China's Economic Rise: History, Trends, Challenges, and Implications for the United States Page: 2 of 51
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China's Economic Rise: History, Trends, Challenges, Implications for the United States
Summary
Prior to the initiation of economic reforms and trade liberalization 36 years ago, China
maintained policies that kept the economy very poor, stagnant, centrally-controlled, vastly
inefficient, and relatively isolated from the global economy. Since opening up to foreign trade and
investment and implementing free market reforms in 1979, China has been among the world's
fastest-growing economies, with real annual gross domestic product (GDP) growth averaging
nearly 10% through 2016. In recent years, China has emerged as a major global economic power.
It is now the world's largest economy (on a purchasing power parity basis), manufacturer,
merchandise trader, and holder of foreign exchange reserves.
The global economic crisis that began in 2008 greatly affected China's economy. China's exports,
imports, and foreign direct investment (FDI) inflows declined, GDP growth slowed, and millions
of Chinese workers reportedly lost their jobs. The Chinese government responded by
implementing a $586 billion economic stimulus package and loosening monetary policies to
increase bank lending. Such policies enabled China to effectively weather the effects of the sharp
global fall in demand for Chinese products, but may have contributed to overcapacity in several
industries and increased debt by Chinese firms and local government. China's economy has
slowed in recent years. Real GDP growth has slowed in each of the past six years, dropping from
10.6% in 2010 to 6.7% in 2016, and is projected to slow to 5.7% by 2022.
The Chinese government has attempted to steer the economy to a "new normal" of slower, but
more stable and sustainable, economic growth. Yet, concerns have deepened in recent years over
the health of the Chinese economy. For example, the Shanghai Composite Index fell by 43% from
June 12 to August 25, 2015, despite extensive intervention by the Chinese government to halt the
slide. On August 11, 2015, the Chinese government announced that the daily reference rate of the
renminbi (RMB) would become more "market-oriented." Over the next three days, the RMB
depreciated by 4.4% against the dollar and led some critics to charge that China's goal was to
boost exports to help stimulate the economy (which some suspect is in worse shape than indicated
by official Chinese economic statistics). Concerns over the state of the Chinese economy appear
to have often contributed to volatility in global stock indexes in recent years.
The ability of China to maintain a rapidly growing economy in the long run will likely depend
largely on the ability of the Chinese government to implement comprehensive economic reforms
that more quickly hasten China's transition to a free market economy; rebalance the Chinese
economy by making consumer demand, rather than exporting and fixed investment, the main
engine of economic growth; boost productivity and innovation; address growing income
disparities; and enhance environmental protection. The Chinese government has acknowledged
that its current economic growth model needs to be altered and has announced several initiatives
to address various economic challenges. In November 2013, the Communist Party of China held
the Third Plenum of its 18" Party Congress, which outlined a number of broad policy reforms to
boost competition and economic efficiency. For example, the communique stated that the market
would now play a "decisive" role in allocating resources in the economy. At the same time,
however, the communique emphasized the continued important role of the state sector in China's
economy. In addition, many foreign firms have complained that the business climate in China has
worsened in recent years. Thus, it remains unclear how committed the Chinese government is to
implementing new comprehensive economic reforms.
China's economic rise has significant implications for the United States and hence is of major
interest to Congress. This report provides background on China's economic rise; describes its
current economic structure; identifies the challenges China faces to maintain economic growth;
and discusses the challenges, opportunities, and implications of China's economic rise.Congressional Research Service
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Morrison, Wayne M. China's Economic Rise: History, Trends, Challenges, and Implications for the United States, report, August 6, 2017; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1020808/m1/2/?q=%22trade%22: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.