2015 Index of Economic Freedom

China

overall score52.7
world rank139
Rule of Law

Property Rights20.0

Freedom From Corruption40.0

Limited Government

Government Spending81.5

Fiscal Freedom69.7

Regulatory Efficiency

Business Freedom52.1

Labor Freedom63.0

Monetary Freedom74.2

Open Markets

Trade Freedom71.8

Investment Freedom25.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 1.4 billion
  • GDP (PPP):
    • $13.4 trillion
    • 7.7% growth
    • 8.9% 5-year compound annual growth
    • $9,844 per capita
  • Unemployment:
    • 4.6%
  • Inflation (CPI):
    • 2.6%
  • FDI Inflow:
    • $123.9 billion
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China’s economic freedom score is 52.7, making its economy the 139th freest in the 2015 Index. Its overall score is 0.2 point higher than last year, with modest improvements in freedom from corruption, business freedom, and labor freedom largely offset by declines in investment freedom and the control of government spending. China is ranked 30th out of 42 countries in the Asia–Pacific region, and its overall score is lower than the global and regional averages.

Over the past five years, economic freedom in China has improved by less than 1.0 point, continuing its patchy and uneven progress since 1995. The one bright spot has been an 8.1-point improvement in labor freedom since 2011. A restrictive residency permitting system remains in place, and gains in labor freedom have been largely offset by losses in other factors, including a 5.5-point decline in the control of government spending.

A more comprehensive set of economic reforms is desperately needed, especially a loosening of the government’s stranglehold on investment flows. The Communist Party’s control of all levels of government continues to undermine confidence in the rule of law and interfere with the development of an independent judiciary. Institutionalized cronyism is prevalent.

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Background

Under the government of Communist Party General Secretary Xi Jinping, China has talked about the need for economic “rebalancing” (the shifting of power and wealth from state-owned enterprises and local governments to the household sector), but real changes in power relationships have been hard to detect. Reforms to improve labor mobility have gained no traction. Tensions in the South and East China Seas have increased with Beijing’s unilateral declaration of an Air Defense Identification Zone and its deployment of an oil rig in Vietnamese waters. China has achieved impressive GDP growth based on economic reforms and greater integration into the world trading and financial systems since the late 1970s. The size of its industrial and manufacturing sector now rivals that of the United States.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 40.0 Create a Graph using this measurement

Xi Jinping began his first year in power with an anti-corruption campaign that netted several high-ranking officials, but corruption remains endemic. With Chinese cyber espionage visibly on the rise in 2014, protection of property rights has clearly deteriorated. China’s weak judicial system is highly vulnerable to political influence. The giant urban migrant workforce has little legal protection despite promises of reform.

Limited GovernmentView Methodology

China’s top individual income tax rate is 45 percent, and its top corporate tax rate is 25 percent. Other taxes include a value-added tax and a real estate tax. The total tax burden equaled 19.4 percent of gross domestic product in the most recent year. Total government expenditures account for 24.8 percent of domestic output, and public debt equals 22 percent of GDP.

Regulatory EfficiencyView Methodology

Regulatory reform has progressed gradually and unevenly. Incorporating a business takes 11 procedures and about a month. Bureaucratic hurdles still add to the cost of completing licensing requirements. Labor regulations are relatively flexible, but enforcement of labor laws is not consistent. The government provides large fossil fuel and electricity subsidies and also funds significant agricultural subsidies.

Open MarketsView Methodology

China’s average tariff rate is 4.1 percent. Export taxes, subsidies to state-owned enterprises, anti-dumping barriers, and other measures restrict trade. The government screens foreign investment and still tightly controls the financial system. State-owned enterprises benefit from greater access to capital and lower financing costs, but small and medium-sized companies continue to suffer from the lack of access to credit.

Country's Score Over Time

Bar Graph of China Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Hong Kong89.6-0.5
2Singapore89.40.0
3New Zealand82.10.9
4Australia81.4-0.6
5Taiwan75.11.2
6Japan73.30.9
7South Korea71.50.3
8Malaysia 70.81.2
9Macau70.3-1.0
10Brunei Darussalam68.9-0.1
11Kazakhstan63.3-0.4
12Thailand 62.4-0.9
13Philippines62.22.1
14Samoa61.90.8
15Kyrgyz Republic 61.30.2
16Vanuatu61.11.6
17Azerbaijan61-0.3
18Tonga59.31.1
19Mongolia59.20.3
20Fiji590.3
21Sri Lanka58.6-1.4
22Indonesia58.1-0.4
23Cambodia57.50.1
24Bhutan57.40.7
25Pakistan 55.60.4
26India54.6-1.1
27Bangladesh 53.9-0.2
28Maldives53.42.4
29Papua New Guinea53.1-0.8
30China52.70.2
31Tajikistan52.70.7
32Vietnam51.70.9
33Laos51.40.2
34Nepal51.31.2
35Micronesia49.6-0.2
36Solomon Islands470.8
37Uzbekistan470.5
38Burma46.90.4
39Kiribati46.40.1
40Timor-Leste45.52.3
41Turkmenistan41.4-0.8
42North Korea1.30.3
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