Measuring China's economy: an inside glimpse of capital investment, deflation and, of all things, a strange agricultural productivity boom.

• Author: Xie, Andy

China's growth follows the typical pattern of a developing country. The agriculture sector's share in GDP declined to 16 percent from 27 percent between 1990 and 2000. The industrial sector's share has expanded with the economy. The agriculture sector is growing at half the speed at which the economy is expanding. Its share in the economy is still declining by 0.6 percentage points per annum. By 2010, China's agricultural sector's share in the economy could dip below 10 percent.

The next phase of structural shift is from industry to service. This process hasn't begun. The reason is that Chinese households have low wealth levels and tend to minimize consumption in favor of wealth accumulation. As restructuring improves and capital returns and makes wealth accumulation easier to achieve, consumption preference should increase. The service sector's share in the economy should rise significantly. Most of the expected reduction in the agricultural sector's share in GDP in this decade should go to the service sector.

China is in an early stage of capital accumulation and, therefore, is experiencing rapid labor productivity growth. As the technology embodied in capital is much more productive than just one decade ago, China is experiencing faster labor productivity growth than perhaps any other country.

China has about 735 million people or 58 percent of the population in the labor force. The official unemployment figure was 6.8 million in the urban sector. China doesn't recognize a rural unemployment rate. Since Chinese labor is so underutilized overall, the only meaningful figure is non-agricultural employment. This figure was 382 million in 2000 or 54 percent of the labor force, up from 43 percent in 1990. China created 107 million jobs in the 1990's. If the current trend continues, non-agricultural employment could rise to 62 percent of the total labor force by 2010. The labor market would be in much better shape, but would still be far from a full employment situation. China's labor market should achieve full employment only between 2025 and 2030.

China's non-agricultural economy experienced an 8.1 percent annual growth rate in labor productivity between 1990 and 2000. The agricultural sector experienced 4.8 percent expansion during the same period. The whole economy had a higher growth rate of 8.9 percent due to steady redistribution of labor from the low productivity rural sector to industry and service sectors. Because the output of a...