L1-China&39;s Economic Conditions(6)

Table 1. China’s Average Annual Real GDP Growth Rates, 1960-2005

Averageannual

Time period% growth 1960-1978 (pre-reform)5.31979-2005 (post-reform)9.719903.819919.3199214.2199314.0199413.1199510.9199610.019979.31998 7.81999 7.620008.42001 8.32002 9.1200310.02004 10.12005 (estimate)9.8

Source: Official Chinese government data.

Causes of China’s Economic Growth

Economists generally attribute much of China’s rapid economic growth to two main

factors: large-scale capital investment (financed by large domestic savings and foreigninvestment) and rapid productivity growth. These two factors appear to have gone togetherhand in hand. Economic reforms led to higher efficiency in the economy, which boostedoutput and increased resources for additional investment in the economy.

China has historically maintained a high rate of savings. When reforms were initiatedin 1979, domestic savings as a percentage of GDP stood at 32%. However, most Chinesesavings during this period were generated by the profits of state-owned enterprises (SOEs),which were used by the central government for domestic investment. Economic reforms,which included the decentralization of economic production, led to substantial growth inChinese household savings (these now account for half of Chinese domestic savings). Asa result, savings as a percentage of GDP has steadily risen; it reached 49% in 2004, amongthe highest savings rates in the world.1

1

In comparison, the U.S. savings rate was 10.7% in 2004. Savings defined as aggregate nationalsavings by the public and private sector as a percentage of nominal GDP. (Economist IntelligenceUnit database.)