2018 Index of Economic Freedom

China

overall score57.8
world rank110
Rule of Law

Property Rights46.7

Government Integrity47.3

Judicial Effectiveness65.4

Government Size

Government Spending71.6

Tax Burden70.4

Fiscal Health85.9

Regulatory Efficiency

Business Freedom54.9

Labor Freedom61.4

Monetary Freedom71.4

Open Markets

Trade Freedom73.2

Investment Freedom25.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 1.4 billion
  • GDP (PPP):
    • $21.3 trillion
    • 6.9% growth
    • 7.3% 5-year compound annual growth
    • $15,399 per capita
  • Unemployment:
    • 4.6%
  • Inflation (CPI):
    • 2.0%
  • FDI Inflow:
    • $133.7 billion
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China’s economic freedom score is 57.8, making its economy the 110th freest in the 2018 Index. Its overall score has increased by 0.4 point, with higher scores for government integrity and judicial effectiveness more than balancing declines in fiscal health, labor freedom, and property rights. China is ranked 24th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.

China’s economy remains “mostly unfree” but benefits from integration into the global economy. There is little momentum for reform, and state-owned enterprises still dominate the financial sector and many basic industries. With a new “Socialism with Chinese Characteristics” guiding ideology, the leadership appears to be stepping back from liberalization, increasing the likelihood of less openness to imports and investment, new bureaucratic hurdles, potentially weaker rule of law, and strengthened resistance from vested interests in the state sector that already impede more dynamic economic development.

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Background

Communist Party General Secretary Xi Jinping’s regime has produced no significant reforms since taking power in 2013. Xi has centralized his authority, ousted internal political enemies, and backed authoritarian policies to tighten control of civil society. China, the world’s biggest economy and largest exporter, still has a per capita income that is below the world average. The slowdown in economic growth, which may be more severe than reflected in official statistics, poses serious challenges for a government whose legitimacy increasingly depends on its ability to raise living standards throughout the large population. Much will depend on how the new ideological economic framework translates into government policy.

Rule of LawView Methodology

Property Rights 46.7 Create a Graph using this measurement

Government Integrity 47.3 Create a Graph using this measurement

Judicial Effectiveness 65.4 Create a Graph using this measurement

Protection of property rights remains weak. The state owns urban land; only the buildings themselves are in private hands. Rural land is collectively owned by villages. The Communist Party dominates the judicial system. Party political–legal committees influence the appointment of judges, court operations, and verdicts and sentences. Corruption remains endemic, and the leadership has rejected more fundamental reforms.

Government SizeView Methodology

The top personal income tax rate is 45 percent, and the top corporate tax rate is 25 percent. Other taxes include value-added and real estate taxes. The overall tax burden equals 17.5 percent of total domestic income. Over the past three years, government spending has amounted to 30.7 percent of total output (GDP), and budget deficits have averaged 2.5 percent of GDP. Public debt is equivalent to 46.2 percent of GDP.

Regulatory EfficiencyView Methodology

There were no significant changes in the ease of opening or running a business in China during 2016. The overall regulatory framework remains complex, arbitrary, and uneven. The labor regime continues to be repressive. The government props up numerous inefficient state-owned enterprises and funds a vast array of subsidies for manufactured exports, energy, agriculture, and consumer goods.

Open MarketsView Methodology

Trade is moderately important to China’s economy; the combined value of exports and imports equals 37 percent of GDP. The average applied tariff rate is 3.4 percent. Nontariff barriers significantly impede trade. The prevalence of state-owned enterprises limits foreign investment. The state uses control of the financial system to manage the economy. The government owns all large financial institutions, which lend according to state priorities.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.4
2Singapore88.80.2
3New Zealand84.20.5
4Australia80.9-0.1
5Taiwan76.60.1
6Malaysia 74.50.7
7South Korea73.8-0.5
8Japan72.32.7
9Macau70.90.2
10Vanuatu69.52.1
11Kazakhstan69.10.1
12Thailand 67.10.9
13Philippines65-0.6
14Azerbaijan64.30.7
15Indonesia64.22.3
16Brunei Darussalam64.2-5.6
17Tonga63.10.1
18Kyrgyz Republic 62.81.7
19Fiji62-1.4
20Bhutan61.83.4
21Samoa61.53.1
22Cambodia58.7-0.8
23Tajikistan58.30.1
24China57.80.4
25Sri Lanka57.80.4
26Solomon Islands57.52.5
27Mongolia55.70.9
28Papua New Guinea55.74.8
29Bangladesh 55.10.1
30India54.51.9
31Pakistan 54.41.6
32Nepal54.1-1.0
33Burma53.91.4
34Laos53.6-0.4
35Vietnam53.10.7
36Micronesia52.3-1.8
37Uzbekistan51.5-0.8
38Afghanistan51.32.4
39Maldives51.10.8
40Kiribati50.8-0.1
41Timor-Leste48.11.8
42Turkmenistan47.1-0.3
43North Korea5.80.9
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