Updated July 9, 2024
China’s Economy: Current Trends and Issues
The International Monetary Fund (IMF) assesses that the
reduce debt levels. They have pursued narrow stimulus
People’s Republic of China’s (PRC’s or China’s) real gross
measures and government-led fixed asset investment in
domestic product (GDP) grew by 5.2% in 2023 and projects
manufacturing to boost growth. The PRC government has
5.0% real GDP growth in 2024. This growth is unbalanced,
used value-added tax export rebates and tax incentives for
with supply much higher than domestic demand. The World
technology and research. In 2024, it expanded financing
Bank says that soft domestic demand, weak domestic and
and “buy back” programs—similar to ones it used in 2009
foreign business confidence, “tepid” productivity growth,
—that promote the exchange of old appliances and EVs for
and systemic debt, among other issues, could constrain PRC
new purchases. In May 2024, the Ministry of Finance
future growth prospects. Some economists contend that the
pledged to issue $138 billion in ultra-long-term special
economic returns of China’s growth model, which has
sovereign bonds (at 20- to 50-year ranges) through
emphasized government investment and exports, is
November 2024 to support priorities in China’s 14th Five-
diminishing. These elements appear to feature in China’s
Year Plan (2021-2025) (see text box). In March 2024, the
current economic policies, however.
PRC government said it would issue up to $539 billion in
The PRC government is seeking to reduce debt and boost
local government special purpose bonds, typically used to
growth and productivity by investing in innovation,
fund infrastructure projects and pay off government debt. In
education, digital infrastructure, advanced manufacturing,
May 2024, the PRC central bank announced $41.4 billion to
and emerging technologies. It is also pursuing state-led
convert unsold housing inventory into subsidized housing.
industrial policies to advance its economic and technology
The 14th Five-Year Plan (2021-2025)
development goals. Such statist approaches can distort
The 14th Five-Year Plan (FYP) (2021-2025) prioritizes research,
markets and incentivize production well above what China
education, finance, and technology and calls for $1.4 tril ion in
can absorb domestically. As products supported by PRC
investment in digital infrastructure. It emphasizes self-reliance and
industrial policies come to market, China appears to be
indigenous innovation while sustaining access to U.S. and other
looking to foreign markets for growth. China’s share of
foreign markets, technology, capital, and research to advance
global manufacturing output was about 30% as of 2022,
PRC goals. It prioritizes self-sufficiency in energy and agriculture
highlighting the potential influence of PRC production and
(biotechnology, genetic resources, and seed technology), and calls
export policies on U.S. and global markets. Some in
for China to lead in setting global trade rules and technical
Congress and the Biden Administration have expressed
standards. It promotes China’s extraterritorial reach, and
concerns that PRC industrial policies and related subsidies
pursuing global acceptance of PRC judicial rulings on intellectual
are fueling PRC export expansion in sectors such as electric
property and technology pricing and PRC antitrust actions.
vehicles (EVs), semiconductors, solar energy, and steel.
The Third Plenum
Manufacturing Investment and Excess Capacity
To boost growth, Xi has revived a “dual circulation” policy
The Third Plenum of the Communist Party of China (CPC)
that PRC leaders last used in the 2009 financial crisis that
Central Committee (to be held on July 15-18, 2024) is
seeks to expand production while promoting exports. In
expected to focus on economic policies out to 2035 under
2009, the PRC government used this approach to fund
an official agenda of “advancing Chinese-style
modernization.” At a May 2024 business forum, China’s
production in 13 manufacturing industries while global
industry contracted, generating excess capacity that China
leader Xi Jinping emphasized issues that could be featured
then exported to other markets.
at the Plenum, such as employment, income growth,
housing, education, and healthcare. Xi also called for
Amid weak domestic demand, the PRC government’s
“resolutely dismantling institutional barriers hindering
increased investment in manufacturing is fueling deflation,
Chinese-style modernization,” a term the CPC uses to refer
stressing corporate margins, and expanding production
to the PRC’s political and economic model. While many
beyond what China’s market can absorb. Fixed-asset
analysts expect overall policy continuity, some possible
investment in manufacturing grew by 9.6% in the first five
areas of CPC debate include:
months of 2024 over the same period in 2023 with
• Options to boost economic growth and productivity;
investment growth in prioritized sectors: rail, shipping, and
• Options to address regional and demographic
aerospace (35% increase); metal products up (18%
inequalities and boost regional economic integration;
increase); and information technology (15% increase). In
• Cuts in interest rates and bank reserve requirements;
May 2024, the PRC government announced a third
• Reform of land and household registration; and
investment phase of its semiconductor fund with $47.5
• Reform of the tax-revenue sharing framework between
billion over five years.
the national and local governments.
PRC industrial policies and related subsidies are fueling
Efforts to Boost Growth
PRC exports and could distort global markets in sectors
PRC leaders appear reluctant to adopt broad stimulus
such as semiconductors, EVs, solar energy, and steel. For
measures to boost domestic consumption as they try to
example, China is projected to account for almost half of all
https://crsreports.congress.gov
China’s Economy: Current Trends and Issues
new global capacity in mature semiconductors (e.g., 28
list for its currency practices of concern, including its
nanometer and above) coming online during 2024-2029. In
failure to publish exchange rate intervention data.
EVs, PRC industrial policies in place since 2009 have
Figure 1. China’s Non-Financial Debt as Share of GDP
incentivized the build out of production capacity well above
what can be sold in China, motivating exports. Some
reports say China could face a surplus of 20 million EVs by
2025; oversupply is driving down factory utilization rates,
prices, and profits for EV firms in China.
Trade Tensions
PRC leaders appear concerned about foreign governments’
efforts to counter China’s industrial policies and export-
oriented growth strategy. Official readouts of a May 2024
meeting of senior CPC leaders noted “significantly rising
external uncertainties.” At a World Economic Forum
meeting in June 2024, Premier Li Qiang encouraged
countries to “reject bloc confrontation and decoupling, keep
industrial and supply chains stable and smooth, and
Source: CRS with data from the Bank for International Settlements.
advance trade and investment liberalization and facilitation”
Notes: Government debt only available in nominal value. Compa-
to promote global growth. Foreign government efforts to
rable U.S. total non-financial debt as of Q3 2023 was 253% of GDP.
counter PRC exports include:
China’s Systemic Debt
• In April 2024, the U.S. Trade Representative extended
China’s total non-financial debt—household, corporate, and
most tariffs on PRC goods that it has imposed since
government—reached 311% of GDP in the third quarter of
2018 under Section 301 of the Trade Act of 1974 and
2023 (Figure 1), with most debt held by private firms and
increased tariffs on some PRC goods in response to
provincial and local governments. Local governments and
China “flooding global markets with artificially low-
firms have relied on bank loans and bond issuances to spur
priced exports,” including on EVs, EV batteries,
economic activity via fixed-asset investment as consumer
semiconductors, medical products, ship to shore cranes,
spending has lagged. In 2016, the PRC government initiated
solar cells, and steel and aluminum items.
a campaign to rein in debt accrued by banks and local
• The European Union (EU) has launched investigations
governments and some PRC firms’ global investments. In
against PRC trade and investment practices in anti-
2018, Xi pledged to tackle financial risk as one of “three
subsidy (EVs), anti-dumping (steel), and procurement
tough battles.” The government relaxed the campaign
(medical devices) areas. In June 2024 the EU announced
during the pandemic and required local governments to
21-38% provisional tariffs on imports of EVs from
fund pandemic mitigation and stimulus programs, which
China on top of its general 10% tariff on auto imports.
increased their debt burden. China has faced defaults by
• In July 2024, the Indonesian and Canadian governments
major property developers tied to local governments,
said they were considering tariffs on some PRC imports.
notably China Evergrande Group and Country Garden.
Foreign Business Confidence
Income from property sales is a main source of local
Two years of “zero covid” restrictions, economic softening
government revenue and property prices are a key factor in
firms’ valuations and household net worth. This
in China, and PRC political controls and economic
dynamic
coercion, appear to have fueled a sense of risk among some
constrains PRC policy options to advance Xi’s stated
commitments to reduce debt and his “common prosperity”
foreign firms of doing business in China. In February 2024,
the American Chamber of Commerce said 57% of its firms
policy that seeks to address economic inequality.
lack confidence in China’s business environment. In 2024,
Issues for Congress
the PRC government has sought to boost market confidence
Congress has debated the role of U.S. tariffs to address PRC
by featuring high profile visits from global business leaders.
industrial policies and their effects on trade. Some
Currency
Members have expressed support for U.S. tariffs while
China’s currency—the renminbi (RMB)—faces downward
others have said they harm the U.S. economy. Congress has
pressure from low domestic and international confidence in
passed legislation in response to China to further develop
China’s market, a strong U.S. dollar, and a widening gap
U.S. semiconductor, solar, and EV industries (P.L. 117-167
between U.S. and PRC interest rates. The PRC central bank
and P.L. 117-169). Among its options, Congress may
sets a narrow band within which the RMB can trade
consider whether or not to:
•
through daily guidance to PRC banks. Since August 2023,
Press USTR Tai on her idea for a phase two Section 301
the central bank has set the RMB’s daily rate well above the
investigation to examine PRC industrial subsidies;
•
market rate to stabilize the currency. Some U.S. analysts
Explore joint trade actions with the EU and other top
assess that the PRC is seeking to manage depreciation and
trading partners vis-à-vis China; and
•
slowly devalue the RMB in a controlled manner. PRC state
Address PRC overseas investments that may distort
banks have supported the government’s efforts to stem the
markets. PRC firms supported by PRC industrial
RMB’s rapid depreciation by selling U.S. dollars. In
policies are investing in the U.S. and third markets.
September 2023, the central bank decreased the amount of
Karen M. Sutter, Specialist in Asian Trade and Finance
foreign currency deposits it requires PRC banks to hold.
Michael D. Sutherland, Analyst in International Trade and
China remains on the U.S. Treasury Department’s watch
Finance
https://crsreports.congress.gov
China’s Economy: Current Trends and Issues
IF11667
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https://crsreports.congress.gov | IF11667 · VERSION 14 · UPDATED