April 2004

Since the initiation of reform and opening up in 1978, China has experienced rapid economic growth. The country's gross domestic product (GDP) reached 11.694 trillion Yuan (US$1.414 trillion) in 2003, up 9.1 percent over the previous year. The industry sector contributed 53% to the GDP, services accounted for 32 percent, whereas the agricultural industry's share was 15%. Compared to the previous year the industry sector grew by 12,5 percent, services by 6.7 percent and the agricultural industry by 2.5 percent.

From January to March this year, China's industrial output rose by 17.7 per cent to 1.131 trillion yuan (US$136.4 billion). The three major reasons for this increase were stable growth rates in domestic consumption, a rise in industrial exports and fast fixed asset investment. The rapid increase in industrial output since 2003 has raised concerns among economists and policymakers that excessive growth in some sectors is putting a strain on transportation and power suppliers, driving up the prices of raw materials and damaging industries across the country.

Iron and Steel Industry

China is the world's largest producer, importer and consumer of steel. The country's steel consumption in 2003 reached a level of 250 million tons and is expected to jump to 280 million tons by the end of this year. Fixed asset investment in the steel sector as well as the steel output capacity increased significantly. The prevailing investment fever is mainly prompted by domestic demand exceeding supply. The nation's iron ore imports have been rising steadily and steel prices on the domestic market are fluctuating at high levels due to strong demand. However, prices in China are still lower than those paid on the international market. This will slow down the country's steel import growth for the year and accelerate exports. Steel product imports reached a record high of 10.08 million tons during the first three months of 2004, rising 17.49 per cent from the same period last year. Meanwhile, China exported 1.62 million tons of steel products, up 6.72 per cent from the corresponding period of 2003. Due to huge investments in the steel sector, the Chinese government is increasingly concerned about a possible oversupply in the domestic market in the long term, and a shortage of raw materials and insufficient transport capacity in the short term. Various measures including controls on bank loans are planned to cool investment in the sector.

Information Technology

The Chinese IT industry contributed significantly to the country's rapid economic growth in recent years. In 2003, China's IT market reached 252 billion yuan (30.47 billion US dollars), an increase of 11 percent over the previous year. In 2004, the IT market is expected to grow by as much as 15 percent to reach 289.8 billion yuan (35 billion US dollars). The largest growth rate (27 percent) is expected in the IT services market. The software market is expected to rise by 25 percent and the hardware market by 10 percent. The largest buyers of IT products will be governmental bodies, the manufacturing industry, and the power industry. In the coming five years, an even heftier growth rate of 18.5 percent is expected. The China Centre for Information Industry Development (CCID) expects that entertainment electronics, auto electronics, electronic medical equipment, digital information content and digital TV will be the major high growth areas for the IT sector in 2004.

Consumer Products

Market liberalization has turned China into the world's largest manufacturing base for consumer goods. Chinese products are highly competitive in quality, variety and price, and the country has become the world's largest exporter of watches, bikes and sewing-machines. In addition China has significantly expanded its export volume of mechanical and electronic products, including cell phones, CD-players, computer screens, optical component parts and electric tools. 20 percent of all refrigerators, more than 25 percent of all washing machines, approximately 30 percent of all air- conditioners and TV sets and an astonishing share of more than 50 percent of all cameras worldwide, are produced in China. In it's coastal provinces such as Guangdong, Fujian and Zhejiang China has built the biggest and most competitive manufacturing system in the world. Guangdong province accounts for 40 percent of China's total exports, and its exports of consumer goods make up nearly 50 percent of the nation's total.

Toy Industry

In the past ten years, China's toy industry enjoyed significant growth rates and the number of toy manufacturers has increased dramatically. With more than 9,000 plants, the toy industry is now one of the country's major industries employing almost 3 million people. China is the world's largest toy manufacturer, producing 75 percent of the world's toys and exporting toys to more than 100 countries and regions. In 2003, the country's toy exports exceeded 10 billion US dollars. Toy factories in Guangdong province manufacture some 75 percent of China's total toy exports. While most international toy companies source their toys from China, until now only very few successfully entered the Chinese toy market itself. The Chinese toy market is often portrayed as the potentially largest worldwide. No other country has more children living in its boundaries. More than 300 million Chinese are children under the age of 14, accounting for more than 25 percent of the country's total population.

Textile Industry

The textile industry is one of China's traditional pillar industries. The country commands over more than 15 per cent of the nearly US$400 billion global textile market. In 2003, textile exports registered a rapid growth of 30 percent and reached US$70 billion. The number of international textile manufacturers relocating their production and purchasing activities to China continues to rise steadily. While maintaining stable growth in exports to key overseas markets in Hong Kong, Japan, the United States and Europe, China has also made progress in opening up new markets in other parts of the world. Guangdong province in Southern China and Zhejiang in the Yangtze River Delta are the nation's largest exporters of textiles. The country's textile industry is expected to benefit significantly from the phasing out of the traditional quota system that has dominated the global textile trade since the early 1960s. Starting from January 1, 2005, the protection currently available to textile and apparel importers and exporters will give way to forces of competition.

Shipbuilding Industry

China has remained the world's third largest shipbuilder for nine consecutive years since 1994, following the Republic of Korea and Japan. In 2003, the country's shipbuilding industry delivered a total of 6 million deadweight tons (DWT) of vessels, reaching a global share of ten percent for the first time. The industry is becoming internationally competitive in performance, quality, and speed of building, as well as in costs. More than 400,000 people are currently working in some 2000 shipbuilding and ship-repairing companies. China aims at surpassing the Republic of Korea and Japan in the next 15 years and become the world's largest shipbuilder. By 2015, the industry plans to build 15 million deadweight tons of ships at two massive shipyard projects in Shanghai and Guangzhou.

China's Key Strategic Industries

In late 2001, the Chinese government released its Tenth Five Year Plan setting out economic growth targets and spelling out the country's key strategic industries. The oil industry, automobile industry and the semiconductor industry were given special status and considered crucial for increasing the country's global economic clout.

China's semiconductor industry is still at its early stages and may be decades away from overtaking key players in Europe, Japan or the USA. The Chinese government, however, is planning to build the country's chipmakers into world-class companies. With a gigantic domestic market, China is already one of the largest consumers of semiconductors worldwide. Sales in 2004 will rise 31 percent to about 270 billion yuan (US$32 billion) and are expected to more than double to 630 billion yuan by 2008, making China one of the world's major chip markets.

After several years of sluggish growth, China's automobile industry increased its pace in 2002. Last year, China produced 4.44 million cars, up 35.2 percent year on year, which raised China's ranking in world car production from the fifth to the fourth place. Fast development will continue in 2004, boosted by strong domestic demand. Passenger cars will continue to be the biggest growth engine for total vehicle output. Output of domestically-made passenger cars is expected to surge by more than 50 per cent to 2.7 million units in 2004. Both truck and bus output is expected to rise 10 to 20 per cent in 2004.

In the face of China's growing energy woes, the Chinese government considers the country's oil industry as one of the top priority sectors. It plans to diversify oil and natural gas sources and optimize China's oil refinery system to solve the country's energy issues. China's crude oil imports reached 91.12 million tons in 2003, surging 31.29 percent over 2002. At the same time, however, China's crude oil production increased by a mere 1.5 percent in 2003, and the growth rate slowed down by one percentage point from the previous year. China's need for oil soared by 11.4 percent year on year in 2003, making it the world's second largest oil importer, following the United States. This year, the country's annual crude oil imports are expected to exceed 100 million tons. The average price of oil and oil goods surged by 11.8 percent in the Chinese market in 2003.

If you require assistance with the above subject, please contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it with your detailed questions.

All information in this report is verified to the best of our ability and is assumed to be correct at time of release; however, Klako Group does not accept responsibility for any losses arising from reliance on the information provided within.