China Real Estate - Economic Aspects

Shortly after the new government was founded in 1949, almost all of China's private or individual-owned farms were collectivized into large communes. Private ownership of housing in the urban areas was nearly extinguished. In order to support the fast industrialization, the central government invested heavily in the 1960s and 1970s. A large share of the country's economic output was arranged and controlled by the government. It set production goals, controlled prices, and allocated resources throughout most of the economy. As a result, by 1978 nearly three-fourths of industrial production was manufactured by state-owned enterprises (SOEs) based on centrally planned output targets. Private enterprises and foreign invested firms were nearly non--existent. One of the central government's major goals was to make China's economy self-sufficient.

Foreign trade was generally limited to obtaining only those goods that could not be made or found in China. Only a handful of countries that had good relationship with China could participate in foreign trade. Though China's real GDP grew at an estimated average annual rate of about 5.3% from 1960 to 1978, the economy was almost inactive due to the huge population base and absent competition. In addition, the economy was inefficient since there were few profit incentives for enterprises and workers. Price and production controls also caused widespread distortions in China's economy.

In late 1970s, the government under the late Deng Xiaoping's leadership hoped that gradual opening-up the market and implementing economic reform

would significantly increase economic growth and raise Chinese people's living standards. Since then, the size of China's economy has grown more than tenfold.1 Between 1979 and 1999, China's GDP grew at an average annual rate of 9.7%.2 The real GDP total in 2000 has passed one trillion U.S. dollars ($8.8 trillion RMB) the first time in history. Two main attributing factors supporting much of China's rapid economic growth are: large-scale capital investment (financed by large domestic savings and foreign investment) and rapid productivity growth. Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. In addition, the private sector, consisting of semi-private township and village enterprises, and private companies and farmers should be credited for the speedy development of China's economy. The private enterprises acc

ount for 60% of China's GDP, up from nearly zero in 1979. At a meeting held in August 1999, the government leaders promised to make that figure 75% by 2002. Today, 177 million of China's working population (ages 18 to 60) works at a private, or partly private, company, versus 122 million in the state-owned industries.3 Based on the GDP PPP statistics, China's GDP has passed Japan's and China has already become the world's second largest economy after U.S.

Source: EDC Economics: Japan Economic Outlook, 2000

In spite of the fast development, the future growth will likely depend on the ability and willingness of the government to deal with many challenges it faces. Presently, nearly one third of China's industrial production comes from state-owned enterprises (SOEs), many of which lose money and need to be supported by the government through the banking system. The restructuring of traditional industries and the closing down or sales of money-losing SOEs have costed hundreds of thousands of workers losing their jobs. To keep the pace of current development, the government adopted a policy of maintaining political stability while continuing economic reforms.