain under control of the CCP.

Type of State

The People's Republic of China is a one-party state led by the Chinese Communist Party (CCP). China is characterized by a centralized unitary State under the exclusive political leadership of the Chinese Communist Party (CCP). The Party has the full jurisdiction and authority in the country. It consists of legislative, executive, military, supervisory, judicial and procuratorial branches. The National People's Congress (NPC) is the highest state organ, with control over the constitution and basic laws, as well as over the election and supervision of officials of other government organs.

Executive Power

The Chinese executive is supervised by the State Council (collegial body equipped with important powers and appointed by the National People's Congress) under which are Government commissions, ministries and other organisations with the rank of a ministry. According to the Constitution, the Council is 'the Supreme Administrative Body' of the Chinese Government, even if the majority of important measures are decided by the Political Bureau of the Chinese Communist Party (CCP). The Council thus plays an important role in the economic domain.
The president is the head of state and is elected by the National People's Assembly. In general, he is also the general secretary of the Communist Party. He represents China in international institutions. The prime minister directs and controls government action, assisted by four deputy prime ministers. The State Council also includes 5 state councillors, who, like deputy prime ministers, have jurisdiction over several ministerial departments or commissions. The Secretary General of the Government is also a member of the State Council.

Legislative Power

The legislature is monocameral, composed of the National People's Congress (NPC). It is known as a 'Body of Supreme Power of the Government' and meets once per year in a plenary session. There are approximately 3,000 designated deputies elected to the NPC every five years by indirect vote of local bodies. Since the 1980s, it has been dominated by local or sectional interests. Deputies are the representatives of 23 provinces, five areas and four autonomous municipalities. The NPC comprises a delegation of the People's Liberation Army. The Standing Committee of the National People's Congress is appointed by the Political Bureau of the Central Committee of the Party. It sits instead of the NPC during its recess and exercises all its powers. It is composed of a president, 15 vice-presidents and 176 permanent members. The Standing Committee sits regularly, but it is the Bureau of the NPC which exerts its functions on a daily basis. Eligibility is controlled by the CCP, which also has a right to supervise the appointment of the executives and the senior officials of different administrative units.

Indicator of Freedom of the Press

World Rank:

177/180

Indicator of Political Freedom

Political Freedom:

7/7

Civil Liberties:

6/7

Source: Freedom in the World Report, Freedom House

COVID-19 Country Response

Travel restrictions

Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.

Import & export restrictions

A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the government of China, please consult the country's dedicated section in the IMF’s Policy Tracker platform.

Support plan for businesses

For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.