# **I. Introduction**

China has achieved great success since it undertook reform in 1978. It was one of the world’s fastest growing economies in the 1980s and 1990s. According to official statistics, the annual growth rate of real GDP over the past two decades has averaged 9.2%. Its gross national income ranked number six in the world in nominal terms and number two in purchasing power parity (PPP) term in 2001. The per capita GDP quadrupled. The real per capita GDP (PPP adjusted) increased from $430 international dollars in 1980 to $4,475 international dollars in 2002. 1 China’s total value of imports and exports rose from $20.6 billion in 1978 to $620.8 billion in 2002, which makes it the 6th largest trading nation in the world. As a result of rapid economic growth, people’s standards of living have also been greatly increased. With about one-quarter of a century’s reform, China has lifted about 400 million people out of poverty at the $1 a day expenditure level. 2 This is one of the greatest accomplishments in human history.

Along with these developments, the Chinese economy has become increasingly open. The ratio of trade to GDP more than tripled over the past two decades, from 13% in 1978 to 44% in 2000. The percentage increase was the greatest among the major emerging market economies during this period. China has also been one of the largest recipients of foreign direct investment (FDI), which grew from almost zero to 4-5% of GDP each year in the second half of the 1990s. By May 2000, about 349,537 companies were set up in China by foreign investors from over 180 countries. Total accumulative FDI inflows rose rapidly from $1.8 billion in 1983 to $446.3 billion in 2002. 3 All these achievements so far have been unmatchable in the rest of the world.

# **II. Daunting Challenges Ahead**

At the same time, China is undertaking a transformation toward knowledge and servicebased economy and undergoing wrenching structural changes. In the context of knowledge revolution, as China is further opening up to international competition after its WTO accession, it faces enhanced pressures to keep up with new knowledge and restructuring economic activities to take advantage of new and better ways of producing goods and services.

Internally, it faces many daunting challenges ahead. By 2002, China’s labor force accounts for 25.4% of the world’s total, apparently higher (due to age structure) than the proportion of its population in the world’s total (20.7%). 4 The biggest challenge is: how to productively employ its labor force of over 744 million as it shifts from an agricultural to an industrial and soon a service-based economy, especially how to absorb or reemploy the millions of laid-offs and rural emigrants. It is estimated that China will have to create around 100–300 million new jobs in the coming decade. So it must maintain a high rate of GDP growth, implement an effective employment strategy, and deal with income and

> 1 World Bank SIMA database, 2003.

> 2 The World Bank, _China: Promoting Growth with Equity_ , Country Economic Memorandum, Washington, DC, September 2003.

> 3 National Bureau of Statistics of China, _China Statistical Abstract 2003_ , China Statistics Press, Beijing.

> 4 Author’s calculation based on data from the World Bank SIMA database 2003.

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