China’s Economy: Current Trends and Issues

Updated January 12, 2021
China’s Economy: Current Trends and Issues
China emerged in June 2020 as the first major country to
pork herd and led to acute shortages. The government
announce a return to economic growth since the outbreak of
initially tapped strategic pork reserves and increased
the COVID-19 pandemic. product (GDP) growth in the
imports from Europe and Brazil, but could not compensate
second quarter and 4.9% GDP growth in the third quarter of
for the drop in imports from the United States since China
2020. The International Monetary Fund (IMF) projects
imposed tariffs in 2018. China has increased U.S. pork
China’s economy to grow by 1.9% in 2020. China is still
imports in 2020. In August 2020, President Xi launched a
grappling with a slow recovery of domestic demand and its
campaign against food waste, signaling a focus on boosting
top export markets and has relied on government spending
domestic food supply and agricultural technology,
and exports to boost growth. China is facing growing
including a focus on seeds. The Communist Party of China
restrictions on its overseas commercial activities and access
(CPC)’s Politburo meeting in April 2020 prioritized
to foreign technology and pressures for firms to diversify
strengthening food, energy and supply chain security and
China-based supply chains. Against this backdrop, China’s
stabilizing employment, financial and market operations,
leadership is deliberating the country’s economic direction
and foreign trade and investment.
and industrial plans for the next 5 to 15 years. See CRS In
Focus IF11684, China’s 14th Five-Year Plan: A First Look,
Figure 1. China’s Industrial Production and Retail
by Karen M. Sutter and Michael D. Sutherland.
Sales (December 2019 to November 2020)
COVID-19 Support Measures to Boost Growth
The IMF estimates that China’s announced fiscal measures
and financing plans amounted to $740 billion, or 4.7% of its
GDP, as of November 2020. The government increased its
budget deficit target to a record high of 3.6% of GDP, up
from 2.8% in 2019. Key measures included spending on
epidemic control and medical equipment, unemployment
insurance, tax relief, and public investment. Between
January and November 2020, China’s fixed asset
investment grew over the same period in 2019 in e-
commerce (32%), pharmaceuticals and medical products
(27%), health (26%), computers (20%), and education

(14%). China reduced the value-added tax (VAT) rate and
Source: CRS with data from China’s National Bureau of Statistics.
introduced VAT exemptions for certain goods and services.

China’s central bank extended monetary support with
Since 2016, the Chinese government has pursued a
interest rate cuts, eased loan terms, and injected liquidity
deleveraging campaign to reign in bad debt accrued by
into banks. Shifting from efforts to reduce debt, the
local governments, commercial banks, and unauthorized
government announced the issuance of $142.9 billion of
“shadow” lending. China’s total debt across sectors—
special treasury bonds for the first time since 2007;
household, corporate, government, and financial sector—
increased the quota for local government special bonds (a
could reach 335% of GDP in 2020, according to the
source of infrastructure funding); and fast-tracked the
International Institute of Finance. China also has an
issuance of corporate bonds to cover pandemic costs but
estimated $90 billion and another $100 billion in U.S.
with potential broader uses. The government says it seeks to
dollar-denominated debt due in 2020 and 2021,
control credit risk but the need for additional fiscal and
respectively. Onshore, Chinese companies owe an
monetary support to boost growth may undermine this goal.
estimated $694.6 billion in 2020 and $706 billion in 2021.
Systemic Economic Challenges
The deleveraging campaign led to several regional bank
China is grappling with economic challenges that predate
bailouts in 2019. While the number of defaults dropped in
the pandemic, including slowing domestic growth, rising
2020—likely due to stimulus measures and laxer rules—
labor costs, trade pressures including U.S. tariffs, rising
debt and nonperforming loan challenges persist and could
consumer inflation, and rising corporate and government
grow if policies push loan forbearance and growth. In late
debt levels. In November 2020, China’s Purchasing
2020, the government reined in Alibaba’s lending business,
Manager’s Index was 52.1% and value-added
signaled it may increase its role in Ant Group, and took
manufacturing was up by 7.7 percent over November
control of economically-troubled Hongxin Semiconductor
2019—in a sign of manufacturing expansion. November
and Honor, Huawei’s smartphone business.
2020 retail sales increased 5% over November 2019, but
Trade Outlook
January to November 2020 sales were down 5% over the
China’s trade recovered in the third quarter of 2020, with
same period in 2019. The ongoing outbreak of African
medical equipment, electronics, and machinery driving
Swine Flu since 2018 has decimated over half of China’s
growth. In March 2020, China increased VAT export

China’s Economy: Current Trends and Issues
rebates for 1,500 products, including steel, building
January 2020 Phase One Trade Deal
materials, chemicals, and agriculture. In August 2020,
The U.S.-China trade deal included a commitment for
China increased its Export-Import Bank’s loan exposure
China to buy $468 billion over 2 years of U.S. agriculture,
cap by $85.1 billion. China supplies over 50% of global
energy, goods, and services. To date, China has purchased
steel and expanded crude steel production by 4.5% between
55% of its 2020 commitment and some purchases fall
January and September 2020 over the same period in 2019.
below 2017 levels (e.g., coal). China’s efforts to diversify
Production in 2019 was at a high of almost 1 billion tons. In
sources of agricultural imports—resulting in record imports
contrast, crude steel production over the same period is
from countries, such as Argentina and Brazil—may hinder
down by 17.9% in the EU; 18.2% in North America; 16.5%
its ability to meet its commitments. When global oil prices
in India; 19.1% in Japan; and 7.5% in South Korea.
collapsed in March 2020, China imported 53.18 million
China has been taking steps to stem appreciation of its
tons of crude oil from non-U.S. sources to replenish its
currency, likely in part to keep exports competitive. China’s
strategic reserves.
central bank chairman said that China aims to keep
domestic prices and foreign exchange values stable, a goal
Economic Policy Direction
that could require further market intervention. In December
The CPC’s 19th Central Committee—a body of 204 senior
2020, the Treasury Department kept China on its watch list
Party leaders—held its 5th Plenum in October 2020 to
for currency practices. The January 2020 U.S.-China trade
deliberate on China’s 14th Five-Year Plan (2021-2025) and
deal has a currency provision—similar to Chapter 33 of the
economic goals out to 2035. China’s Central Economic
U.S.-Mexico-Canada Agreement—requiring market-
Work Conference reviewed plans in December 2020 ahead
determined exchange rates, transparency, and reporting.
of the annual session of the National People’s Congress in
March 2021. Of potential interest to Congress, Chinese
Rising costs, U.S. tariffs and technology restrictions, and
leaders are signaling policies to counter what they describe
business uncertainty have driven firms over the past five
as new global constraints on China. Early details suggest
years to migrate elements of China-based supply chains to
that China is seeking to leverage the global economy to
other countries, such as Vietnam and Mexico. The COVID-
advance its goals in some ways that could challenge or
19 pandemic exposed the risks of concentrating certain
reshape global rules and counter U.S. interests and policies.
production in China, likely accelerating this trend. Some
governments—such as those of Australia, India, Japan, the
President Xi is reviving a “dual circulation” policy that his
UK, and the United States—are calling for secure supply
predecessor used in the 2009 financial crisis. The term
chains and technology alliances among like-minded
refers to leveraging the dual forces of domestic and global
countries in high-value areas. China is attracting foreign
demand, or in other words, developing domestic capacity
investment in sectors, such as electric vehicles, where it
while pursuing openings in global markets. In 2009, the
requires a local presence to sell in China, creating some
government used this approach to subsidize increased
potential counter pressures to offshoring in certain sectors.
production in 13 industries while global industry
China appears to be limiting new market openings in line
contracted. This generated excess capacity that China then
with its 14th Five-Year Plan priorities (e.g., scientific
exported. President Xi is advancing a strong state role in the
research; financial, health, and education; and Made in
economy and advocating for Chinese leadership in global
China 2025 sectors). China arguably is playing geopolitical
standards-setting. A digital campaign calls for $1.4 trillion
hardball with trade and has likely violated global rules in
over five years in 5G, smart cities, and other technology
imposing ad hoc import restrictions to politically pressure
infrastructure, and a push to adopt this approach globally.
Australia and Canada. In response, Canada abandoned free
In September 2020, the CPC Central Committee called for
trade talks with China and Australia filed a World Trade
strengthening Party control of the private sector to “build a
Organization dispute settlement case. In late 2020, China
backbone of private economic actors that are reliable and
reached a preliminary investment agreement with the
useful at critical moments.” Chinese leaders are playing up
European Union and was among 15 Asian countries to sign
self-reliance and indigenous innovation—long-standing
the Regional Comprehensive Economic Partnership.
themes in China’s policies—while seeking to sustain access
Figure 2. Phase One Trade (January-November 2020)
to foreign markets and technology. An emphasis on basic
research calls for foreign collaboration. A new policy for
semiconductors calls for overseas research and production
centers. The government is advancing a cryptocurrency to
influence global finance and ecommerce and diversify from
U.S. dollar financing. China issued an export control law
and rules to review foreign investment on national security
grounds, potentially to counter U.S. policy actions.
Karen M. Sutter, Specialist in Asian Trade and Finance
Michael D. Sutherland, Analyst in International Trade and

Source: CRS with U.S. export data from the U.S. Census Bureau.
Notes: This data does not include China’s $67.8 bil ion commitment
in services imports for 2020.

China’s Economy: Current Trends and Issues

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