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International Report: China Report: China InternationalInternational Report: China Report: China China’s changing available in most Chinese cities, with air- about $6,300 per capita. Even at the offi- conditioning, cable television (includ- cial exchange rate, China’s GDP ($1.8 tril- economy ing programming in English), Internet lion) ranked seventh in the world, just Lawrence H. Leith access, and personal amenities such as ahead of Italy’s ($1.7 trillion) and just be- toothpaste, shampoo, and shower gel. hind France’s ($2.1 trillion). By compari- Similarly, a person visiting a major city son, U.S. GDP, second only to that of the By all accounts, the economy of China in China sees many of the same indica- European Union, rose to $12.8 trillion in has undergone profound changes over tions of commerce and economic activ- 2005 ($12.5 trillion in purchasing power the last several decades. The changes ity that he or she might discern in West- parity), or close to $42,000 per capita. began in the late 1970s, shortly after the ern cities: highrise buildings form the China’s economic reforms began in death of Mao Zedong, and they have skylines; commercial banks, real estate 1978, when many of its communes and been accelerating in recent years. Since offices, and other financial institutions collectives were dismantled and replaced 1978, when Mao’s successor, Deng fill the central business districts; large with a “responsibility system,” in which Xiaoping, introduced the first market- department stores, boutiques, grocery individual farmers were given greater oriented reforms, China has developed stores, and restaurants provide shop- choice over what they produce. Legisla- one of the most dynamic and fastest- ping and refreshment in the downtown tion passed the next year permitted for- growing economies in the world. With areas; taxis, trucks, private automobiles, eign companies and other economic orga- its opening to foreign trade and invest- motor scooters, bicycles, and pedestri- nizations or individuals to join with their ment, its burgeoning stock markets, and ans crowd the busy streets; and the Chinese counterparts to establish busi- its rapidly growing private sector, China ubiquitous street vendors—both li- nesses in China. The reforms continued is well on its way to becoming an ad- censed and unlicensed—hawk their into the 1980s and 1990s and accelerated vanced industrial nation, as well as a goods on every corner. Indeed, almost after 1994, when passage of the Company major player on the global economic any consumer product available in the Law laid the groundwork for Western- scene. At the same time, as observers United States today also can be found style corporate structures. have noted, the changes have not come in China. But, in addition to the visible Another important milestone came in without costs, such as rising income in- signs of prosperity and heightened eco- 1997, when the 15th Party Congress equality between the urban and rural ar- nomic activity, one sees also unemploy- voted to allow many struggling State- eas, growing social unrest, and worsen- ment, inequality, poverty, and pollution. owned enterprises (SOE’s) to go bank- ing environmental problems.1 Some statistical comparisons be- rupt. Two years later, a constitutional Signs of the changes in China’s tween the United States and China help amendment granted the private sector economy abound. They can be seen not put the size and potential of the Chinese equal status with SOE’s. Next, in perhaps only in the country’s macroeconomic economy into perspective.2 Although the most striking display of its commit- statistics, but also in the visual evidence the land areas of the two countries are ment to being part of the world economy, available to a visitor. When making the roughly the same, China’s population of China gained entry into the World Trade journey from the United States to China, 1.3 billion exceeds the U.S. population Organization in 2001. Then, in 2004, the for example, a traveler may notice that by about a billion people. Similarly, Chinese government guaranteed private the airports in Beijing and Shanghai dif- China’s labor force—those working or property rights in its Constitution, fur- fer little from those in New York, Wash- looking for work—which reached nearly ther paving the way toward a full-scale ington, and Tokyo: each is a modern, 800 million in 2005, is more than 5 times market economy. high-tech facility that essentially the size of the U.S. labor force. China’s Employment trends in China over the doubles as a shopping mall, with many level of employment reached 744 million last several decades provide further evi- of the same kinds of international fast- in 2003, and the official (urban) unem- dence of the manifold changes that have food chains, boutiques, and other retail ployment rate was 4.3 percent. In the occurred since the economic reforms be- 4 establishments. Such a traveler might be same year, the U.S. economy employed gan. According to China’s National Bu- surprised at the hotel accommodations 138 million people and the unemploy- reau of Statistics (NBS), the nation’s ment rate in metropolitan areas was 6.0 economy employed 402 million people Lawrence H. Leith, an economist in the BLS percent.3 in 1978, more than two-thirds of whom Office of Publications and Special Studies, spent 6 weeks in China during the summer China’s real gross domestic product worked in primary industries—farming, of 2005 as part of a privately sponsored (GDP) grew a phenomenal 9.3 percent in forestry, animal husbandry, and fishing. cultural and educational exchange program. 2005, while the U.S. economy’s growth By 2003, the level of employment had The views expressed in this report are the author’s own and do not represent those of rate for that period was 3.5 percent. Mea- risen to 744 million, an increase of 85 per- the Bureau of Labor Statistics. E-mail: sured in terms of purchasing power par- cent, or about 3.5 percent per year. Dur- [email protected] ity, China’s GDP totaled $8.2 trillion, or ing that 25-year period, the share of em- 56 Monthly Labor Review June 2006 ployment held by primary industries Germany, Italy, Japan, the United King- Two other areas that demonstrate dropped from 71 percent to 49 percent, dom, and the United States—employed China’s changing economy are interna- while the share held by secondary in- a combined total of 53 million manufac- tional trade and foreign direct invest- dustries (mining, manufacturing, and turing workers. Thus, even by the offi- ment (FDI).8 China exported $752.2 bil- construction) increased from 17 percent cial estimate, China’s manufacturing lion worth of goods in 2005, while im- to 22 percent and the share held by ter- employment exceeds that of the entire porting $631.8 billion. More than a fifth tiary industries (finance, insurance, G7 by 30 million workers. Despite the (21.1 percent) of those exports went to real estate, wholesale and retail trade, large numbers, however, the industry the United States, 17 percent went to and services) increased from 12 percent has experienced considerable restruc- Hong Kong, and 12.4 percent went to to 29 percent. A 2002 Monthly Labor turing in recent years, as the effects of Japan. FDI in China reached $153 billion Review article by Ming Lu and others productivity gains and privatization in new agreements in 2004. Hong Kong concludes that one of the main reasons have begun to take hold, leaving many was the principal investor ($19 billion), for the strong growth in the tertiary in- workers unemployed. followed by the British Virgin Islands dustries is increased privatization, To take up the slack from failing ($6.73 billion), South Korea ($6.25 bil- which they argue is easier in such ter- State-owned enterprises and other lion), Japan ($5.45 billion), and the tiary industries as trade and services, businesses shedding workers, the Chi- United States ($3.94 billion). due to fewer restrictions and lower nese government has been encourag- Closely related to both international startup costs.5 ing entrepreneurship and self-employ- trade and FDI are the so-called special In terms of employment, China’s ment by relaxing some of the registry economic zones (SEZ’s)—areas with manufacturing industry is the largest in requirements for starting a business lower taxes, fewer legal restrictions, the world. In a 2005 article in the and by providing training. China’s NBS and other incentives designed to en- Monthly Labor Review, Judith Banis- estimates that the share of total employ- courage foreign investment and in- ter examines manufacturing employ- ment in SOE’s in 1978 was around 19 crease international trade. The SEZ’s ment during the 1978–2002 period.6 percent (75 million workers); by 2003, generally import components, raw ma- Banister argues that China’s official that figure had fallen to about 9 percent terials, machinery, and other inputs to estimate of 83 million manufacturing (69 million workers). By contrast, the produce finished goods, primarily for workers in 2002 probably is under- number of self-employed workers and export. Although these areas represent stated, with the actual figure closer to the number employed in private enter- only a fraction of China’s overall 109 million. For perspective, in the same prises, both of which barely registered economy, they are an important part of year, the Group of Seven (G7) major in- in 1978, had grown to 46 million and 43 the country’s effort to become inte- dustrialized nations—Canada, France, million, respectively, by 2003.7 grated into the global economy.
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