Updated April 6, 2022
China’s Economy: Current Trends and Issues
The People’s Republic of China (PRC or China) was the
first major economy to announce a return to economic
Figure 1.China’s Debt as a Share of GDP
growth in June 2020 since the outbreak of the Coronavirus
Disease 2019 (COVID-19) pandemic; its economic
performance since then has been uneven. Repeated
lockdowns under zero-COVID tolerance policies have
periodically disrupted manufacturing and transportation.
Tightened border controls have curtailed two-way goods
and services trade, tourism, and student and business travel.
Weak domestic demand and debt pressures, particularly in
the property sector, are also constraining growth. In 2021,
China relied on government spending and exports to boost
economic growth by 8.1%, from a low 2020 base of 2.2%
growth. The PRC government targets 5.5% growth for
2022, while the International Monetary Fund (IMF) projects
4.8% growth. Some economists assess China may struggle
to meet these targets due to domestic constraints and global
economic pressures with Russia’s invasion of Ukraine.
Source: CRS with data from the Bank for International Settlements.
Systemic Economic Challenges
Notes: *Government debt in nominal value. Does not include
China still heavily relies on fixed asset investment and
financial sector debt. Comparable U.S. debt as a share of U.S. GDP
exports for growth. The PRC government faces challenges
was 295.5% in 2020.
that predate the pandemic, including slower growth, rising
labor costs, trade pressures, consumer inflation, and high
Targeted Measures to Boost Growth
levels of corporate and government debt. China’s total
The PRC government appears reluctant to further ease
debt—household, corporate, and government—reached
fiscal and monetary policies as it seeks to deleverage the
290% of GDP in 2020 (Figure 1), with the majority of debt
property sector and contain market risks. The government is
held by companies. China’s property market accounts for
instead using targeted fiscal measures to boost growth, such
almost 30% of GDP, a higher percentage than in most
as value added tax (VAT) rebates for certain exports and
countries, while private consumption accounts for an
tax incentives for research and technology. China faces
estimated 37% of GDP, a low share for an economy of
shortages and rising prices of raw materials, agriculture
China’s size and top global trade position. Property is a
products, and energy. The government is trying to cap raw
main source of local government revenue and a key factor
materials prices through de facto price controls it requires
in corporate valuations and household net worth, which
industry associations to set and enforce. In 2021, China’s
complicates efforts to reduce debt and address inequality,
fiscal spending was flat, fixed asset investment grew by
despite China’s leader Xi Jinping’s stated goals.
4.9%, and industrial production grew by 9.6%. (Figure 2.)
Figure 2.Key Economic Trends (2012 to 2021)
In 2016, the Chinese government initiated a campaign to
rein in debt accrued by banks, local governments, and
firms. The government restructured several companies and
realigned investments in these firms with state goals,
established state trusteeship, and transferred assets to state
investors. In 2018, Xi pledged to tackle financial risk as one
of “three tough battles” facing the government, which
included poverty and pollution. The campaign led to several
bank bailouts in 2019, but defaults fell in 2020, likely due
to the government’s pandemic stimulus and relaxation of
the rules. In August 2020, the government launched a
“three red lines” policy for property developers that sets:
(1) a 70% ceiling on liability to asset ratios; (2) a 100% cap
on net debt to equity ratio; and (3) a cash requirement to
cover short-term liabilities. Several property firms, most
notably Evergrande, have since struggled to maintain
Source: CRS with data from China’s National Bureau of Statistics.
liquidity. China also imposed new data and security
A Politburo meeting of senior Communist Party of China
restrictions on firms, arguably fueling volatility in China’s
(CPC) leaders in December 2021 and the government’s
technology sector and capital markets.
work report issued in March 2022 set a “moderate growth”
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China’s Economy: Current Trends and Issues
policy that focuses on stability in employment, finance,
sets new import restrictions based on quality.) China
trade, foreign investment, domestic investment, and market
supplies over 50% of global steel; its crude steel production
confidence. This approach involves some monetary
fell by 3% in 2021.
loosening, but with strict guidance for banks that aims to
Figure 3.China’s Exports Drive Growth
moderate lending activity. In July and December 2021,
China’s central bank, the People’s Bank of China
Percentage Point Difference between January 2020 IMF
, cut the
Forecasts and China’s Official GDP Data for 2020 and 2021
reserve requirement ratio (the amount of money banks are
required to hold in reserve as a share of deposits). This
freed up an estimated $190 billion in bank liquidity, but
some of the funds are to repay existing loans, limiting their
full stimulus effect. In 2022 China also issued $229 billion
in advance quotas for local government special bonds, a key
source of infrastructure funding.
Economic Policy Direction
China’s 14th Five-Year Plan (FYP) (2021-2025) emphasizes
national development priorities in basic research, education,
finance, and technology, and calls for $1.4 trillion in
investment over five years in digital infrastructure. Xi is
advancing a strong state role in the economy and calling for
China’s leadership in setting global trade rules and
Source: CRS with data from the IMF.
technical standards. China is promoting the extraterritorial
scope of its judicial rulings on intellectual property and
China’s rising costs, COVID-19 restrictions, political
technology pricing, and its antitrust actions. Since 2020, the
crackdowns in Hong Kong, new economic security and data
government has issued a series of national economic
measures, and economic coercion against foreign firms and
security measures likely to counter U.S. policy actions,
trading partners are fueling business uncertainty and
including export control and anti-foreign sanctions laws.
prompting some foreign firms to diversify production away
The FYP emphasizes long-standing themes of indigenous
from China. Russia’s invasion of Ukraine increased risk
innovation, self-reliance, and supply chain security in
perceptions about China, prompting large capital outflows
energy and agriculture (with a focus on biotechnology,
in March 2022. China is attracting foreign investment in
genetic resources, and seed technology), while sustaining
targeted areas (e.g., biotechnology and semiconductors).
access to foreign markets, technology, and research. In
China has tried to stem appreciation of its currency while
August 2020, Xi launched a campaign against food waste,
advancing a central bank digital currency to influence
signaling concerns about food shortages. The outbreak of
global finance and diversify from U.S. dollar financing. In
the African Swine Flu since 2018, poor harvests, and low
December 2021, the Department of the Treasury kept China
yields, have led to shortages of pork, wheat, and soybeans,
on its watch list for interventionist currency practices.
respectively. China’s trade coercion against foreign
Issues for Congress
suppliers, such as Australia, Canada, and the United States,
China’s economic constraints could slow certain U.S.
has exacerbated its shortfalls in grain and energy and
exports, sales, and investments while enhancing U.S.
disrupted global markets as it has ramped up foreign
leverage as China looks to foreign markets, capital, and
purchases. China’s dependence on Ukraine for certain
technology for growth. Facing shortfalls, China is returning
agricultural staples, such as corn, likely further threatens
to Australian, Canadian, and U.S. energy and commodity
China’s supplies. In late 2021, China signed $30 billion in
trade. In this climate, Congress might consider whether to:
U.S. liquefied natural gas contracts. It also stepped up large
purchases of corn, wheat, and soybean contracts during the
Set new terms that advantage the United States
same period, including from the United States and Ukraine.
vis-a-vis China, including with other countries, to
Xi has revived a “dual circulation” policy that China used
address reciprocity issues; China’s statist
to address China’s economic slowdown during the 2009
economic model; PRC state influence in
financial crisis. Some experts assess the term refers to
technology, energy, and commodity contracts; and
boosting consumption, but the term is more complex,
PRC use of trade coercion for commercial and
instead referring to leveraging the dual forces of domestic
geopolitical gains.
and global demand, or developing domestic capacity while
Evaluate growing U.S. financial flows to China to
pursuing openings in global markets. In 2009, China used
assess aggregate U.S. exposure, potential risks,
this approach to subsidize increased production in 13
and the effects of investments in strategic sectors
sectors, while global industry contracted, generating excess
on U.S. competitiveness.
capacity that China then exported. China appears to be
Promote private sector investment in the United
looking again to trade expansion to drive growth. Its global
States and production, technology, research, and
exports in 2021 rose by 30% over 2020. (Figure 3.). China
financial openings in other markets to diversify
is also seeking to boost production quality. In May 2021,
and strengthen the U.S. position.
China eliminated VAT rebates for certain types of steel and
lowered import tariffs and raised export tariffs for steel
Karen M. Sutter, Specialist in Asian Trade and Finance
inputs likely to boost prices and promote quality. (The
Michael D. Sutherland, Analyst in International Trade and
October 2021 EU-U.S. agreement on steel and aluminum
Finance
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China’s Economy: Current Trends and Issues
IF11667
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https://crsreports.congress.gov | IF11667 · VERSION 10 · UPDATED