China's burgeoning economy

China's economy has changed substantially since the foundation of the People's Republic in 1949. Saddled with enormous war debt the Communist regime rejected the capitalist market during the intense period of internal restructuring. It was classified as a 'Third World' economy with widespread poverty and famine. Hyper-inflation had wiped out any savings, the new currency was introduced in 1955 with a revaluation of 1 new yuan replacing 10,000 old yuan. During this time Hong Kong's economy flourished. It was only in the 1980's that Deng Xiaoping's China began to permit private enterprise and accept some of the rigors of the international markets.

Currency

The official name for the currency is rénmínbì 'People's Currency'. Renminbi is denominated in yuan (CN¥) yuán. Money is issued and controlled by the government controlled Bank of China .

For many years the value of the Renminbi was pegged to the value of the US dollar. After much diplomatic wrangling the value is now allowed to float within narrow bounds against a basket of currencies. This has eased American concerns about an undervalued Chinese currency that was making imports from China cheap, and therefore trading unfair.

The Renminbi will soon become an international reserve currency in 2016 making China a major trading nation and join America; Britain; the Eurozone; Japan and Switzerland as trusted financial nations.

History

For all about the 3,000 year history of Chinese coins and the development of paper currency please see our coin and currency guide.

Hong Kong and Macau, as former European colonies, still maintain their own currencies: the Hong Kong dollar and the Macanese pataca . Under the 'one country, two systems' policy these former colonies can continue to use their own currencies for up to 50 years after they became part of the PRC in 1997 and 1999 respectively. The Macau pataca is pegged in value to the Hong Kong dollar which in turn in loosely pegged to the US Dollar.

The yuan is subdivided into 10 jiǎo also known as ( máo). Each jiao is subdivided into 10 fēn. Most money is denominated in paper notes but coins are used for values of 1 yuan and less.

100 yuan note

During the 1980s Foreign Exchange Certificates (FECs) were instituted for the use of tourists. They were phased out in 1995. They were used to control what tourists could buy, as they were only made available to foreign visitors. Luxury goods (whiskey, branded cigarettes etc..) were only available in tourist stores paid for in FECs and so could not be bought by native Chinese. A flourishing black market developed where tourists were pestered to convert FECs to Renminbi, the purchaser could then obtain these luxury goods.

Factories

China map, growth, graphic
PLA girl soldier For a background analysis of the puzzling mix of capitalism and communism please read our section on Communism in China.

During the Communist era the work unit (danwei ) to which you were assigned controlled your life. The work unit provided housing, food, schools, healthcare and pensions. A generation grew up hoping to get attached to a 'good' work unit and that was about all that was needed, the unit would control everything for the rest of their lives. Some work units would even arrange marriages and advise when children should be planned. The collapse of this system has brought a lot of hardship. There is no universal free healthcare and many people frequently change jobs. This system of cradle-to-grave care and control was prominent in the big cities and particularly the large state engineering enterprises. Central government determined the quotas for production and there was no incentive to exceed these. When these quotas were set at unrealistic levels, exaggeration and corruption crept in to make it seem like all was well.

Deng Xiaoping's reforms meant that the factory managers had much more control as to what to buy and what to invest in. It was not until the 1990s that state controlled monopolies began to disappear and a relative free competitive market evolved. As with many economies the adjustments have been large and the effect on workers huge. State subsidies continue to distort the market as the government does not want to see large monopolies collapse. To fuel the reforms a great deal of capital was needed, joint foreign investments were allowed; Special Economic Zones were created and overseas Chinese investment poured in from abroad particularly Hong Kong and Taiwan.

Heilongjiang, Daqing, oilfield
Daqing oilfield, Heilongjiang

Co-operatives

The Communist revolution had its roots in the countryside where the vast majority of the population suffered great hardship, scratching a basic existence on tiny land tenancies. The first thirty years after 1949 saw many initiatives to make agriculture more productive so it could provide adequate food for all of the people. The first land reforms swept away the 'landlords' who were seen as exploiting peasant farmers for very little effort. There followed a number of large scale co-operatives that were based on the premise that a large enterprise could farm more efficiently than many tiny, family-run plots. Although some co-operatives were successful, many were not, as centralized control of what should be grown and when, ignored local knowledge and conditions. During the Maoist years the Herculean efforts of some 'model' communities were broadcast over the nation. The village of Dazhai , Shanxi was the exemplar of agricultural success, while Daqing oilfield , Heilongjiang stood for industrial success. In the market reforms heralded in by Deng Xiaoping the individual aspirations of farmers were once more permitted to flourish. The motivation of private enterprise for hard-work for one's own family proved more effective than a co-operative where it was far too easy to rely on others. Centralized control of prices and quotas for production were removed.

For thoughts on the future of China and its economy please see our China future section.

Trade

Only fifteen years ago China was the 15th nation in the world by trade volume now it is second only to the U.S.A. and is on target to be the foremost trading nation in the next ten years. Growth rates are astronomical compared with other countries, in the four years 2003-2007 exports trebled. In the period between 1990 and 2007 exports went up twenty times (an average annual growth of about 20%) [GDP 1987 1,206; 2007 24,953 billion yuan]. The bulk of the trade is with its neighbors on the Pacific coast. Investment in Africa has been a controversial development. China's central planning has identified that supply of food and raw materials will not meet domestic demand in the medium term, so the use of China's massive trade surplus is being used to snap up farmland and mines across Africa .

Heilongjiang, Harbin, modern housing, view
Skyline of Harbin, Heilongjiang
China population Read all about China's huge population over the centuries and the 'One Child Policy' measure taken to curb the recent growth.

Disparity

From the uniformity of China under Mao when even everyone's clothing was the same, modern China has developed a very unbalanced economy encompassing the obscenely rich and the starving poor. Foreign aid is still received to alleviate poverty in remote Sichuan and Yunnan despite the abundant wealth elsewhere. The excesses of the billionaire élite are tolerated at present when everyone is seeing some improvement to their living standards and there is a dream of joining them. The constant supply of young, cheap workers from the rural provinces continues to drive the economy forward. People are keen to work hard to try to escape rural poverty. If the growth rate should falter the state may find it hard to maintain control.

restaurant, food, KFC, modern housing
KFC and MacDonalds at Dongmen, Shenzhen, Guangdong Copyright © Dreamstime see image license

There is also considerable disparity between regions. Most of the wealth is in the cities along the Eastern coast; Manchuria; Guangdong and along the Yangzi. Western and south-western provinces remain under-developed and rural. Tibet and Xinjiang are strategic provinces that central government has sought to keep within the spirit of China's development. Forced settlement of Han Chinese continues to raise ethnic tensions. Creation of large infrastructure projects in remote areas has stimulated the local economy. In 2015 a new initiative for development along China's historic Silk Road was launched the 'One Belt , one Road' initiative .

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