2014 Index of Economic Freedom

China

overall score52.5
world rank137
Rule of Law

Property Rights20.0

Freedom From Corruption35.0

Limited Government

Government Spending82.9

Fiscal Freedom69.9

Regulatory Efficiency

Business Freedom49.7

Labor Freedom61.9

Monetary Freedom73.3

Open Markets

Trade Freedom71.8

Investment Freedom30.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 1.4 billion
  • GDP (PPP):
    • $12.4 trillion
    • 7.8% growth
    • 9.3% 5-year compound annual growth
    • $9,162 per capita
  • Unemployment:
    • 4.1%
  • Inflation (CPI):
    • 2.7%
  • FDI Inflow:
    • $121.1 billion
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China’s economic freedom score is 52.5, making its economy the 137th freest in the 2014 Index. Its overall score is 0.6 point higher than last year, with modest improvements in 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.

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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.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 35.0 Create a Graph using this measurement

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.

Limited GovernmentView Methodology

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 EfficiencyView Methodology

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 MarketsView Methodology

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.

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 Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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