OECD ECONOMIC SURVEY OF CHINA 2022
China’s economy in transition: From swift recovery to high-quality growth
https://www.oecd.org/economy/china-economic-snapshot/
OECD Economics
Main messages • Growth has strongly rebounded. • Financial risks stemming from high corporate debt are rising and need to be addressed swiftly. SOE debt surged, especially at the local level. • For more inclusive growth, more equitable income and wealth distribution and stronger social protection are needed. • Product market reforms should accelerate to strengthen growth.
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China’s economy has recovered swiftly Real GDP Index 2019Q2 = 100 130 125 120 115 110 105 100 95 90 85 80
2016
2017
2018
2019
2020
2021
2022
2023
Source: OECD Economic Outlook database.
3
Investment remains an important driver of growth Contributions by factor of production % points 16 14 12 10 8 6 4 2 0 -2 -4
2000
Capital
2003
2006
Labour
2009
TFP
2012
Output growth
2015
2018
2021
Note: 2020 is estimate and 2021 is forecast. TFP = Total Factor Productivity. Source: Conference Board Total Economy Database.
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Growth will slow 2019
2020
2021
2022
2023
Real GDP (%)
6.0
2.3
8.1
5.1
5.1
Exports of goods and services (%)
1.5
1.6
16.7
2.4
5.5
Imports of goods and services (%)
0.4
-0.8
7.8
0.4
5.3
Consumer price index (%)
2.9
2.5
0.8
1.7
2.4
Terms of trade (%)
0.6
7.3
-8.8
-3.8
-0.4
-3.7
-6.9
-6.4
-6.0
-6.1
-2.8
-3.7
-3.1
-3.0
-3.2
0.7
1.9
1.7
1.5
1.5
Fiscal balance (% of GDP) Overall Headline Current account balance (% of GDP)
Note: The urban unemployment rate is registration based. Headline balance is the official fiscal balance, overall balance is the internationally more comparable aggregate balance of the four government accounts. Source: CEIC database and OECD Economic Outlook 110 database.
5
Taxes represent a small and declining share of government revenues Structure of revenues % of total revenues 100 90 80 70 60 50 40 30 20 10 0
2010
Value added yax (VAT)
Corporate income tax (CIT)
Personal income tax (PIT)
Excise tax
Other tax
Social Security Fund
2012
2014
2016
2018
2020
Note: Total revenue includes revenues in the general, fund, social security and state-owned capital management accounts. Health, pension, injury, maternity and unemployment contributions and disbursements are done through the Social Security Fund. Tax revenue is 15% and total revenue is 25% of GDP. Source: Ministry of Finance. 6
The tax and transfer system is not very effective Income inequalities Gini coefficient 0.8 0.7
Gini: disposable income
Gini: market income
0.6 0.5 0.4 0.3 0.2
0
SVK CZE SVN ISL NOR BEL FIN SWE NLD DNK AUT HUN DEU IRL FRA CHE LUX CAN EST GRC OECD JPN PRT AUS NZL ESP RUS GBR ITA KOR LVA ISR LTU USA TUR CHN MEX CHL CRI IDN BRIICS COL BRA IND ZAF
0.1
Source: Standardized World Income Inequality Database v9.1 (Solt 2021).
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People pay little income taxes Tax rates at 2.5 times the average wage % 60 50
Average income tax rate
Average tax wedge
Marginal income tax rate
40 30 20 10 0
China - private firms
OECD average
Germany
Korea
Note: The tax wedge includes social security contributions by both employers and employees. Calculations for China were based on the 2018 personal income tax reforms. Tax rates at 250% of the average wage and marginal income tax rates for OECD countries are as of 2017. Source: OECD Taxing wages database for OECD countries and OECD calculations based on the Amendment to the Personal Income Tax Law passed by the 5th meeting of the 13th Congress of the NPP Standing Committee on 31 August 2018 and National Bureau of Statistics data. 8
The share of real estate in investment increased Structure of fixed asset investment CNY Billion 70000
Real estate
Secondary industry
Infrastructure
Others
60000 50000 40000 30000 20000 10000 0
2014
2015
2016
2017
2018
2019
2020
Source: CEIC database.
9
House prices have moderated Housing prices in cities by tier Y-o-y, %
All
Beijing, Shanghai, Guangzhou and Shenzhen
40
Tier 1
Tier 2
Tier 3
Tier 4
30 20 10 0 -10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Note: Tier 1 comprises 17 cities, Tier 2 22, Tier 3 21 and Tier 4 10. Source: CEIC database.
10
Shadow banking is being reined in Total credit and shadow banking Y-o-y % changes
Total credit (stock)
Core shadow banking
20 16 12 8 4 0 -4 -8 -12
2015
2016
2017
2018
2019
2020
2021
Source: CEIC database.
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Corporate debt remains high Non-financial corporate debt, 2020Q2 % of GDP 180 160 140 120 100 80 60 40
SWE
FRA
CHN
CAN
FIN
JPN
KOR
ESP
PRT
AUT
RUS
USA
GBR
TUR
ITA
HUN
DEU
GRC
IND
BRA
ZAF
0
IDN
20
Source: Bank of International Settlements database.
12
SOE debt has increased fast Debt of SOEs, listed non-financial and industries firms % of GDP 180
Industrial
Listed non-financial
SOE
160 140 120 100 80 60 40 20 0
2006
2008
2010
2012
2014
2016
2018
2020
Source: Ministry of Finance and CEIC database.
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SOE debt surged mainly at the local level Debt of SOEs at the central and local levels % of GDP
Listed central
120
Listed local
Central
Local
100 80 60 40 20 0
2005
2007
2009
2011
2013
2015
2017
2019
Source: Ministry of Finance and CEIC database.
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The contingent liabilities of local governments are high Local government investment vehicle debt by province and level of government Province
Jiangsu Zhejiang Sichuan Shandong Hubei Tianjin Hunan Guizhou Chongqing Henan Guangdong Anhui Jiangxi Beijing Yunnan Shaanxi Fujian Shanghai Guangxi Hebei Gansu Jilin Xinjiang Liaoning Shanxi Inner Mongolia Heilongjiang Ningxia Qinghai Tibet Hainan 0
1000
City
2000
3000
District/county
4000
5000
Note: Local zones include all economies ones below the national level. Source: OECD calculations based on PPP Zhihu
National zone
6000
7000
Local zones
8000
9000
10000 CY billion
15
A large share of the population is exposed to heavy pollution Population exposure to PM2.5, 2019
China
OECD
0%
10%
[ 0-10] µg/m³
20%
30%
40%
[10-15] µg/m³
50% [15-25] µg/m³
60%
70% [25-35] µg/m³
80%
90%
100%
[>35] µg/m³
Source: OECD Green Growth Indicators database.
16
Greenhouse gas emissions have increased over the past decade Tonnes of CO2 equivalent per capital greenhouse gas emissions 2018
14
2010
12 10 8 6 4 2 0
China
OECD
Source: World Bank database; OECD Population database; and OECD calculations.
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Key recommendations for more inclusive and sustainable growth •
Gradually phase out implicit guarantees to SOEs and other public entities by not bailing them out upon their default.
•
Increase SOE-related fiscal revenues.
•
Increase spending on social security, health and education.
•
Widen the personal income tax base and abolish deductions.
•
Introduce a recurrent tax on the holding of real estate and an inheritance tax.
•
Raise environmental taxes on fossil fuels and increase renewables and transport infrastructure investment.
•
Ensure sustainability of the pension system by linking the retirement age to life expectancy.
•
Unify the pension system across regions and schemes and make it more redistributive by abolishing the floor and raising the ceiling for contributors.
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Accelerating product market reforms
19
Regulations are too complex Product market regulation overall index, 2018, from 0 (least restrictive) to 6 (most restrictive) 3.0 2.5 2.0 1.5 1.0
0.0
GBR DNK ESP DEU NLD SWE NOR AUS LTU NZL LVA EST SVN CZE HUN ITA PRT FIN IRL OECD CHL ISR AUT JPN ISL POL SVK CHE GRC FRA MEX LUX BEL KOR USA CAN COL RUS TUR CRI ZAF BRA IDN CHN
0.5
Note: Data for the United States refer to January 2021, for China and Indonesia to 2020, while data for Costa Rica and Estonia to 2019. All other countries as of 2018. Source: OECD Product Market Regulation database.
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Energy markets are highly regulated Natural gas regulation sub-component of the PMR indicator, 2018, from 0 (least restrictive) to 6 (most restrictive) 3.5 3.0 2.5 2.0 1.5 1.0
0.0
GBR DEU USA-NY LUX CZE IRL AUS SVN ESP BEL NLD AUT DNK ITA SWE GRC ISR EST LVA HUN LTU PRT OECD JPN COL POL SVK FRA TUR CAN NZL FIN ZAF NOR MEX BRA IDN CHL RUS KOR CHN CHE
0.5
Note: Data for the United States refer to January 2021, for China and Indonesia to 2020, while data for Costa Rica and Estonia to 2019. All other countries as of 2018. There are hundreds of competitors in the natural gas market and the sector is vertically separated, but the largest players remain state owned. Source: OECD Product Market Regulation database.
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Price controls are still fairly prevalent Price controls sub-component of the PMR indicator, 2018, from 0 (least restrictive) to 6 (most restrictive) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0
0.0
SWE ISL AUT ITA GBR IRL DEU LUX NLD EST DNK NZL NOR AUS SVN HUN CZE ZAF FIN OECD USA ESP LVA CHL POL SVK CHE ISR CAN FRA JPN LTU PRT GRC BRA RUS COL BEL CHN MEX CRI KOR TUR IDN
0.5
Note: Data for the United States refer to January 2021, for China and Indonesia to 2020, while data for Costa Rica and Estonia to 2019. All other countries as of 2018. Source: OECD Product Market Regulation database.
22
Government procurement is restrictive Government procurement sub-component of the PMR indicator, 2018, from 0 (least restrictive) to 6 (most restrictive) 4.0 3.5 3.0 2.5 2.0 1.5 1.0
0.0
HUN LTU GBR IRL NZL AUS NLD PRT EST BEL DEU TUR KOR SVK GRC NOR CZE CHE AUT POL COL ISL OECD LVA DNK FIN SVN ITA LUX ESP SWE CHL FRA MEX ZAF CRI ISR RUS CHN IDN JPN USA CAN BRA
0.5
Note: Data for the United States refer to January 2021, for China and Indonesia to 2020, while data for Costa Rica and Estonia to 2019. All other countries as of 2018. Source: OECD Product Market Regulation database.
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Restrictions to trade in digital services OECD Digital Services Trade Restrictiveness Index, 2020 0.6 0.5
Infrastructure and connectivity
Electronic transactions
Payment system
Intellectual property rights
Other barriers affecting trade in digitally enabled services
0.4 0.3 0.2
CHN
IND
ZAF
RUS
BRIICS
COL
TUR
POL
CHL
BRA
IDN
AUT
ISR
HUN
KOR
OECD
DEU
IRL
SWE
ITA
FRA
DNK
JPN
NLD
MEX
FIN
GBR
AUS
CHE
USA
NOR
0
CAN
0.1
Source: OECD Services Trade Restrictiveness Index database.
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Recommendations for further liberalising product markets •
Strengthen the rule of law and restrict the power of administrative departments to prevent the creation of administrative monopolies.
•
Dismantle existing administrative monopolies and apply the Fair Competition Review Mechanism rigorously.
•
Unify market regulations across the country to create a single market.
•
Strengthen intellectual property right protection.
•
Open up further sectors for foreign investment and abolish the requirement of joint ventures.
•
Apply the competitive neutrality principles in the allocation of subsidies and subject the use of public funds to rigorous cost-benefit analysis and third-party evaluation. Make subsidies more transparent.
•
Implement accounting separation and pay fair compensation for SOEs for their services.
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More information…
https://www.oecd.org/economy/china-economicsnapshot/ OECD Economics OECD
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