October 19, 2020
China’s Economy in 2020: Navigating Headwinds
China emerged in June 2020 as the first major country to
U.S.-China trade agreement. In August 2020, President Xi
announce a return to economic growth since the outbreak of
launched a campaign against food waste, signaling a
the COVID-19 pandemic. The government reported 3.2%
potential focus on strengthening domestic food supply and
gross domestic product (GDP) growth in the second quarter
the possibility that shortages are more serious than official
and 4.9% GDP growth in the third quarter of 2020. The
reporting indicates. Food and energy security was one of six
International Monetary Fund (IMF) projects China’s
economic priorities at the Communist Party of China
economy to grow by 1.9% in 2020. China is still grappling
(CPC)’s Politburo meeting in April 2020.
with the economic effects of the COVID-19 pandemic,
however, including sluggish domestic consumption, slow
Figure 1. China’s Industrial Production and Retail
recovery in its top export markets, and reliance on
Sales (January 2019 to July 2020)
government spending and exports to boost initial growth.
China also is facing growing restrictions on its overseas
commercial activities and access to foreign technology and
pressures for firms to diversify China-based supply chains.
Against this backdrop, China’s leadership is deliberating
the country’s economic direction and national industrial
plans for the next 5 to 15 years.
COVID-19 Support Measures to Boost Growth
To boost economic growth, China since February 2020 has
provided an estimated $506 billion in stimulus and
increased the government’s budget deficit target to a record
high of 3.6% of GDP, up from 2.8% in 2019. China
reduced the value-added tax (VAT) rate and introduced
VAT exemptions for certain goods and services. China’s
central bank extended monetary support with interest rate
cuts, eased loan terms, and injected liquidity into banks.

Source: Gavekal with data from China’s National Bureau of Statistics
Shifting from efforts to reduce debt, the government

announced the issuance of $142.9 billion of special treasury
Since 2016, the Chinese government has pursued a
bonds for the first time since 2007; increased the quota for
deleveraging campaign to reign in bad debt accrued by
local government special bonds (a source of infrastructure
local governments, commercial banks, and unauthorized
funding); and fast-tracked issuance of corporate bonds to
“shadow” lending. China’s total debt across sectors—
cover pandemic costs but with potential broader uses. The
household, corporate, government, and financial sector—
IMF estimates that the fiscal measures and financing plans
could reach 335% of GDP in 2020, according to the
announced amounted to 4.1% of the China’s GDP, as of
International Institute of Finance. China also has an
July 2020. The government says it seeks to control credit
estimated $90 billion and another $100 billion in U.S.
risk but the need for additional fiscal and monetary support
dollar-denominated debt due in 2020 and 2021,
to boost growth may undermine this goal.
respectively. Onshore, Chinese companies owe an
Systemic Economic Challenges
estimated $694.6 billion in 2020 and $706 billion in 2021.
China also is grappling with economic challenges that
The deleveraging campaign led to several regional bank
predate the pandemic, including slowing domestic growth,
bailouts in 2019. The number of defaults dropped in 2020—
rising labor costs, trade pressures including U.S. tariffs,
likely due to stimulus measures and laxer rules—but debt
rising consumer inflation, and rising corporate and
and non-performing loan challenges persist and could grow
government debt levels. In September 2020, China’s
if policy measures push loan forbearance and growth.
Purchasing Manager’s Index was 51.5%—a sign of modest
Trade Outlook
expansion—but industrial activity remains below 2019
China’s trade recovered in the third quarter of 2020, but
levels. August 2020 retail sales were reliant on government
future export drivers are uncertain. Initial export growth
stimulus to increase 0.5% over August 2019. The ongoing
was mainly driven by a short-term surge in medical
outbreak of African Swine Flu since 2018 has decimated
over half of China’s pork herd and led to acute shortages.
personal protective equipment and consumer electronics.
China lost share in machinery and some consumer goods
The Chinese government has tapped strategic pork reserves
during the first 8 months of 2020, areas it may seek to
and increased imports from Europe and Brazil, but this has
boost. In March 2020, China increased VAT export rebates
not compensated for the decline in imports from the United
for 1,500 products, including steel, building materials,
States since China imposed tariffs on U.S. pork in 2018.
insecticides, chemicals, and agricultural goods. In August
China has now increased U.S. pork imports to meet demand
2020, China increased its Export-Import Bank’s loan
and implement purchase targets set in the January 2020

China’s Economy in 2020: Navigating Headwinds
exposure cap by $85.1 billion. China supplies over half of
Phase One Trade Deal
global steel and may encourage exports to address domestic
The U.S.-China trade deal included a commitment for
overcapacity. China’s 2019 production was at an all-time
China to buy $468 billion over 2 years of U.S. agriculture,
high (almost 1 billion tons), and Chinese crude steel
energy, goods, and services. To date, China has purchased
production between January and July 2020 is up 2.8% over
33% of its 2020 commitment and some purchases fall
the same period in 2019. In contrast, crude steel production
below 2017 levels (e.g., coal), although agricultural trade is
over the same period is down by 19.2% in the EU; 18.7% in
expected to get a boost as U.S. fall harvests ship. China’s
North America; 24% in India; 18.8% in Japan; and 9.6% in
efforts to diversify sources of agricultural imports—
South Korea.
resulting in record imports from countries, such as
China has been taking steps to stem appreciation of its
Argentina and Brazil—may hinder its ability to meet its
currency, likely in part to keep exports competitive. China’s
commitments. When global oil prices collapsed in March
central bank chairman said that China aims to keep
2020, China imported 53.18 million tons of crude oil from
domestic prices and foreign exchange values stable. This
non-U.S. sources to replenish its strategic reserves.
goal could require further market intervention, however.
The Treasury Department’s semi-annual report on foreign
Economic Policy Direction
exchange policies for major trading partners is due on
The CPC’s 19th Central Committee—a body of China’s 204
October 15, 2020. The January 2020 U.S.-China trade deal
senior Party leaders—is scheduled to hold its 5th Plenum
has a currency commitment—similar to Chapter 33 of the
on October 26 to 29, 2020 to deliberate on China’s 14th
U.S.-Mexico-Canada Agreement—for market-determined
Five-Year Plan (2021-2025) and economic goals out to
exchange rates, transparency and reporting requirements.
2035. (The Central Economic Work Conference is to
review the plans in December 2020 ahead of the annual
Rising costs, U.S. tariffs and technology restrictions, and
session of the National People’s Congress in March 2021.)
business uncertainty have driven firms over the past five
Of potential interest to Congress, ahead of these meetings,
years to migrate elements of China-based supply chains to
Chinese leaders are signaling policies to counter what they
other countries, such as Vietnam and Mexico. The COVID-
describe as new global constraints on China. Early details
19 pandemic exposed the risks of concentrating China
suggest that China is seeking to leverage the global
production, likely accelerating this trend. Some
economy to advance its goals in some ways that could
governments—such as those of Australia, India, Japan, the
challenge or reshape global rules and counter certain U.S.
UK, and the United States—are calling for secure supply
interests and policies.
chains and technology alliances among like-minded
countries in high-value areas. China is attracting foreign
President Xi is reviving a “dual circulation” policy that his
investment in sectors, such as electric vehicles, where it
predecessor used in the 2009 financial crisis. The term
requires a local presence to sell in China, creating a counter
refers to leveraging the dual forces of domestic and global
pressure to offshoring.
demand, or in other words, developing domestic capacity
while pursuing openings in global markets. In 2009, the
China appears reticent to market opening, except in
government used this approach to subsidize increased
financial services where it seeks to offset risk. China has
production in 13 industries while global industry
imposed import restrictions on agriculture and other
contracted. This generated excess capacity that China then
commodities from Australia and Canada in an apparent
exported. China under President Xi is advancing a strong
effort to create commercial pressures to advance China’s
state role in the economy and advocating for Chinese
political goals In September 2020, Canada abandoned trade
leadership in global standards-setting. A digital campaign
talks with China, and in June 2020 European officials
calls for $1.4 trillion over five years in 5G, smart cities, and
chastised China for failing to address longstanding trade
other technology infrastructure, and a push to adopt this
approach globally. In September 2020, the CPC Central
Figure 2. Phase One Purchases (January-August 2020)
Committee called for strengthening Party control of the
private sector to “build a backbone of private economic
actors that are reliable and useful at critical moments.”
Chinese leaders are emphasizing self-reliance and
indigenous innovation—longstanding themes in China’s
policies—and sustained access to foreign technology and
markets. An emphasis on basic research calls for foreign
collaboration. A new semiconductor plan calls for overseas
research and production centers. The Chinese government
is advancing a cryptocurrency to try to influence global
finance and ecommerce, and diversify from U.S. dollar
financing. In October 2020, China issued an export control
law to counter U.S. export controls and sanctions.
Karen M. Sutter, Specialist in Asian Trade and Finance
Source: CRS with U.S. export data from the U.S. Census Bureau.
Michael D. Sutherland, Analyst in International Trade and
Notes: This data does not include China’s $67.8 bil ion commitment
in services imports for 2020.

China’s Economy in 2020: Navigating Headwinds

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