Japanese yen

Japanese yen, ¥; code: JPY  is the official currency of Japan. It is the third most-traded currency in the foreign exchange market after United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling. As is common when counting in East Asia, large quantities of yen are often counted in multiples of 10,000 (man, 万) in the same way as values in Western countries are often quoted in thousands.

Pronunciation and etymology

Yen is pronounced "en" in Japanese. The word (Shinjitai: 円, Traditional Chinese/Kyūjitai: 圓) literally means "round object" in Japanese, as yuán does in Chinese or won in Korean, referring to the coins that were circular in shape and widely used in Japan up to the Tokugawa Period. In 1695, the character 元 (gen), signifying "round or rounded") was placed on the obverse of newly minted copper coins. Originally, Chinese had traded silver in mass {see sycee) and when Spanish and Mexican silver coins arrived, they called them 銀圓 (silver round) for their circular shapes. The coins and the name also appeared in Japan. The Chinese abbreviated 圓 with 元 which has the same pronunciation in Mandarin (but not in Japanese). The Japanese preferred the simplified form 円 which remains until now.

The spelling and pronunciation "yen" is standard in English. This is because mainly English speakers who visited Japan at the end of the Edo period to the early Meiji period spelled words this way. In the 16th century, Japanese "e (エ)/we (ヱ)" had been pronounced and Portuguese missionaries had spelled them that way. Some time thereafter, by the middle of the 18th century, "e/we" came to be pronounced as in modern Japanese, although some regions retain the pronunciation. Walter Henry Medhurst, who had not come to Japan and interviewed some Japanese in Batavia (Jakarta), spelled some "e"s as "ye" in his An English and Japanese, and Japanese and English Vocabulary (1830). In the early Meiji era, James Curtis Hepburn, following Medhurst, spelled all "e"s as "ye" in his A Japanese and English dictionary (1st ed.1867). That was the first full-scale Japanese-English/English-Japanese dictionary, which had a strong influence on Westerners in Japan and probably prompted the spelling "yen". Hepburn revised most of "ye"s to "e" in the 3rd edition (1886) in order to mirror the contemporary pronunciation, except "yen". This was probably already fixed and has remained so ever since.

History

In the 19th century silver Spanish dollar coins were prolific throughout South east Asia, the China coast, and Japan. These coins had been introduced through Manila over a period of two hundred and fifty years, arriving on ships from Acapulco in Mexico. These ships were known as the Manila galleons. Until the 19th century these silver dollar coins were actual Spanish dollars minted in the new world, mostly at Mexico City. But from the 1840s they were increasingly replaced by silver dollars of the new Latin American republics. In the latter half of the 19th century some local coins in the region were made in the likeness of the Mexican dollar. The first of these local silver coins was the Hong Kong silver dollar coin that was minted in Hong Kong between the years 1866 and 1868. The Chinese were slow to accept unfamiliar coinage and preferred the familiar Mexican dollars, and so the Hong Kong government ceased minting these coins and sold the mint machinery to Japan.

The Japanese then decided to adopt a silver dollar coinage under the name of 'yen', meaning 'a round object'. The yen was officially adopted by the Meiji government in an Act signed on May 10, 1871. The new currency was gradually introduced beginning from July of that year. The yen was therefore basically a dollar unit, like all dollars, descended from the Spanish Pieces of eight, and up until the year 1873, all the dollars in the world were more or less the same value. The yen replaced Tokugawa coinage, a complex monetary system of the Edo period based on the mon. The New Currency Act of 1871 stipulated the adoption of the decimal accounting system of yen (1, 圓), sen (1⁄100, 銭), and rin (1⁄1000, 厘), with the coins being round and cast as in the West. The yen was legally defined as 0.78 troy ounces (24.26 g) of pure silver, or 1.5 grams of pure gold hence putting it on a bimetallic standard. (The same amount of silver is worth about 1181 modern yen, while the same amount of gold is worth about 4715 yen.)

Early silver one yen coin, 24.26 grams of pure silver, Japan, minted in 1870 (Year 3 of the Meiji period.

Following the silver devaluation of 1873, the yen devalued against the US dollar and the Canadian dollar units since they adhered to a gold standard, and by the year 1897 the yen was worth only about 50 cents(US). In that year, Japan adopted a gold exchange standard and hence froze the value of the yen at 50 cents.

(The sen and the rin were eventually taken out of circulation at the end of 1953.)

Fixed value of the yen to the US dollar

The yen lost most of its value during and after World War II. After a period of instability, in 1949, the value of the yen was fixed at ¥360 per US$1 through a United States plan, which was part of the Bretton Woods System, to stabilize prices in the Japanese economy. That exchange rate was maintained until 1971, when the United States abandoned the gold standard, which had been a key element of the Bretton Woods System, and imposed a 10 percent surcharge on imports, setting in motion changes that eventually led to floating exchange rates in 1973.

Undervalued yen

By 1971 the yen had become undervalued. Japanese exports were costing too little in international markets, and imports from abroad were costing the Japanese too much. This undervaluation was reflected in the current account balance, which had risen from the deficits of the early 1960s to a then-large surplus of U.S. $5.8 billion in 1971. The belief that the yen, and several other major currencies, were undervalued motivated the United States' actions in 1971.

Yen and major currencies float

Following the United States' measures to devalue the dollar in the summer of 1971, the Japanese government agreed to a new, fixed exchange rate as part of the Smithsonian Agreement, signed at the end of the year. This agreement set the exchange rate at ¥308 per US$1. However, the new fixed rates of the Smithsonian Agreement were difficult to maintain in the face of supply and demand pressures in the foreign-exchange market. In early 1973, the rates were abandoned, and the major nations of the world allowed their currencies to float.

Japanese government intervention in the currency market

In the 1970s, Japanese government and business people were very concerned that a rise in the value of the yen would hurt export growth by making Japanese products less competitive and would damage the industrial base. The government therefore continued to intervene heavily in foreign-exchange marketing (buying or selling dollars), even after the 1973 decision to allow the yen to float.

Despite intervention, market pressures caused the yen to continue climbing in value, peaking temporarily at an average of ¥271 per US$1 in 1973 before the impact of the 1973 oil crisis was felt. The increased costs of imported oil caused the yen to depreciate to a range of ¥290 to ¥300 between 1974 and 1976. The re-emergence of trade surpluses drove the yen back up to ¥211 in 1978. This currency strengthening was again reversed by the second oil shock in 1979, with the yen dropping to ¥227 by 1980.

Yen in the early 1980s

During the first half of the 1980s, the yen failed to rise in value even though current account surpluses returned and grew quickly. From ¥221 in 1981, the average value of the yen actually dropped to ¥239 in 1985. The rise in the current account surplus generated stronger demand for yen in foreign-exchange markets, but this trade-related demand for yen was offset by other factors. A wide differential in interest rates, with United States interest rates much higher than those in Japan, and the continuing moves to deregulate the international flow of capital, led to a large net outflow of capital from Japan. This capital flow increased the supply of yen in foreign-exchange markets, as Japanese investors changed their yen for other currencies (mainly dollars) to invest overseas. This kept the yen weak relative to the dollar and fostered the rapid rise in the Japanese trade surplus that took place in the 1980s.

Effect of the Plaza Accord

Japanese bicycle brands such as Nishiki had enjoyed tremendous success during the United States' 1970's bike boom, only to suffer during the late 1980s yen fluctuation. Because of the steep increase in the yen's value, the manufacture of Nishiki bicycles was moved from Japan in 1989 to Giant Bicycles in Taiwan. The brand was ultimately absorbed by Derby International, which discontinued the brand in the United States in 2001.

In 1985 a dramatic change began. Finance officials from major nations signed an agreement (the Plaza Accord) affirming that the dollar was overvalued (and, therefore, the yen undervalued). This agreement, and shifting supply and demand pressures in the markets, led to a rapid rise in the value of the yen. From its average of ¥239 per US$1 in 1985, the yen rose to a peak of ¥128 in 1988, virtually doubling its value relative to the dollar. After declining somewhat in 1989 and 1990, it reached a new high of ¥123 to US$1 in December 1992. In April 1995, the yen hit a peak of under 80 yen per dollar, temporarily making Japan's economy nearly the size of the US.

Post-bubble years

The yen declined during the Japanese asset price bubble and continued to do so afterwards, reaching a low of ¥134 to US$1 in February 2002. The Bank of Japan's policy of zero interest rates has discouraged yen investments, with the carry trade of investors borrowing yen and investing in better-paying currencies (thus further pushing down the yen) estimated to be as large as $1 trillion. In February 2007, The Economist estimated that the yen is 15% undervalued against the dollar and as much as 40% undervalued against the euro.

Coins

Early 20 yen gold coin.

Coins were introduced in 1870. There were silver 5, 10, 20 and 50 sen and 1 yen, and gold 2, 5, 10 and 20 yen. Gold 1 yen were introduced in 1871, followed by copper 1 rin, ½, 1 and 2 sen in 1873.

Cupronickel 5 sen coins were introduced in 1889. In 1897, the silver 1 yen coin was demonetized and the sizes of the gold coins were reduced by 50%, with 5, 10 and 20 yen coins issued. In 1920, cupro-nickel 10 sen coins were introduced.

Early 1 yen silver coin, 26.96 grams of .900 pure silver, Japan, minted in 1901 (Year 34 of the Meiji period).

Production of silver coins ceased in 1938, after which a variety of base metals were used to produce 1, 5 and 10 sen coins during the Second World War. Clay 5 and 10 yen coins were produced in 1945 but not issued for circulation.

Japanese 10 yen coin (obverse) showing Phoenix Hall of Byōdō-in

After the war, brass 50 yen, 1 and 5 yen were introduced between 1946 and 1948. In 1949, the current type of holed 5 yen was introduced, followed by bronze 10 yen (of the type still in circulation) in 1951.

Coins in denominations of less than 1 yen became invalid on December 31, 1953, following enforcement of the Small Currency Disposition and Fractional Rounding in Payments Act (小額通貨の整理及び支払金の端数計算に関する法律 Shōgaku tsūka no seiri oyobi shiharaikin no hasūkeisan ni kan suru hōritsu?).

In 1955, the current type of aluminium 1 yen was introduced, along with unholed, nickel 50 yen. In 1957, silver 100 yen pieces were introduced. These were replaced in 1967 by the current, cupro-nickel type, along with the holed 50 yen coin. In 1982, the first 500 yen coins were introduced.

The date (expressed as the year in the reign of the emperor at the time the coin was stamped) is on the reverse of all coins, and, in most cases, country name (through 1945, 大日本 or Dai Nippon, "Great Japan"; after 1945, 日本国, Nihon koku, "State of Japan") and the value in kanji is on the obverse, except for the present 5-yen coin where the country name is on the reverse.

As of September 4, 2009, 500 yen coins are the highest valued coins to be used regularly in the world (this place is typically taken by the 5 Cuban convertible peso coins), with values in the neighborhood of US$5.50, €3.90, £3.80 and CHF 5.80. The United States' largest-valued commonly used coin (25¢) is worth ¥23; the Eurozone's largest (€2) is worth ¥255; the United Kingdom's largest (£2) is worth ¥260; and Switzerland's largest (CHF 5) is worth ¥430. Because of this high face value, the 500 yen has been a favorite target for counterfeiters. It was counterfeited to such an extent that in 2000 a new series of coins was issued with various security features. In spite of these changes, however, counterfeiting continues.

The 1 yen coin is made out of 100% aluminum.

On various occasions, commemorative coins are minted, often using gold and silver with face values as high as 100,000 yen. The first of these were silver ¥100 and ¥1000 Summer Olympic coins issued for the 1964 games. Recently this practice is undertaken with the 500 yen coin, first in commemoration of the Nagano Olympic games in 1998, and then the Aichi Expo in 2005. The current commemorative 500 and 1000 yen coin series began circulation in December, 2009, with 47 unique designs for each with only one available from banks in each prefecture. 100000 of each have been minted and they are all currently (as of October, 2010) still available in major banks at face value. Someone collecting one of each coin would need to invest 70500 yen, thus creating a major source of income for the Japanese government. Even though all commemorative coins can be used, they are not seen often in typical daily use and normally do not circulate.

Instead of displaying the CE year of mintage like most nations' coins, yen coins instead display the year of the current emperor's reign. For example, a coin minted in 2009 would bear the date Heisei 21 (the 21st year of Emperor Akihito's reign).

Banknotes

The issuance of the yen banknotes began in 1872, two years after the currency was introduced. Throughout its history, the denominations have ranged from 10 yen to 10000 yen.

Before and during World War II, various bodies issued banknotes in yen, such as the Ministry of Finance and the Imperial Japanese National Bank. The Allied forces also issued some notes shortly after the war. Since then, the Bank of Japan has been the exclusive note issuing authority. The bank has issued five series after World War II. Series E, the current series, consists of ¥1000, ¥2000, ¥5000, and ¥10,000.

Economy of the China

The People's Republic of China is the world's second largest economy after the United States by purchasing power parity ($8.77 trillion in 2009). China is the world's fastest-growing major economy, with average growth rates of 10% for the past 30 years. The country's per capita income was at $6,567 (IMF, 98th) in 2009. China is also the second largest trading nation in the world and the largest exporter and second largest importer of goods.

Overview

In the modern era, China's influence in the world economy was minimal until the late 1980s. At that time, economic reforms initiated after 1978 began to generate significant and steady growth in investment, consumption and standards of living. China now participates extensively in the world market and private sector companies play a major role in the economy. Since 1978 hundreds of millions have been lifted out of poverty: According to China's official statistics, the poverty rate fell from 53% in 1981to 2.5% in 2005. However, in 2006, 10.8% of people still lived on less than $1 a day (purchasing power parity-adjusted).The infant mortality rate fell by 39.5% between 1990 and 2005,and maternal mortality by 41.1%. Access to telephones during the period rose more than 94-fold, to 57.1%.

In the 1949 revolution, China's economic system was officially made into a communist system. Since the wide-ranging reforms of the 1980s and afterwards, many scholars assert that China can be defined as one of the leading examples of state capitalism today.

China has generally implemented reforms in a gradualist fashion. As its role in world trade has steadily grown, its importance to the international economy has also increased apace. China's foreign trade has grown faster than its GDP for the past 25 years. China's growth comes both from huge state investment in infrastructure and heavy industry and from private sector expansion in light industry instead of just exports, whose role in the economy appears to have been significantly overestimated. The smaller but highly concentrated public sector, dominated by 159 large SOEs, provided key inputs from utilities, heavy industries, and energy resources that facilitated private sector growth and drove investment, the foundation of national growth. In 2008 thousands of private companies closed down and the government announced plans to expand the public sector to take up the slack caused by the global financial crisis. In 2010, there were approximately 10 million small businesses in China.

The PRC government's decision to permit China to be used by multinational corporations as an export platform has made the country a major competitor to other Asian export-led economies, such as South Korea, Singapore, and Malaysia. China has emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government has also focused on foreign trade as a major vehicle for economic growth. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated. Nevertheless, key bottlenecks continue to constrain growth. Available energy is insufficient to run at fully installed industrial capacity, and the transport system is inadequate to move sufficient quantities of such critical items as coal.

The two most important sectors of the economy have traditionally been agriculture and industry, which together employ more than 70 percent of the labor force and produce more than 60 percent of GDP. The two sectors have differed in many respects. Technology, labor productivity, and incomes have advanced much more rapidly in industry than in agriculture. Agricultural output has been vulnerable to the effects of weather, while industry has been more directly influenced by the government. The disparities between the two sectors have combined to form an economic-cultural-social gap between the rural and urban areas, which is a major division in Chinese society. China is the world's largest producer of rice and is among the principal sources of wheat, corn (maize), tobacco, soybeans, peanuts (groundnuts), and cotton. The country is one of the world's largest producers of a number of industrial and mineral products, including cotton cloth, tungsten, and antimony, and is an important producer of cotton yarn, coal, crude oil, and a number of other products. Its mineral resources are probably among the richest in the world but are only partially developed.

China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories. The technological level and quality standards of its industry as a whole are still fairly low, notwithstanding a marked change since 2000, spurred in part by foreign investment. A report by UBS in 2009 concluded that China has experienced total factor productivity growth of 4 per cent per year since 1990, one of the fastest improvements in world economic history.

China's increasing integration with the international economy and its growing efforts to use market forces to govern the domestic allocation of goods have exacerbated this problem. Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s. By the early 1990s these subsidies began to be eliminated, in large part due to China's admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. China's ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.

Wayne M. Morrison of the Congressional Research Service wrote in 2009 that "Despite the relatively positive outlook for its economy, China faces a number of difficult challenges that, if not addressed, could undermine its future economic growth and stability. These include pervasive government corruption, an inefficient banking system, over-dependence on exports and fixed investment for growth, the lack of rule of law, severe pollution, and widening income disparities." Economic consultant David Smick adds that the recent actions by the Chinese government to stimulate their economy have only added to a huge industrial overcapacity and commercial real estate vacancy problems.

History

1949–1978

Great Leap Forward

In 1949, China followed a socialist heavy industry development strategy, or the "Big Push" strategy. Consumption was reduced while rapid industrialization was given high priority. The government took control of a large part of the economy and redirected resources into building new factories. Entire new industries were created. Most important, economic growth was jump-started. Tight control of budget and money supply reduced inflation by the end of 1950. Though most of it was done at the expense of suppressing the private sector of small to big businesses by the Three-anti/five-anti campaigns between 1951 to 1952. The campaigns were notorious for being anti-capitalist, and imposed charges that allowed the government to punish capitalists with severe fines. In the beginning of the Communist party's rule, the leaders of the party had agreed that for a nation such as China, which does not have any heavy industry and minimal secondary production, capitalism is to be utilized to help the building of the "New China" and finally merged into communism.

1978–1990

Chinese economic reform

Since 1978, China began to make major reforms to its economy. The Chinese leadership adopted a pragmatic perspective on many political and socioeconomic problems, and sharply reduced the role of ideology in economic policy. Political and social stability, economic productivity, and public and consumer welfare were considered paramount and indivisible. In these years, the government emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government also had focused on foreign trade as a major vehicle for economic growth. In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits. Reforms began in the agricultural, industrial, fiscal, financial, banking, price setting, and labor systems.

A decision was made in 1978 to permit foreign direct investment in several small "special economic zones" along the coast. The country lacked the legal infrastructure and knowledge of international practices to make this prospect attractive for many foreign businesses, however. In the early 1980s steps were taken to expand the number of areas that could accept foreign investment with a minimum of red tape, and related efforts were made to develop the legal and other infrastructures necessary to make this work well. This additional effort resulted in making 14 coastal cities and three coastal regions "open areas" for foreign investment. All of these places provide favored tax treatment and other advantages for foreign investment. Laws on contracts, patents, and other matters of concern to foreign businesses were also passed in an effort to attract international capital to spur China's development. The largely bureaucratic nature of China's economy, however, posed a number of inherent problems for foreign firms that wanted to operate in the Chinese environment, and China gradually had to add more incentives to attract foreign capital.

1990–2000

In the 1990s, the Chinese economy continued to grow at a rapid pace, at about 9.5%, accompanied by low inflation. The Asian financial crisis affected China at the margin, mainly through decreased foreign direct investment and a sharp drop in the growth of its exports. However, China had huge reserves, a currency that was not freely convertible, and capital inflows that consisted overwhelmingly of long-term investment. For these reasons it remained largely insulated from the regional crisis and its commitment not to devalue had been a major stabilizing factor for the region. However, China faced slowing growth and rising unemployment based on internal problems, including a financial system burdened by huge amounts of bad loans, and massive layoffs stemming from aggressive efforts to reform state-owned enterprises (SOEs).

Despite China's impressive economic development during the past two decades, reforming the state sector and modernizing the banking system remained major hurdles. Over half of China's state-owned enterprises were inefficient and reporting losses. During the 15th National Communist Party Congress that met in September 1997, President Jiang Zemin announced plans to sell, merge, or close the vast majority of SOEs in his call for increased "non-public ownership" (feigongyou or privatization in euphemistic terms). The 9th National People's Congress endorsed the plans at its March 1998 session. In 2000, China claimed success in its three year effort to make the majority of large state owned enterprises (SOEs) profitable.

2000–present

Following the Chinese Communist Party's Third Plenum, held in October 2003, Chinese legislators unveiled several proposed amendments to the state constitution. One of the most significant was a proposal to provide protection for private property rights. Legislators also indicated there would be a new emphasis on certain aspects of overall government economic policy, including efforts to reduce unemployment (now in the 8–10% range in urban areas), to rebalance income distribution between urban and rural regions, and to maintain economic growth while protecting the environment and improving social equity. The National People's Congress approved the amendments when it met in March 2004.

The Fifth Plenum in October 2005 approved the 11th Five-Year Economic Program (2006–2010) aimed at building a "harmonious society" through more balanced wealth distribution and improved education, medical care, and social security. On March 2006, the National People's Congress approved the 11th Five-Year Program. The plan called for a relatively conservative 45% increase in GDP and a 20% reduction in energy intensity (energy consumption per unit of GDP) by 2010.

China's economy grew at an average rate of 10% per year during the period 1990–2004, the highest growth rate in the world. China's GDP grew 10.0% in 2003, 10.1%, in 2004, and even faster 10.4% in 2005 despite attempts by the government to cool the economy. China's total trade in 2006 surpassed $1.76 trillion, making China the world's third-largest trading nation after the U.S. and Germany. Such high growth is necessary if China is to generate the 15 million jobs needed annually—roughly the size of Ecuador or Cambodia—to employ new entrants into the job market internationally.

On January 14, 2009, as confirmed by the World Bankthe NBS published the revised figures for 2007 fiscal year in which growth happened at 13 percent instead of 11.9 percent (provisional figures). China's gross domestic product stood at US$3.4 trillion while Germany's GDP was USD $3.3 trillion for 2007. This made China the world's third largest economy by gross domestic product. Based on these figures, in 2007 China recorded its fastest growth since 1994 when the GDP grew by 13.1 percent.

China launched its Economic Stimulus Plan to specifically deal with the Global financial crisis of 2008–2009. It has primarily focused on increasing affordable housing, easing credit restrictions for mortgage and SMEs, lower taxes such as those on real estate sales and commodities, pumping more public investment into infrastructure development, such as the rail network, roads and ports. By the end of 2009 it appeared that the Chinese economy was showing signs of recovery. At the 2009 Economic Work Conference in December 'managing inflation expectations' was added to the list of economic objectives, suggesting a strong economic upturn and a desire to take steps to manage it.

By 2010 it was evident to outside observers such as The New York Times that China was poised to move from export dependency to development of an internal market. Wages were rapidly rising in all areas of the country and Chinese leaders were calling for an increased standard of living.

Wikinews has related news: China's economy surpasses Japan's in second quarter

In mid-2010, China became the world's second largest economy, surpassing Japan's economy and second only to the economy of the United States. In the second quarter of 2010, China's economy was valued at $1.33 trillion, ahead of the $1.28 trillion that Japan's economy was worth. Preliminary estimates China's 2010 total GDP to be worth $5.7 trillion. China could become the world's largest economy (by nominal GDP) sometime as early as 2030.

China is the largest creditor nation in the world and owns over 25% of US Treasury Bonds.

Government role

Since 1949 the government, under socialist political and economic system, has been responsible for planning and managing national economy. In the early 1950s, the foreign trade system was monopolized by the state. Nearly all the domestic enterprises were state-owned and the government had set the prices for key commodities, controlled the level and general distribution of investment funds, determined output targets for major enterprises and branches, allocated energy resources, set wage levels and employment targets, operated the wholesale and retail networks, and steered the financial policy and banking system. In the countryside from the mid-1950s, the government established cropping patterns, set the level of prices, and fixed output targets for all major crops.

Since 1978 when economic reforms were instituted, the government role in the economy has lessened to a great degree. Industrial output by state enterprises slowly declined, although a few strategic industries, such as the aerospace industry have today remained predominantly state-owned. While the role of the government in managing the economy has been reduced and the role of both private enterprise and market forces increased, the government maintains a major role in the urban economy. With its policies on such issues as agricultural procurement the government also retains a major influence on rural sector performance. The State Constitution of 1982 specified that the state is to guide the country's economic development by making broad decisions on economic priorities and policies, and that the State Council, which exercises executive control, was to direct its subordinate bodies in preparing and implementing the national economic plan and the state budget. A major portion of the government system (bureaucracy) is devoted to managing the economy in a top-down chain of command with all but a few of the more than 100 ministries, commissions, administrations, bureaus, academies, and corporations under the State Council are concerned with economic matters.

Each significant economic sector is supervised by one or more of these organizations, which includes the People's Bank of China, National Development and Reform Commission, Ministry of Finance, and the ministries of agriculture; coal industry; commerce; communications; education; light industry; metallurgical industry; petroleum industry; railways; textile industry; and water resources and electric power. Several aspects of the economy are administered by specialized departments under the State Council, including the National Bureau of Statistics, Civil Aviation Administration of China, and the tourism bureau. Each of the economic organizations under the State Council directs the units under its jurisdiction through subordinate offices at the provincial and local levels.

The whole policy-making process involves extensive consultation and negotiation. Economic policies and decisions adopted by the National People's Congress and the State Council are to be passed on to the economic organizations under the State Council, which incorporates them into the plans for the various sectors of the economy. Economic plans and policies are implemented by a variety of direct and indirect control mechanisms. Direct control is exercised by designating specific physical output quotas and supply allocations for some goods and services. Indirect instruments—also called "economic levers"—operate by affecting market incentives. These included levying taxes, setting prices for products and supplies, allocating investment funds, monitoring and controlling financial transactions by the banking system, and controlling the allocation of key resources, such as skilled labor, electric power, transportation, steel, and chemicals (including fertilizers). The main advantage of including a project in an annual plan is that the raw materials, labor, financial resources, and markets are guaranteed by directives that have the weight of the law behind them. In reality, however, a great deal of economic activity goes on outside the scope of the detailed plan, and the tendency has been for the plan to become narrower rather than broader in scope. A major objective of the reform program was to reduce the use of direct controls and to increase the role of indirect economic levers. Major state-owned enterprises still receive detailed plans specifying physical quantities of key inputs and products from their ministries. These corporations, however, have been increasingly affected by prices and allocations that were determined through market interaction and only indirectly influenced by the central plan.

Total economic enterprise in China is apportioned along lines of directive planning (mandatory), indicative planning (indirect implementation of central directives), and those left to market forces. In the early 1980s during the initial reforms enterprises began to have increasing discretion over the quantities of inputs purchased, the sources of inputs, the variety of products manufactured, and the production process. Operational supervision over economic projects has devolved primarily to provincial, municipal, and county governments. The majority of state-owned industrial enterprises, which were managed at the provincial level or below, were partially regulated by a combination of specific allocations and indirect controls, but they also produced goods outside the plan for sale in the market. Important, scarce resources—for example, engineers or finished steel—may have been assigned to this kind of unit in exact numbers. Less critical assignments of personnel and materials would have been authorized in a general way by the plan, but with procurement arrangements left up to the enterprise management.

In addition, enterprises themselves are gaining increased independence in a range of activity. While strategically important industry and services and most of large-scale construction have remained under directive planning, the market economy has gained rapidly in scale every year as it subsumes more and more sectors. Overall, the Chinese industrial system contains a complex mixture of relationships. The State Council generally administers relatively strict control over resources deemed to be of vital concern for the performance and health of the entire economy. Less vital aspects of the economy have been transferred to lower levels for detailed decisions and management. Furthermore, the need to coordinate entities that are in different organizational hierarchies generally causes a great deal of informal bargaining and consensus building.

Consumer spending has been subject to a limited degree of direct government influence but is primarily determined by the basic market forces of income levels and commodity prices. Before the reform period, key goods were rationed when they were in short supply, but by the mid-1980s availability had increased to the point that rationing was discontinued for everything except grain, which could also be purchased in the free markets. Collectively owned units and the agricultural sector were regulated primarily by indirect instruments. Each collective unit was "responsible for its own profit and loss," and the prices of its inputs and products provided the major production incentives.

Vast changes were made in relaxing the state control of the agricultural sector from the late 1970s. The structural mechanisms for implementing state objectives—the people's communes and their subordinate teams and brigades—have been either entirely eliminated or greatly diminished. Farm incentives have been boosted both by price increases for state-purchased agricultural products, and it was permitted to sell excess production on a free market. There was more room in the choice of what crops to grow, and peasants are allowed to contract for land that they will work, rather than simply working most of the land collectively. The system of procurement quotas (fixed in the form of contracts) has been being phased out, although the state can still buy farm products and control surpluses in order to affect market conditions.

Foreign trade is supervised by the Ministry of Commerce, customs, and the Bank of China, the foreign exchange arm of the Chinese banking system, which controls access to the foreign currency required for imports. Ever since restrictions on foreign trade were reduced, there have been broad opportunities for individual enterprises to engage in exchanges with foreign firms without much intervention from official agencies.

Though private sector companies still dominate small and medium sized businesses, the government still plays a large part in the bigger industries. The fact that government accounts for a third of the GDP shows this. Foreign owned companies hold significant stakes. The public sector is mainly made up of State Owned Enterprises (SOE's).

Regional economies

China's unequal transportation system—combined with important differences in the availability of natural and human resources and in industrial infrastructure—has produced significant variations in the regional economies of China.

Economic development has generally been more rapid in coastal provinces than in the interior, and there are large disparities in per capita income between regions. The three wealthiest regions are along the southeast coast, centred on the Pearl River Delta; along the east coast, centred on the Lower Yangtze River; and near the Bohai Gulf, in the Beijing–Tianjin–Liaoning region. It is the rapid development of these areas that is expected to have the most significant effect on the Asian regional economy as a whole, and Chinese government policy is designed to remove the obstacles to accelerated growth in these wealthier regions.

See also: List of administrative regions by GDP, List of administrative regions by GDP per capita, and List of cities by GDP per capita.

Development

China, economically frail before 1978, has again become one of the world's major economic powers with the greatest potential. In the 22 years following reform and opening-up in 1979 in particular, China's economy developed at an unprecedented rate, and that momentum has been held steady into the 21st century.

China adopts the "five-year-plan" strategy for economic development. The 11th Five-Year Plan (2006–2010) is the currently being implemented.

Three-Step Development Strategy

China's overall economic construction objectives were clearly stated in the Three Step Development Strategy set out in 1978: Step One—to double the 1980 GNP and ensure that the people have enough food and clothing—was attained by the end of the 1980s; Step Two—to quadruple the 1980 GNP by the end of the 20th century—was achieved in 1995 ahead of schedule; Step Three—to increase per-capita GNP to the level of the medium-developed countries by 2050—at which point, the Chinese people will be fairly well-off and modernization will be basically realized.

Chinese yuan

The yuan, 元; code: CNY is, in the Chinese language, the base unit of a number of modern Chinese currencies. The distinction between yuan and renminbi is analogous to that between the pound and sterling; the pound (yuan) is the unit of account while sterling (renminbi) is the actual currency.

A yuán (元) is also known colloquially as a kuài (块 - "lump", originally of silver). One yuán is divided into 10 jiǎo (角) or colloquially máo (毛—"feather"). One jiǎo is divided into 10 fēn (分).

The symbol for the yuan (元) is also used to refer to the currency units of Japan and Korea, and is used to translate the currency unit dollar; for example, the US dollar is called Měiyuán (美元), or American yuan, in Chinese. When used in English in the context of the modern foreign exchange market, the Chinese yuan most commonly refers to the renminbi (CNY), which traded for US$0.1476 on July 30, 2010.

Etymology and characters

Yuan in Chinese literally means a "round object" or "round coin". During the Qing Dynasty, the yuan was a round and silver coin.

The character for yuan has two forms—a less formal, 元, and a more formal, 圓 or 圆. The pronunciation of the two is the same—yuán. The Japanese yen was originally also written 圓, which was simplified to 円 (en) with the promulgation of the Tōyō kanji in 1946. The Korean won used to be written 圓 (won) some time after World War II and as 圜 from 1902 to 1910, but is now written as 원 (won) in Hangul exclusively, in both North and South Korea. The Hong Kong dollar, Macanese pataca and New Taiwan dollar are also written as yuán (元; 圓/圆) in Chinese.

Shop prices in People's Republic of China and Republic of China (Taiwan) are usually marked with 元 after the digits. In People's Republic of China, using '￥' as well as RMB to denote the currency is common.

In many parts of China, renminbi (人民幣/人民币 rénmínbì) are counted in kuai (simplified Chinese: 块; traditional Chinese: 塊; pinyin: kuài; literally "piece") rather than "yuan".

In Cantonese, widely spoken in Guangdong, Hong Kong and Macau, kuài, jiǎo, and fēn are called mān (蚊), hòuh (毫), and sīn (仙), respectively. Sīn is a word borrowed into Cantonese from the English cent.

Early history

The yuan was introduced in 1889 at par with the Mexican peso, a silver coin deriving from the Spanish dollar which circulated widely in South East Asia since the 17th century due to Spanish presence in the region, namely Philippines and Guam. It was subdivided into 1000 cash (文, wén), 100 cents or fen (分, fēn), and 10 jiǎo (角, not given an English name, cf. dime). It replaced copper cash and various silver ingots called sycees. The sycees were denominated in tael. The yuan was valued at 0.72 tael, (or 7 mace and 2 candareens).

Banknotes were issued in yuan denominations from the 1890s by several local and private banks, along with the Imperial Bank of China and the "Hu Pu Bank" (later the "Ta-Ch'ing Government Bank"), established by the Imperial government. During the Imperial period, banknotes were issued in denominations of 1, 2 and 5 jiǎo, 1, 2, 5, 10, 50 and 100 yuan, although notes below 1 yuan were uncommon.

The earliest issues were silver coins produced at the Guangdong (Canton) mint in denominations of 5 cents, 1, 2 and 5 jiǎo and 1 yuan. Other regional mints were opened in the 1890s producing similar silver coins along with copper coins in denominations of 1, 2, 5, 10 and 20 cash.

The central government began issuing its own coins in the yuan currency system in 1903. These were brass 1 cash, copper 2, 5, 10 and 20 cash, and silver 1, 2 and 5 jiǎo and 1 yuan. After the revolution, although the designs changed, the sizes and metals used in the coinage remained mostly unchanged until the 1930s. From 1936, the central government issued nickel (later cupronickel) 5, 10 and 20 fen and ½ yuan coins. 

Aluminium 1 and 5 fen pieces were issued in 1940.

The earliest issues were silver coins produced at the Kwangtung mint. Other regional mints were opened in the 1890s. The central government began issuing its own coins in the yuan currency system in 1903. Banknotes were issued in yuan denominations from the 1890s by several local and private banks, along with banks established by the Imperial government.

In 1917, the warlord in control of Manchuria, Zhang Zuolin, introduced a new currency, known as the Fengtien yuan or dollar, for use in the Three Eastern Provinces. It was valued at 1.2 yuan in the earlier (and still circulating) "small money" banknotes and was initially set equal to the Japanese yen. It maintained its value (at times being worth a little more than the yen) until 1925, when Zhang Zuolin's military involvement in the rest of China lead to an increase in banknote production and a fall in the currency's value. The currency lost most of its value in 1928 as a consequence of the disturbance following Zhang Zuolin's assassination. The Fengtien yuan was only issued in banknote form, with 1, 5 and 10 yuan notes issued in 1917, followed by 50 and 100 yuan notes in 1924. The last notes were issued in 1928.

After the revolution, a great many local, national and foreign banks issued currency. Although the provincial coinages mostly ended in the 1920s, the provincial banks continued issuing notes until 1949, including Communist issues from 1930. Most of the banknotes issued for use throughout the country bore the words "National Currency", as did some of the provincial banks. The remaining provincial banknotes bore the words "Local Currency". These circulated at varying exchange rates to the national currency issues.

During the 1930s, several new currencies came into being in China due to the activities of the invading Japanese. The pre-existing, national currency yuan came to be associated only with the Nationalist, Kuomintang government. In 1935, the Kuomintang Government enacted currency reforms to limit currency issuance to four major government controlled banks: the Bank of China, Central Bank of China, Bank of Communications and later the Farmers Bank of China. The circulation of silver yuan coins was prohibited and private ownership of silver was banned. The banknotes issued in its place were known as 法幣 (Pinyin: fǎbì) or "Legal Tender". A new series of base metal coins began production in 1936 following the reforms.

Between 1930 and 1948, banknotes were also issued by the Central Bank of China denominated in customs gold units. These circulated as normal currency in the 1940s alongside the yuan.

The Japanese occupiers issued coins and banknotes denominated in li (釐, 1/1000 of a yuan), fen, jiao and yuan. Issuers included a variety of banks, including the Central Reserve Bank of China (for the puppet government in Nanking) and the Federal Reserve Bank of China (for the puppet government in Beijing). The Japanese decreed the exchange rates between the various banks' issues and those of the Nationalists but the banknotes circulated with varying degrees of acceptance among the Chinese population. Between 1932 and 1945, the puppet state of Manchukuo issued its own yuan.

The Japanese established two collaborationist regimes during their occupation in China. In the north, the "Provisional Government of the Republic of China" (中華民國臨時政府) based in Beijing established the Federal Reserve Bank of China (中國聯合準備銀行, pinyin: Zhōngguó liánhé zhǔnbèi yínháng). The FRB issued notes in 1938 at par with Kuomintang y

In the aftermath of the Second World War and during the civil war which followed, Nationalist China suffered from hyperinflation, leading to the introduction of a new currency in 1948, the gold yuan.

The number of banks issuing paper money increased after the revolution. Significant national issuers included the "Commercial Bank of China" (the former Imperial Bank), the "Bank of China" (the former Ta-Ch'ing Government Bank), the "Bank of Communications", the "Ningpo Commercial Bank", the "Central Bank of China" and the "Farmers Bank of China". Of these, only the Central Bank of China issued notes beyond 1943. An exceptionally large number of banknotes were issued during the Republican era (1911–1949) by provincial banks (both Nationalist and Communist).

After the revolution, in addition to the denominations already in circulation, "small money" notes proliferated, with 1, 2 and 5 cent denominations appearing. Many notes were issued denominated in English in cash (wén).

In the 1940s, larger denominations of notes appeared due to the high inflation. 500 yuan notes were introduced in 1941, followed by 1000 and 2000 yuan in 1942, 2500 and 5000 yuan in 1945 and 10,000 yuan in 1947.

Banknotes of the first yuan suffered from hyperinflation following the Second World War and were replaced in August 1948 by notes denominated in gold yuan, worth 3 million old yuan. There was no link between the gold yuan and gold metal or coins and this yuan also suffered from hyperinflation.

In 1948, the Central Bank of China issued notes (some dated 1945 and 1946) in denominations of 1, 2 and 5 jiao, 1, 5, 10, 20, 50, and 100 yuan. In 1949, higher denominations of 500, 1000, 5000, 10,000, 50,000, 100,000, 500,000, 1,000,000 and 5,000,000 yuan were issued.

In July 1949, the Nationalist Government introduced the silver yuan, which was initially worth 500 million gold yuan. It circulated for a few months on the mainland before the end of the civil war. This silver yuan remained the de jure official currency of the Republic government on Taiwan until 2000.

The Central Bank of China issued notes in denominations of 1 and 5 fen, 1, 2 and 5 jiao, 1, 5 and 10 yuan.

Banknotes

Banknotes are available in (issue date):

First (1980) edition

¥0.1 (22/9/1988),

¥0.2 (10/5/1988-2004),

¥0.5 (27/4/1987),

¥1 (10/5/1988),

¥2 (10/5/1988-2004),

¥5 (22/9/1988),

¥10 (22/9/1988),

¥50 (27/4/1987), and

¥100 (10/5/1988),

Second (1990) edition

¥1 (1/3/1995),

¥2 (10/4/1996-2004),

¥50 (20/8/1992), and

¥100 (20/8/1992),

Third (1996) edition

¥1 (1/4/1997),

All of the banknotes that are ¥1 or higher feature geographical features of China on the reverse side.

On the obverse side, banknotes less or equal to ¥10 feature different ethnicities of China. 1-jiao note has Gaoshan and Manchu men ; 2-jiao note has Buyei and Korean girls; 5-jiao note has Miao and Zhuang girls in red. 1-yuan note has Dong and Yao girls in red; 2-yuan note has Uyghur and Yi (Nuosu) girls in green; 5-yuan note has Tibetan girl and a Hui elder; 10-yuan note has Han and Mongol men.

The ¥50 note features an intellectual, a farmer, and an industrial worker, characteristic Chinese communist images.

The ¥100 note features four people important to the founding the People's Republic of China: Mao Zedong, Zhou Enlai, Liu Shaoqi, and Zhu De.

Coins carry the Emblem of the People's Republic of China, the full title of the state in Chinese and pinyin on the obverse side, and the denomination and an image of a flower on the reverse side.

Communist control

The various Soviets under the control of China's communists issued coins between 1931 and 1935, and banknotes between 1930 and 1949. Some of the banknotes were denominated in ch'uan, strings of wén coins. The People's Bank was founded in 1948 and began issuing currency that year, but some of the regional banks continued to issue their own notes in to 1949.

After the defeat of Japan in 1945, the Central Bank of China issued a separate currency in the northeast to replace those issued by the puppet banks. Termed "東北九省流通券" (pinyin:Dōngběi jiǔ shěng liútōngquàn), it was worth 20 of the yuan which circulated in the rest of the country. It was replaced in 1948 by the gold yuan at a rate of 150,000 north-eastern yuan = 1 gold yuan. In 1945, notes were introduced in denominations of 1, 5, 10, 50 and 100 yuan. 500 yuan notes were added in 1946, followed by 1000 and 2000 yuan in 1947 and 5000 and 10,000 yuan in 1948.

Various, mostly crude coins were produced by the Soviets. Some only issued silver 1 yuan coins (Hunan, Hupeh-Honan-Anhwei, Min-Che-Kan, North Shensi and P'ing Chiang) whilst the Hsiang-O-Hsi Soviet only issued copper 1 fen coins and the Wan-Hsi-Pei Soviet issued only copper 50 wén coins. The Chinese Soviet Republic issued copper 1 and 5 fen and silver 2 jiao and 1 yuan coins. The Szechuan-Shensi Soviet issued copper 200 and 500 wén and silver 1 yuan coins.

Notes were produced by many different banks. There were two phases of note production. The first, up until 1936, involved banks in a total of seven areas, most of which were organized as Soviets. These were:

Area Start year End year Denominations

Chinese Soviet Republic 1933 1936 1 fen

5 fen

1 jiao

2 jiao

5 jiao

1 yuan

2 yuan

3 yuan

Hunan-Hubei-Jiangsi 1931 1933 1 jiao

2 jiao

3 jiao

5 jiao

1 yuan

Northwest Anwei 1932 2 jiao

5 jiao

1 yuan

5 yuan

Fujian-Chekiang-Kiangsi 1932 1934 10 wén

1 jiao

2 jiao

5 jiao

1 yuan

10 yuan

Hubei 1930 1932 1 ch'uan

2 ch'uan

10 ch'uan

1 ch'uan

2 ch'uan

5 jiao

1 yuan

P'ing Chiang 1931 1 jiao

2 jiao

Sichuan-Shensi 1932 1933 1 ch'uan

2 ch'uan

3 ch'uan

5 ch'uan

10 ch'uan

Production of banknotes by communist forces ceased in 1936 but resumed in 1938 and continued through to the centralization of money production in 1948. A great many regional banks and other entities issued notes. Before 1942, denominations up to 100 yuan were issued. That year, the first notes up to 1000 yuan appeared. Notes up to 5000 yuan appeared in 1943, with 10,000 yuan notes appearing in 1947, 50,000 yuan in 1948 and 100,000 yuan in 1949.

Renminbi

As the communist forces took control of most of China, they introduced a new currency, in banknote form only, denominated in yuan. This became the sole currency of mainland China at the end of the civil war.

A new yuan was introduced in 1955 at a rate of 10,000 old yuan = 1 new yuan. It is known as the renminbi yuan.

Old Taiwan dollar

In 1946, a new currency was introduced for circulation in Taiwan, replacing the Japanese issued Taiwan yen. It was not directly related to the mainland yuan.

Main article: New Taiwan dollar

In 1949, a second yuan was introduced in Taiwan, replacing the first at a rate of 40,000 to 1. This is the currency of Taiwan today.

Connection with US dollar

Originally, a silver yuan had the same specifications as a silver dollar. During the Republican era (1911–1949), the English translation "yuan" was often printed on the reverse of the first yuan banknotes but sometimes "dollar" was used instead.

In the Republic of China, the common English name is the "New Taiwan dollar" but banknotes issued between 1949 and 1956 used "yuan" as the English translation. More modern notes lack any English text.

G20 summit

See also: Economy of the People's Republic of China#Currency system

The upcoming G20 summit will deal with currency issues regarding the Yuan.Until 2010, China had kept the Yuan in a fixed exchange rate against the US dollar, which kept the Yuan weaker than its free market rate. Ahead of the summit, in June of 2010, the central bank made a surprise weekend announcement that it would allow greater flexibility for the Yuan to appreciate against the dollar. Pundits see this buying China some time against Western critics who argue the currency's undervaluation gives China an unfair advantage in world trade.