What is the exact position of China in so far as its economic system/structure and the role of the Government are concerned? How would you describe its economic system?

China stood as the second-largest economy in the world after the US, having surpassed Japan. The dollar values of China's agricultural and industrial output each exceed those of the US; China is second to the US in the value of services it produces. Still, per capita income is below the world average. 

The Chinese government faces numerous economic challenges, including:

(a) reducing its high domestic savings rate and correspondingly low domestic demand; 

(b) sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; 

(c) reducing corruption and other economic crimes; and 

(d) containing environmental damage and social strife related to the economy's rapid transformation. 

Economic development has progressed further in coastal provinces than in the interior, and by 2011 more than 250 million migrant workers and their dependents had relocated to urban areas to find work. One consequence of population control policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the North - is another long-term problem. China continues to lose arable land because of erosion and economic development. The Chinese government is seeking to add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development. In 2010-11, China faced high inflation resulting largely from its credit-fueled stimulus program. Some tightening measures appear to have controlled inflation, but GDP growth consequently slowed to near 9% for 2011. An economic slowdown in Europe is expected to further drag Chinese growth in 2012. Debt overhang from the stimulus program, particularly among local governments, and a property price bubble challenge policy makers currently. The government's 12th Five-Year Plan, adopted in March 2011, emphasizes continued economic reforms and the need to increase domestic consumption in order to make the economy less dependent on exports in the future. However, China has made only marginal progress toward these rebalancing goals.

Present Economy System of China: The World Bank's chief economist Justin Lin in 2011 stated that China, which became the world's second largest economy in 2010, may become the world's largest economy in 2030, overtaking the United States, if current trends continue. Challenges include income inequality and pollution. The Standard Chartered Bank in a 2011 report suggested that China may become the world's largest economy in 2020. A 2007 OECD rapport by Angus Maddison estimated that if using purchasing power parity conversions, then China will overtake the United States in 2015. James Wolfensohn, former World Bank president, estimated in 2010 that by 2030 two-thirds of the world's middle class will live in China.[The Director of the China Center for Economic Reform at Peking University Yao Yang in 2011 stated that "Assuming that the Chinese and U.S. economies grow, respectively, by 8% and 3% in real terms, that China's inflation rate is 3.6% and America's is 2% (the averages of the last decade), and that the renminbi appreciates against the dollar by 3% per year (the average of the last six years), China would become the world's largest economy by 2021. By that time, both countries' GDP will be about $24 trillion."

In 2011, the IMF warned that government controlled banks could be building up imbalances that could hamper growth and leave the system "severely impacted" In 2011, the IMF predicted that China's GDP (purchasing power parity adjusted) would overtake that of the United States in 2016. The state favours state-owned enterprises despite lower productivity; this crowds out competition, in a phenomenon known as Guo jin min tui.

From 2011 onward, however, China has been experiencing a slowing of its growth that throws all of the above calculations into doubt. Ray Dalio, founder of the worldest largest hedge fund, told the Council of Foreign Relations that he foresaw Chinese GDP falling to 4-5% due to failure to switch successfully from the export-driven model to more consumption.

In 2012, Amnesty International reported that forced evictions that resulted from a construction boom caused by excessive stimulus spending were a serious threat to China's social and political stability. Due to the corruption and political uncertainties of the one-party state and the limited economic freedom in an economy dominated by large state owned enterprises, many skilled professionals are either leaving the country or preparing safety nets for themselves abroad. Corruption continued to grow worse in the PRC as it dropped from 75th to 80th place in Transparency International's index of state corruption. As a result of the labor shortage, increased wages and tighter scrutiny of business practices, manufacturing began to migrate back to the United States from China