How China Economy Works?

China adopts the "five-year-plan" strategy for economic development. The Twelfth Five-Year Plan (2011–2015) is currently being implemented.

China needed to sustain an annual growth rates of 8% for the foreseeable future. Only with such levels of growth, the leadership argued, could China continue to develop its industrial prowess, raise its citizen's standard of living, and redress the inequalities that were cropping up across the country. Yet no country had ever before maintained the kind of growth that China was predicting.

Chinese local officials are motivated primarily by political considerations. As their performance evaluations are based, to a large extent, on GDP growth within their jurisdictions, they have a strong incentive to promote large-scale investment projects.[88][89] They also don’t face any real bankruptcy risk. When localities get into trouble, they are invariably bailed out by state-owned banks. Under these circumstances, overinvestment is inevitable.

A typical cycle begins with a relaxation of central government credit and industrial policy. This allows local governments to push investment aggressively, both through state-sector entities they control directly and by offering investment-promotion incentives to private investors and enterprises outside their jurisdictions.

The resulting boom puts upward pressure on prices and may also result in shortages of key inputs such as coal and electricity (as was the case in 2003).[91] Once inflation has risen to a level at which it begins to threaten social stability, the central government will intervene by tightening enforcement of industrial and credit policy. Projects that went ahead without required approvals will be halted. Bank lending to particular types of investors will be restricted. Credit then becomes tight and investment growth begins to decline.

Eventually such centrally-imposed busts alleviate shortages and bring inflation down to acceptable levels. At that point, the central government yields to local-government demands for looser policy and the cycle begins again.

Foreign investment abroad:

Go Global, to encourage its enterprises to invest overseas.

There were diligent efforts to increase energy efficiency and increase use of renewable sources; over 1,000 inefficient power plants had been closed, but projections continued to show a dramatic rise in carbon emissions from burning fossil fuels

Sumber:http://en.wikipedia.org/wiki/Economy_of_China