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Review: China Economy 2006
2007/02/13
“China’s gross domestic product (GDP) totalled nearly 20.95 trillion yuan (US$2.7 trillion) in 2006, 10.7 percent more than in 2005, according to figures provided by the National Bureau of Statistics (NBS) on January 25, 2007. This was the largest growth spurt since 1995, when the economy expanded by 10.9 percent.
The growth was three-tenths of a percentage point higher than the GDP growth rate reported in 2005. China recently revised its GDP growth in 2005 to the final figure of 10.4 percent, up from an original 9.9 percent. China’s GDP growth was 10.4 percent, 11.5 percent, 10.6 percent and 10.4 percent from the first to fourth quarter of 2006, said Xie Fuzhan, director-general of the NBS at a press briefing. According to previous figures released by the NBS, China’s GDP grew 10.3 percent, 11.3 percent and 10.4 percent in the first, second and third quarters, so possibilities exist for the rate in the fourth quarter to be revised upward. China’s primary, secondary and tertiary sectors reported achievements of 2.47 trillion (US$317.8 billion), 10.20 trillion (US$1.31 trillion) and 8.27 trillion yuan (US$1,064 billion) in added value, with the secondary sector, including industry, manufacturing and mining, growing at the fastest pace, 12.5 percent, in 2006.
Spending on real estate and other assets soared despite government efforts to cool an investment boom. Housing prices in the country’s 70 medium and large cities increased by 5.5 percent in 2006 over the previous year, but the rate of increase was 2.1 percentage points lower than that for 2005. China’s fixed-asset investments totalled 10.99 trillion yuan (US$1.41 trillion) in 2006, up 24 percent for the year, or two percentage points lower than the same period a year earlier. Investments in property development rose to 1.94 trillion yuan (US$249.3 billion), up 21.8 percent, or nine-tenths of a percentage point higher than the previous year.
CPI Increases 1.5 Percent
Consumer spending grew more slowly, suggesting China still faces challenges in its effort to reduce reliance on exports and to narrow its trade gap by boosting domestic consumption. China’s consumer price index (CPI) grew by 1.5 percent in 2006 over the previous year, the NBS reported. The growth rate was three-tenths of a percentage point lower than the previous year. NBS figures show that the CPI for urban and rural areas moved up by 1.5 percent year-on-year. Consumer goods prices rose 1.4 percent and food prices rose by 2.3 percent year-on-year.
Value-Added Industrial Output Increases 12.5 Percent
The value-added output of all industrial enterprises in China grew 12.5 percent year-on-year in 2006, according to NBS statistical data. Major enterprises with annual sales of at least 50 billion yuan (US$6.43 billion) posted a growth of 16.6 percent in value-added industrial output from the year-earlier level. Of these, heavy industrial enterprises saw their value-added output increase by 17.9 percent, while light industrial firms’ value-added output increased by 13.8 percent. In 2006, major industrial enterprises realized a sales-against-production rate of 98.1 percent and earned 1,880 billion yuan (US$240.8 billion) in combined profits, up 31 percent from the year-earlier level, the bureau added.
Consumer Retail Sales
Grow 13.7 Percent
China’s retail sales increased by 13.7 percent to 7.64 trillion yuan (US$979.62 billion) in 2006, according to the NBS report. The growth rate was eight-tenths of a percentage point higher than the previous year. Retail sales rose by 14.3 percent in urban areas and 12.6 percent in rural areas. Wholesale and retail sectors rose 13.7 percent, while catering and hotel figures were up 16.4 percent. The communications sector’s sales grew by 22 percent; oil and oil products were up 36.2 percent and automobile sales increased by 26.3 percent.
Fixed Assets Investments up 24 Percent
China’s fixed asset investments totalled 10.99 trillion yuan (US$1.41 trillion) in 2006, up 24 percent year on year. According to the NBS, fixed asset investments in urban areas grew by 24.5 percent to 9.36 trillion yuan (US$1.2 trillion), down 2.7 percentage points from the previous year, while that of the rural areas surged by 21.3 percent. Fixed asset investments in Central China grew by 33.1 percent, while those in the eastern and western regions grew by 20.6 percent and 25.9 percent.
People’s Incomes Grow
by Double Digits
Chinese urban and rural residents both experienced double-digit growth in their incomes in 2006, the NBS reported. Urban residents in China earned 11,759 yuan (US$1,500) in per-capita disposable income in 2006, up 12.1 percent from the year earlier, according to the NBS. In 2006, rural residents in China saw their incomes increase by 10.2 percent to 3,587 yuan (US$460). After deducting price fluctuations, the real growth rate was 7.4 percent, 1.2 percentage points faster than in 2005. The registered urban unemployment rate was 4.1 percent at the end of 2006, one-tenth of a percentage point less than at the end of 2005.
he Beijing Municipal Bureau of Statistics (BBS) on January 25 announced that the city generated 772 billion yuan (US$99.3 billion) in Gross Domestic Products (GDP) in 2006, making it the eighth consecutive year that China’s capital’s economy had recorded double-digit growth totalling 12 percent more than in 2005. This means it had a per capita GDP of US$6,210 in 2006, 8.8 percent over the previous year.
Yu Xiuqin, a vice-director and spokeswoman for the Beijing Municipal Bureau of Statistics, said the city’s tertiary industry, which is the service sector including its transportation and education components, grew the fastest.
The tertiary industry grew by 540.5 billion yuan (US$69 billion), or by 11.9 percent over 2005. It accounted for a record 70 percent of Beijing’s gross domestic product (GDP), said Yu, who said that in 1995 the tertiary industry accounted for just over half of the capital’s GDP. The municipality’s primary industry (agricultural sector) and the secondary industry (industrial sector) grew by 0.6 percent and 12.6 percent.
The city had 15.81 million residents at the end of last year, 430,000 more than at the end of 2005. Its growing population could bring adverse pressures to its economic development and environment.
Yu told the media that the economy was stable and healthy in 2006; she described the 2008 Olympic Games as an “important driving factor.”
“Hosting the Olympics has had, and will continue to have, a profound impact on Beijing’s economy.” In 2006, 93.5 billion yuan (US$12 billion) was spent on Beijing’s infrastructure, 53.2 percent more than in 2005.
Apart from the Olympics, the other factors influencing Beijing’s growth were its huge consumption market and a wholesale shift in spending priorities that made its service industry account for 70 percent of the municipality’s output.
According to available data, consumer spending in the city in 2006 totalled 327.5 billion yuan (US$42 billion), an increase of 12.8 percent over 2005. Spending on cars and housing outstripped that for food and clothing.
“The consumption pattern for the Chinese has shifted from food and clothing to real estate, cars, and mobile phones. This is what drives our development,” Yu said. Upgrading of technology in State-owned enterprises, too, contributed to the growth.
Beijing Economic-Technological Development Area
In 2006, rapid economic development and a proportionate reduction in energy consumption were reported in the Beijing Economic-Technological Development Area (BDA).
The BDA’s GDP increased by 43.43 percent in 2006 to 165 billion yuan (US$ 21.2 billion). Statistics show that the energy consumption per 10,000 yuan of GDP was 0.159 tons of coal equivalents in 2006, down by 10 percent from 2005.
Exports in 2006 rose to US$9.1 billion, increasing by 59.77 percent year on year. The BDA’s exports for January to November 2006 accounted for 39.65 percent Beijing’s total exports.
The realized GDP of 36 billion yuan (US$4.6 billion) represented an increase of 43.89 percent. The BDA’s total value of imports and exports was US$17.5 billion, an increase of 46.59 percent. The value of exports alone rose to US$9 billion, representing an increase of 59.77 percent. The sales value of the BDA’s high-tech products increased by 45.4 percent year-on-year to 144 billion yuan. Foreign investment reaching the BDA came to US$3.7 billion in value, an increase of 73.41 percent.
There are 2,170 enterprises registered at the BDA, representing a total investment of US$14 billion.
“Auto Industry
There were 117 passenger vehicle types on the Chinese market in 2006. More than 30 of them used domestically developed design ideas, including the Chang’an’ Benben, Chery’s QQ6, the Hongqi HQ3, FAW Car’s Besturn and Brilliance China Auto’s Zhonghua Junjie. Since China entered the WTO in 2001, auto sales have increased by an annual average of 36 percent. China’s Vice-Minister of Commerce Wei Jianguo called on domestic auto manufacturers to promote independent research and development (R&D) to ensure that China could make a globally competitive complete vehicle with a corresponding auto parts supply base during an auto forum in Changchun on September 15, 2006. China has become the fourth-largest auto manufacturing country in the world. There are more than 5,800 auto and auto part manufacturers with combined assets of over 1 trillion yuan (US$126 billion) today. China produced 5.71 million complete vehicle units and sold 5.76 million yuan units in 2005, with a total production value of 1.2 trillion yuan (US$154.3 billion). Overall auto exports grew by more than 40 percent annually from 2000 to 2005, and the export of China-made and developed complete vehicles outstripped imports for the first time in 2005. China will continue focusing on exports of labour- and raw-material-intensive auto parts, trucks, buses and medium- and low-grade passenger cars. With this foundation, the high-tech auto parts and complete-vehicle sectors, relying upon proprietary intellectual rights, are expected to eventually take a larger proportion of China’s exports. Large automakers are encouraged to establish assembly factories, R&D centres, sales and after-sales service networks in foreign countries.
Biotech
China is becoming more influential in the global biotech industry. US and European scientists may increasingly notice that many of the test tubes and tips and certain reagents used in their laboratories have been manufactured in China. But many executives may not recognize the name BioAsia Company––a Shanghai-based bio-services provider that the US biotech product and service giant Invitrogen Corporation recently acquired. They may also be unaware that SiBiono GeneTech Company Limited, the first company in the world to receive regulatory approval by any agency for a gene therapy, is based in Shenzhen. China’s biotech industry has emerged largely because of policy changes in its favour, increased programme funding, relatively low labour costs, and the reorganization of China’s science and technology system. Also, the quality of China’s talent pool has improved as overseas Chinese with biotech training have returned to the mainland. The creation of high-tech zones has helped put important infrastructures and tax incentives in place. China’s Ministry of Health in 2006 outlined new requirements concerning stem-cell collection and transplants, banning profits from illegal stem-cell transplants. Two sets of regulations issued by the ministry said that the sources of peripheral blood stem cells (PBSC), or stem cells, must be legal, registered sources that can be traced. The regulations aim to strengthen the management of stem-cell collection and medical security, the ministry said.
“Solar-Powered Energy
The solar-powered energy industry is growing in China as the country seeks clean, cheap and renewable sources of energy. A solar energy system jointly constructed by BP and its Chinese partners was successfully put into operation in 2005 at the Shenzhen International Garden and Flower Exposition, covering an area of 5,325 square metres. The network has a total installed capacity of 1 megawatt, the largest such network in China and Asia. As the only clean and renewable energy source not limited by geographic factors, solar energy has increasingly become the first choice for sustainable development. In 2006, the “solar energy concept” hit world securities markets, leading to a surge in stocks of photovoltaic-cell producing companies. China’s solar energy companies began a rapid expansion based on these optimistic expectations. In 2004, Suntech, based in Wuxi, Jiangsu Province, became the first “solar energy concept” stock to be traded on Wall Street; Suntech’s successful initial public offering was considered a major development in China’s solar energy industry.
Semiconductors
Vimicro became the first Chinese semiconductor firm to trade shares on the NASDAQ when it went public on November 15, 2005. Vimcro’s NASDAQ listing was followed by an initial public offering (IPO) by Actions Semiconductor Company, another Chinese chip-design firm. Both IPOs fell short of expectations. This indicated that it will likely take time for investors to understand the profitability of Chinese chip design enterprises. Chip design is the highest value-added business in the semiconductor industry, accounting for 40 percent of the value chain. Compared with manufacturing, assembling and testing, chip design also requires smaller investments and costs. By 2004, there were 421 chip design firms throughout the country, with total annual revenues of 8.15 billion yuan (US$1 billion). The Chinese Government launched “Project 909” in 1995 to develop the semiconductor industry, which it saw as the lifeblood of the high-tech sector. It contributed registered capital of 4 billion yuan (US$250 million). Spending on research and development in 2004 stood at 196.63 billion yuan (US$24.3 billion), accounting for 1.23 per cent of the country’s GDP (gross domestic product). The government planned to expand this figure to 360 billion yuan (US$44.4 billion) by 2010, accounting for 2 percent of the GDP. Between 2000 and 2004, investment in China’s semiconductor industry amounted to US$14 billion, four times the total of the previous 20 years. But only a small portion of this was associated with chip design.
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