2013 Index of Economic Freedom

China

overall score51.9
world rank136
Rule of Law

Property Rights20.0

Freedom From Corruption36.0

Limited Government

Government Spending83.3

Fiscal Freedom70.2

Regulatory Efficiency

Business Freedom48.0

Labor Freedom62.6

Monetary Freedom71.6

Open Markets

Trade Freedom72.0

Investment Freedom25.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 1.3 billion
  • GDP (PPP):
    • $11.3 trillion
    • 9.2% growth
    • 10.5% 5-year compound annual growth
    • $8,382 per capita
  • Unemployment:
    • 6.5%
  • Inflation (CPI):
    • 5.4%
  • FDI Inflow:
    • $124.0 billion
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China’s economic freedom score is 51.9, making its economy the 136th freest in the 2013 Index. Its overall score is 0.7 point higher than last year, reflecting modest improvements in four of the 10 economic freedoms. China is ranked 29th out of 41 countries in the Asia–Pacific region, and its overall score continues to be lower than the global and regional averages.

China’s economy remains “mostly unfree.” The legal and regulatory system is vulnerable to political influence and Communist Party directives. The party’s ultimate authority throughout the economic system undermines the rule of law and respect for contracts. Corruption is widespread, and cronyism is institutionalized and pervasive. Although leaders occasionally embrace market principles that could enhance efficiency and ensure long-term competitiveness, genuinely liberalizing economic reform has largely stalled.

The absence of political will to undertake more fundamental restructuring of the economy has led to continued overreliance on public investment. Productivity growth is undermined by state regulation and ownership of many enterprises, and the financial sector is primarily an instrument of state control through subsidies and credit manipulation. In the face of the economic slowdown, the government has tried expansionary fiscal and monetary interventions to little effect.

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Background

China’s Communist Party maintains tight control of political expression, speech, religion, and assembly. There is hope for economic reform from the incoming government of Communist Party General Secretary Xi Jinping, but political reform is unlikely. Environmental degradation and fiscal pressure driven by low birth rates that are the legacy of China’s “one-child policy” fuel social unrest. China liberalized parts of its economy in the late 1970s and early 1980s and has achieved impressive GDP growth through greater integration into the world trading and financial systems. It formally joined the World Trade Organization in 2001, and 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 36.0 Create a Graph using this measurement

China’s weak judicial system is highly vulnerable to political influence and corruption. All land is state-owned. Individuals and firms may own and transfer long-term leases that are subject to many restrictions. Intellectual property rights are not protected effectively, and infringement of copyrights, patents, and trademarks is common. Various forms of corruption severely affect banking, finance, government procurement, and construction.

Limited GovernmentView Methodology

The top 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 equal to 18.2 percent of total domestic income. Government spending amounts to 23.6 percent of GDP. Public debt has decreased, but large amounts of debt are held in off-budget obligations. Slower growth may undermine fiscal policy.

Regulatory EfficiencyView Methodology

The overall regulatory framework remains complex, arbitrary, and uneven. Completing licensing requirements costs over three times the level of average annual income. The labor regime remains repressive. The state imposes price controls on a wide range of energy, raw materials, and other basic goods. Along with several interest rate cuts, deceleration in consumer price inflation in 2012 gave the state room for additional stimulus measures.

Open MarketsView Methodology

The trade-weighted average tariff rate is 4 percent, and layers of non-tariff barriers add to the cost of trade. The investment regime is non-transparent and inefficient. 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.

Country's Score Over Time

Bar Graph of China Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing China to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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