MKTG 3852 – CHINA Economic Freedom Score

Subject: General Questions / General General Questions
Question
CHINA
Economic Freedom Score
25 World Rank: 137 Regional Rank: 29 Least
free 0 economic freedom score is 52.5, making its economy
Cpointhina’s
the 137th freest in the 2014 Index. Its overall score is 0.6
higher than last year, with modest improvements in 50 75
Most 100 free 52.5 Freedom Trend
54 investment freedom, business freedom, and monetary freedom outweighing declines in freedom from corruption, labor
freedom, and the management of government spending.
China is ranked 29th out of 42 countries in the Asia–Pacific
region, and its overall score continues to be lower than the
global and regional averages. Over the 20-year history of the Index, China’s economic
freedom has been almost unchanged, stuck near the lower
boundary of the “mostly unfree” category. However, the overall stagnation masks major changes in certain categories of
economic freedom: Trade freedom has improved by over 50
points, while scores for investment freedom, financial freedom, property rights, and the control of government spending have all suffered double-digit declines. Although the boost
in trade freedom has undoubtedly helped spur China’s high
overall growth rates, the deterioration in other categories
indicates that major economic reforms are still needed to create a more balanced and sustainable economy.
The lack of political will to undertake more fundamental
restructuring of the economy has led to continued overreliance on public investment. The Communist Party’s ultimate
authority throughout the economic system undermines the
rule of law, and institutionalized cronyism remains pervasive.
BACKGROUND: China’s Communist Party maintains tight
control of speech, religion, and assembly. There is some hope
for economic reform from the new government led by Communist Party General Secretary Xi Jinping, but meaningful
political reform is highly unlikely. Environmental degradation and an aging society fuel popular discontent. China liberalized parts of its economy starting in the late 1970s and
again in the early 1990s and achieved impressive GDP growth
in part through greater integration into the world trading and
financial systems. The size of its industrial and manufacturing
sector now rivals that of the United States, though China lags
far behind in other areas.
How Do We Measure Economic Freedom? See page 471 for an explanation of the methodology
or visit the Index Web site at heritage.org/index. 53 52 51 50 2010 2011 2012 2013 2014 Country Comparisons
52.5 Country
World
Average 60.3 Regional
Average 58.5 Free
Economies 84.1
0 20 40 60 80 100 Quick Facts
Population: 1,354.0 million
GDP (PPP): $12.4 trillion
7.8% growth in 2012
5-year compound annual growth 9.3%
$9,162 per capita
Unemployment: 4.1%
Inflation (CPI): 2.7%
FDI Inflow: $121.1 billion
Public Debt: 22.8% of GDP
2012 data unless otherwise noted.
Data compiled as of September 2013. 159 CHINA (continued)
THE TEN ECONOMIC FREEDOMS
Score RULE OF
LAW Country World Average Property Rights 20.0
Freedom from Corruption 35.0
0 20 40 60 80 Rank 1–Year
Change 139th
77th 0
–1.0 100 Many anti-corruption whistleblowers face physical violence or intimidation from those they
expose and enjoy little protection from the police or the internal disciplinary investigators
of the ruling Chinese Communist Party. Various forms of corruption severely affect banking,
finance, government procurement, and construction. China’s weak judicial system is highly
vulnerable to political influence and corruption. All land is state-owned.
Fiscal Freedom 69.9
GOVERNMENT
Government Spending 82.9
SIZE 136th
42nd
0 20 40 60 80 –0.3
–0.4 100 The top individual income tax rate is 45 percent, and the top corporate tax rate is 25 percent.
Other taxes include a value-added tax (VAT) and a real estate tax. The overall tax burden is 19
percent of GDP. Total government expenditures account for 24 percent of GDP, and reported
public debt is 23 percent of gross domestic output. The new government has responded to a
slowing economy with temporary small-business tax cuts and stimulus spending. REGULATORY
EFFICIENCY Business Freedom 49.7
Labor Freedom 61.9
Monetary Freedom 73.3 153rd
91st
120th
0 20 40 60 80 +1.7
–0.7
+1.7 100 It takes 13 procedures and over a month to launch a business. Completing licensing requirements remains time-consuming and costs over three times the level of average annual income.
Relatively rigid labor regulations still hinder overall employment growth. The state provides
massive fuel and electricity subsidies; agricultural subsidies (estimated at $160 billion) are
twice those of the U.S. and the EU combined. OPEN
MARKETS Trade Freedom 71.8
Investment Freedom 30.0
Financial Freedom 30.0 121st
152nd
132nd
0 20 40 60 80 –0.2
+5.0
0 100 China’s average tariff rate is 4.1 percent. The prevalence of state-owned enterprises and government subsidies continues to distort the economy. The state continues its tight control of the
financial system as its primary means for managing the rest of the economy. The government
owns all large financial institutions, which lend according to state priorities and directives and
favor large state enterprises. Long-Term Score Change (since 1995)
RULE OF LAW
Property Rights
Freedom from
Corruption 160 –10.0
+5.0 GOVERNMENT
SIZE
Fiscal Freedom
Government
Spending –0.7
–10.8 REGULATORY
EFFICIENCY
Business Freedom
Labor Freedom
Monetary Freedom 2014 Index of Economic Freedom OPEN MARKETS
–5.3
–3.1
+5.0 Trade Freedom
+51.8
Investment Freedom –20.0
Financial Freedom
–20.0

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