11.03.2014 Author: Alexander Salitsky

China’s Economy in 2013: Preparation for reforms? Part 1

china-economyOn February 24, 2014, China’s State Statistical Office published a detailed report on the economic and social development of the country in 2013. It is useful to comment on some of the results.

Last year was the third year of the current five-year plan (2011-2015). This was the time that the Chinese economy saw the completion of the transference of power. A new generation of leaders, the core of which was selected at the 18th National Congress of the Communist Party of China (2012), will have to deal with difficult tasks. These can be summarized as ensuring a smooth transition from rapid growth to a balanced development, and a new quality of life.

During the year, however, the Chinese economy continued to develop at its usual pace. The final Gross Domestic Product growth was 7.7%, repeating the achievement of the previous year. The quarterly index coincided with the average index in the first and fourth quarters. This index was lower (7.5%) in the second quarter and it was higher (7.8%) in the third quarter. Thus, we cannot talk about slowing economic growth in China in the past year – either in the relative terms, or in terms of GDP growth.

In absolute parameters, the Gross Domestic Product growth significantly exceeded the indicator of 2012. GDP of the country came close to 57 trillion yuan (more than 9.3 trillion dollars at the exchange rate at the end of the year). This is more than 14 trillion dollars, assuming purchasing power parity.

By the end of the last year, the increase in consumer prices was 2.6%, compared to the figure one year before and 5.4% two years earlier (2011).

This stable dynamics of China’s economy had a positive impact on global market conditions, which continued to be very unstable.

Economic situation and economic ties

Last year, the backbone of the Chinese economy – the large industrial enterprises, continuing to significantly increase their output, improved the financial results of the economy. Their profits increased by 12.2%, compared with 2012, when this indicator was only 5.3%.

Over the past year, the production of electricity increased by 7.5% (compared to 4.8% in 2012). The production of rolled steel increased by more than 11%, non-ferrous metals and cement production increased a little bit less than 10% (compared to 5–7% for the previous year). Vehicle production increased by 18.4% (4.7%), including personal automobiles – by 16.6% (6.4%).

However, Chinese analysts underline a growth in excess capacity in a number of industrial sectors. Reacting to the situation, the State Committee of Development and Reform in late 2013, simplifying the approval process for the majority of investment projects in the field, reserved the right to ban some in such fields as aluminum, steel, window glass and shipbuilding. In some cases, the lower limit was set in enterprise creation (cement production).

We can confidently state the accelerated industrial growth stage in China has come to an end. China’s formed comprehensive industrial structure, in combination with the scale of the economy and foreign trade, as well as the vigorous expansion of Chinese corporations abroad, gave another important result – the overcoming of the dependent position in the world economy, or at least asymmetric dependence on the industrialized countries and their transnational corporations.

With all this, the manufacturing industry share (the most productive sector of the economy) in China’s GDP was 30% (2011) compared to Indonesia – 24%, Russia – 16%, Brazil – 14.5% and India –14%. Perhaps such a high figure is one of the main secrets of the high economic dynamics seen in China.

No less important is the fact that China’s large-scale industry is a powerful generator of effective demand for all sorts of innovations, on one hand, and a means of their mass production, on the other hand.

It is quite interesting the question of current energy intensity of economic growth in China. As it is difficult to imagine too significant changes in the current structure of China’s economy and industry, it makes sense to focus on this issue in more detail.

It is necessary to note that industrial growth in 2013 was accompanied by a modest increase in the production of fuel and energy (Table 1) and a significant increase in imports of coal and natural gas.

Thus, the imports of crude oil were 282 million tons, a volume increase of 4.0% over 2012. The imports of coal were 327 million tons (increase of 13.4%). The import of natural, liquefied and pipeline gas was 53 billion cubic meters (an increase of 25%).

Table 1.

Selected Indicators of Energy Development in China in 2013

Unit of measure


in % over 2012.

Energy production


3400.0 2.4


million tons



Crude oil

million tons



Natural gas

billion cubic meters

117.1 9.4

Electrical power generation

billion kW / h


including: on Thermo-Electric Plants billion kW / h


- Hydro-Electic Plants

billion kW / h


- Nuclear-Power Plants

billion kW / h



Source: http://www.stats.gov.cn/english/PressRelease/201402/t20140224_515103.html .

China rapidly increased its power in the new energy industry: the power growth on the wind power stations was over 24%, in solar generation the power increased by three times. As a result, the total capacity of these two sectors of renewable energy exceeded 90 million kW. There was noted an increase in power at nuclear power plants (16%) that reached 14.6 million kW by the end of the year.

Total energy consumption in 2013, according to preliminary estimates, amounted to 3 billion 750 million tons of standard fuel (an increase of 3.7%). Growth in coal consumption was 3.7%, oil – 3.4%, natural gas – 13%. Energy consumption per unit of GDP fell by 3.7% (slightly worse than the index provided for by 12th Five-Year Plan (4%) and slightly better than the previous year’s index (3.6%). Significant energy savings are being achieved in industry.

Thus, we can conclude further successful movement of China on its path to reducing specific energy consumption, allowing, among other things, to refine the consumption pattern due to the rapid growth in the use of relatively clean sources, including natural gas.

The third plenary session of the Communist Party of China clearly contributed to the favorable changes. This was held in November 2013, and set the line for gradual reduction of the tempo of economic growth, stimulation of domestic demand, acceleration of development of services and new energy. As the Chinese counterparts propose, energy consumption will grow by about 4% per year in the current decade. According to this mode of growth, the energy reconstruction is somehow simplified. It is possible that previous plans for the commissioning of new facilities at coal thermal power plants will also be significantly reduced.

One of the two main engines of economic growth in China remains the high rate of savings. Total volume of investments into fixed assets in 2012 exceeded 46 trillion yuan (an increase of 18.9% compared with the previous year). This is lower than last year’s growth. It is significant that during the year, investment growth had a distinct decreasing tendency: apparently, the controller feels some overheating of the economy. The highest increase in investments (30%) is registered in agriculture, wholesale and retail trade, as well as the banking field.

Meanwhile, China continued the policy of equalizing the levels of regional development. In the inland and western provinces, the investment increase was slightly higher than the national average. The growth of investments in the eastern regions, compared with the previous year, decreased significantly, which may increase the efficiency of financial investments.

The situation in agriculture is stable. There has been a consecutive increase in grain production in China for ten years already. This time, the increase was 2.1% (3.2% in 2012), and the total harvest exceeded the mark of 600 million tons. Meat production increased by 1.8% (5.4%) and cotton production increased by 7.7% (3.8%).

The second motor of the economy, consumption, is developing as well. Retail sales of consumer goods in China increased by 13.1% in 2013 (14.3% – in 2012), but taking into account inflation, the increase constitutes 11.5% (12.1%). The current prices of cars increased by 10.4% (7.3%), and furniture –by 21% (27%).

The number of Internet users reached 618 million, including 500 million people that use it even with mobile devices.

Financial state revenues continued to outpace the increase: in 2013, they increased by 10.1% and exceeded 12.9 trillion yuan (more than 22.6% of the GDP), tax revenues amounted to more than $11 trillion yuan (an increase of 9.8%).

In 2013, there were commissioned 6,600 km of new railway lines (of which 1,700 km were high-speed lines), electrified were almost 5,000 kilometers of railways, there were built more than 8,000 kilometers of highways. These figures were slightly lower than those achieved in the previous year.

Export growth has coincided with previous year’s index, with imports being higher than the preceding year. Trade in goods increased by $30 billion, reaching almost $260 billion, and liabilities in the trade of services was slightly less than $120 billion.

Foreign exchange reserves at the end of the year exceeded 3.8 trillion dollars, increasing by $500 billion.

The share of the tolling operations in the Chinese exports continues to decrease. This relates to the production of export goods from imported semi-finished products, parts and components, determining the country’s success in the localization of export production and an increase of the share value in China, including high-tech production.

Among the fastest growing articles of Chinese commodity imports in 2013, were fuel, iron (819 million tons, an increase of 10.2%) and soybeans (64 million tons, an increase of 8.6%). The purchase of bauxite (by a quarter) and vegetable oil was reduced.

Table 2.

China’s foreign trade with selected partners in 2013


China’s Export


Balance, $billion











European Union












Association of Southeast

Asian Nations






Hong Kong












Republic of Korea


















Source: http://www.stats.gov.cn/english/PressRelease/201402/t20140224_515103.html .

China’s foreign trade, exceeding 4 trillion in 2013, is directed towards trading with the U.S.A., EU and Hong Kong, exceeding $700 billion.

Foreign direct investments made into China’s economy in 2013 grew by 5.3% – to 117.6 billion dollars. Investments into real estate, housing and communal services significantly increased, and investments continued to decline (-6.8%) into the manufacturing industry, which, however, remains the largest area of ​​their application (40%).

The exports of capital from China significantly increased (16.8%); only the direct investments into the non-financial sector were more than 90 billion dollars.

Revenues from China’s fulfillment of contractual construction works abroad amounted to 137.1 billion dollars in 2013 (an increase of 17.6%). Almost 530,000 people – 3% more than in the previous year were attracted to perform these works.

The contrast in the state of the Chinese economy, on one hand, and the world economy, on the other hand, is again illustrated in international tourism data. Number of Chinese citizens who traveled abroad for private purposes (almost 100 million) increased by 18%, while number of foreign tourists in China decreased by 3%.

(To be continued)

Alexander Salitsky, PhD of Economic Sciences, chief research fellow of Institute of World Economy and International Relations, professor at the Institute of Oriental Countries, exclusively for on-line magazine New Eastern Outlook.

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