According to 2017 data from the International Monetary Fund, China is the second-largest economy in the world based on nominal gross domestic product (GDP), which evaluates market prices, and the largest based on purchasing power parity (PPP), which compares the prices of like consumer goods among countries.
With a population of around 1.4 billion, China is ranked 71st in the world based on nominal GDP per capita and 78th based on GDP by PPP per capita. These measures divide nominal GDP and GDP by PPP by the country’s population. It remains a developing country.
What should I know about nominal GDP and PPP?Among the multiple ways that economists measure a country’s economic strength, nominal GDP and PPP are two of the most common.
Nominal GDP is based on official government estimates and depends on exchange rates between two countries, typically using the US dollar for one of the denominations. It’s useful for measuring financial flows between countries. But because it doesn’t consider differences in cost of living, it can distort per capita income estimates.
PPP, on the other hand, considers the relative cost of local goods, services and inflation rates — all factors considered to reflect a country’s domestic market. Because PPP compares the costs of a common “basket of goods” — some 3,000 consumer goods that include food, fuel and insurance — it’s considered a more ideal way to project per capita income projections and gauge poverty thresholds.
China’s official currency is the renminbi, which has the yuan as its basic currency unit. The renminbi is more typically abbreviated as CNY, although it is also abbreviated as RMB. This currency has recently fluctuated between 6.6 and 6.8 CNY against the US dollar.
China is the largest exporter and the second-largest importer in the world. It is also the world’s fastest-growing consumer market. Its economic growth has averaged nearly 10% annually since its shift to a market-based economy, the longest sustained economic growth by a single country in history. Although China’s growth has slowed down in recent years, its economic performance remains impressive.
Sustained economic growth has led to an impressive decline in poverty rates. The number of people living in poverty decreased from an astounding 88% in 1981 to just 6.5% by 2012. The number of people with higher incomes are concentrated in urban areas, though, with China estimating its rural poor at 55 million people. Unequal income distribution is highlighted by the differences in living standards between people living in urban and rural areas.
Aside from rural poverty and income inequalities, economic growth has brought with it problems that include urban sprawl, environmental challenges and internal labor migration.
Although China reported a 3.97% unemployment rate in early 2017, urban and rural underemployment remain high. Underemployment measures how well an economy uses a work force’s skills and experience — for example, matching highly-skilled workers to high-paying jobs or keeping people who prefer full-time work out of part-time jobs.
Major contributors to the economy
China is a member of the World Trade Organization and the Asia-Pacific Economic Cooperation group, and it has free trade agreements with several countries. The US is China’s second-largest trading partner, after only its combined trade with the 28-member European Union. Other major trading partners include Hong Kong, Japan, South Korea and Taiwan.
China’s top exports include electronic equipment, heavy machinery, furniture, lighting and signs, knit or crochet clothing and other clothing. Its major imports include electronic equipment, oil, heavy machinery, medical and technical equipment and ores, slag and ash.
Tourism is also important to China’s economy, contributing about $216 billion to the country’s coffers in 2013. It is predicted that China will be the world’s top tourism market by 2020.
China’s double-digit GDP growth rate has slowed since 2012, reaching a low of 6.9% in 2017. The Chinese government expects growth to slow down further to 6.5 percent in 2018.
Government corruption, low consumption and environmental degradation remain major challenges. Surging home prices and inflation are also expected to put pressure on economic growth.
Despite these developments, China’s GDP is set to overtake the combined GDP of the 19 countries using the euro in 2018. The World Bank credits the Chinese government for pursuing policies aimed at addressing issues that put the country’s strong economic fundamentals at risk. Despite lower growth forecasts, the focus on quality of growth is a welcome development and can help China achieve its goal of becoming a moderately prosperous country.