The below is a summary of national and regional economic indicators for 2004 and projections for 2005 by governmental and independent bodies released between early January 2004 and early February 2005. Includes GDP, fixed-asset investment, foreign trade, foreign direct investment, foreign reserves, inflation & interest rates, and revaluation outlook. Also covered are societal such as unemployment and China's shifting definition of "middle class," as well as legal issues such as privacy laws and anti-monopoly laws that are nearing approval.

Economy

National

GDP

Estimates from Chinese authorities place national GDP (Gross Domestic Product) growth at 9.5% for 2004, totaling US$13.65 trillion RMB (US$1.6 trillion; US$1 = 8.3 RMB) and exceeding the 8.6% mean forecast from leading Chinese economists. Growth was driven in part by increased retail sales, which grew 10.2% in 2004, the highest level achieved since 1996. Agriculture provided a boost, riding a 9% rise in grain yields. A late growth spurt in exports that resulted in a 35.4% rise for the year also fueled the climb. Macro-controls to cool the economy were somewhat successful in slowing the growth of fixed asset investments toward the second half; however, investment still grew 25.8% in 2004 to seven trillion RMB (US$845 billion). Accounting for half of China's GDP, fixed asset investment is currently tickling the scale seen in Asian Tiger countries before the financial crisis hit in 1997.

For 2005, the mean projection for GDP growth among 50 of China's leading economists is 8.4%. Largely citing the impact of macro-control measures, half of the economists forecast growth between 8.5% to 9%, while a quarter anticipate growth of over 9%. These projections are consistent with estimates from foreign economic bodies.  Credit Suisse First Boston expects 7.3%, the International Monetary Fund, 7.5%, Calyon, Standard Chartered, Merrill Lynch, the Asian Development Bank, and Standard & Poor's foresee growth in the 8% range. The Chinese government is aiming for 8% for 2005.

Foreign Trade

The National Bureau of Statistics puts foreign trade for 2004 at US$1.15 trillion. Exports rose 35.4% from 2003 to $593.36 billion, while the trade surplus grew 26% during the same period, reaching U$31.98 billion even despite rising import costs. The government expects US$1.1 trillion in foreign trade in 2005, while DBS Bank feels that strong import growth may outpace exports, possibly leading to a deficit.

Foreign Exchange Reserves

China's foreign currency reserves ballooned by US$200 billion to reach US$609.9 billion in 2004, the largest climb in any single year. The increase alone was larger than total reserves racked up by 2001, and strikingly, half of the gain occurred in the fourth quarter of 2004. Revaluation speculation played a key role, which accounted for US$95 billion, according to CSFB. The dramatic jump was also driven by heavy exports and a record inflow of foreign direct investment, which totaled US$60.6 billion in 2004. Reserves would be even higher had not the government secured US$45 billion to recapitalize two large banks.

Inflation & Interest Rates

Authorities state that inflation rose to 3.9% in 2004, a 2.7% percentage-point gain from 2003. Lower food prices during winter helped curb inflation to 2.8%, according to Standard & Poor's, compared to the 5% seen in the summer. This should dilute the aggressiveness by which the government raises interest rates. However, some upward adjustment is likely in 2005 considering that the current rate is lower than inflation and global rates are expected to rise. In terms of inflation for 2005, the government is aiming for 4%.

Revaluation Outlook

Numerous observers are expecting a de-peg to the dollar in 2005, although they expect such a move to be sudden and occurring only if the intense attention and speculation cools down. Standard and Poor's anticipates a rise of 6%. CSFB has stated that the revaluation may happen as soon as the first half of 2005, appreciating by 3% to 5% in REER (Real Effective Exchange Rate) terms. J.P. Morgan Chase foresees heavy capital inflows bringing a strengthening of 7% within 2005. DBS Bank, however, expects that a lower trade surplus, and possible deficit, will reduce pressure to revalue.

Banking Sector

Standard and Poor's has presented findings that among 131 Chinese banks, non-performing loans dropped from 50% in 2002 to 35% in 2005. Official figures place the rate at 13% in 2004, compared to 17.5% in 2002. PriceWaterhouseCoopers, however, says China has become the world's second-largest distressed-asset market, behind Japan, with US$500 billion in bad loans.

Regional

Shanghai

Shanghai's GDP grew 13.5% in 2004 to 744 billion RMB (US$89.6 billion), according to government statistics. The pace of growth far exceeded the 10% target, marking Shanghai's 13th year of double-digit growth and the highest increase in nine years. Breakneck growth was said to have exacerbated the municipality's power shortage and rising prices. However, the municipal statistics bureau indicated GDP growth rose hand-in-hand with efficiency. Shanghai used less energy per 10,000 RMB of GDP than any other Chinese city, 75% lower than in the early 1990s. The unemployment rate also dropped for the first time in ten years to 4.5%.

The GDP target for 2005 has been set at 11%, a lower rate that is to be achieved through crackdowns on property speculation.

Guangdong

Official government statements indicate that the GDP of Guangdong province hit 14.2% in 2004, despite the outbreak of avian flu as well as energy and labor shortages. Yet macro-controls were still helpful in curbing fixed asset investment: 2004 investment receded to 19.9%, compared to the 40.2% recorded in the first quarter of 2004. Cool-down efforts also pared back the number of development zones from 400 to 102, while land use dropped from 340,000 hectares to 100,200 hectares.

The provincial government is aiming for 10% GDP growth in 2005. Logistics parks, government offices, and shopping malls are among some of the areas that the government is looking to curb growth.

Beijing

Beijing's GDP growth reached 13.2%, amounting to 428.3 billion RMB (US$51.6 billion) in 2004, its highest level since 1995. Growth was heavily fueled by the manufacturing sector, which accounted for 43% of the increase according to government data. The climb however was far lighter than the 15.4% rate achieved in the first half of 2004, thanks to the government's macro-controls. Fixed asset investment dropped from 36.5% in the first quarter to 17.2% for the year, and the number of loans tumbled by 30.7% from 2003. Inflation was only 1%, compared to the 4% national average. Per capita GDP was US$3,513, or US$4,418 if only permanent residents are counted. The GDP target for 2005 is 10%.

Society

Unemployment

National unemployment reached 4.7% in 2004, while the unemployment urban-registered rate fell by a 10th of a percentage point to 4.2%, the first drop in a decade. Authorities are aiming for 4.6% in 2005, and are planning to use preferential policies for IT, tourism, and construction industries. Job vacancies and subsidies will also be upped for community charities to absorb the unemployed

The government also announced the end of a three-year policy of subsidies for laid-off workers, switching to a system of re-employment centers. Laid-off workers from state-owned companies amounted for 1.53 million according to government figures, 930,000 of which have registered with the re-employment centers. The system will be expanded to cover employees of non-state-owned enterprises.

Throughout China, 105.8 million were reported to be covered by unemployment insurance systems by the end of 2004, 2.1 million more than 2003.

The ranks of young unemployed continue to increase. During the fourth quarter of 2004, the share of total unemployed that young people accounted for grew by 0.7% year-on-year. Some projections say that there going to be 500,000 more unemployed college graduates in 2005 owing to the expanding number of students enrolling in institutions of higher learning as well as the disconnect between college training and skills in demand by employers.

Middle Class Brouhaha

Conflicting reports concerning whether or not the government had set a standard for what defines middle class in China emerged in the press on January 20 and 21. Initial reports indicated that an official from the National Bureau of Statistics, Chen Xuebin, told a journalist from Sanlian Lifeweek Magazine that in a four-month survey of 263,584 households, the urban middle class was defined as a family of at least three whose annual income is between 60,000 RMB and 500,000 RMB (US$7,249 to US$60,412). Under such a definition, only 5.04% of the Chinese population qualifies as middle class -- far lower than the 15% figure released earlier by the government-run Chinese Academy of Social Science. A spokeswoman from the National Bureau of Statistics later denied the benchmark, stating that no formal report had been released nor had any such standard been set.

The Legal Front

Personal Data Protection Law

Chinese state media has reported that a draft version of the Personal Data Protection Law has been finished and submitted to authorities for review. A lawyer with the Academy of Social Sciences, which has participated in the drafting process, says that the law will be finalized in 2005. The law would set up a national office to approve applications submitted by companies, schools, or other organizations before collecting or analyzing any private information such as phone numbers, mailing addresses, or copies of identification documents. Violators will face criminal charges that include jail sentences.

The law is part of a privacy protection project conducted by the State Council Informatization Office, which is looking to promote e-commerce. Development of communications technology has resulted in numerous privacy infringement cases in recent years. At present, there is no general privacy protection law in China.

Anti-Monopoly Legislation

Anti-monopoly legislation has been in the works in China since 1987, but drafting has long been complicated by the existence of state monopolies. Yet foreign behemoths such as Microsoft, Tetra Pac, and Kodak, which dominate the Chinese market, have brought new urgency to such legislation. China Business Weekly has reported that the law is slated to pass within 2005. The draft currently under review will address administrative monopolies, or government departments that force consumers to buy commodities from designated operators.