China's Economic Rise: History, Trends, Challenges, and Implications for the United States Page: 6 of 51
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China's Economic Rise: History, Trends, Challenges, Implications for the United States
industries (such as services), and crack down on official government corruption. The ability of the
Chinese government to implement such reforms will likely determine whether China can continue
to maintain relatively rapid economic growth rates, or will instead begin to experience
significantly lower growth rates.
China's growing economic power has led it to become increasingly involved in global economic
policies and projects, especially in regards to infrastructure development. Such policies include
the One-Belt, One Road initiative and the creation of two investment banks: the Asian
Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB). China is
projected to spend over $1 trillion on these initiatives. If successful, China's economic initiatives
could significantly expand export and investment markets for China and increase its "soft power."
China's growing economic influence globally has raised a number of questions, and in some
cases, concerns, as to how China's rise will affect U.S. economic interests and influence on global
economic policies. China's economic rise has become a factor in congressional debate over
various aspects of U.S. trade policy (even those that are not directly related to China), such as the
renewal of trade promotion authority (TPA), which was reauthorized through legislation in June
2015, and the Trans-Pacific Partnership (TPP), which was signed by the United States and 11
other countries in February 2016. In January 2017, President Trump announced that the United
States would withdraw from TPP,5 which, many contend, may diminish U.S. economic influence
in Asia while expanding China's.
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 for the United States.
The History of China's Economic Development
China's Economy Prior to Reforms
Prior to 1979, China, under the leadership of Chairman Mao Zedong, maintained a centrally
planned, or command, economy. A large share of the country's economic output was directed and
controlled by the state, which set production goals, controlled prices, and allocated resources
throughout most of the economy. During the 1950s, all of China's individual household farms
were collectivized into large communes. To support rapid industrialization, the central
government undertook large-scale investments in physical and human capital during the 1960s
and 1970s. As a result, by 1978 nearly three-fourths of industrial production was produced by
centrally controlled, state-owned enterprises (SOEs), according to centrally planned output
targets. Private enterprises and foreign-invested firms were generally barred. A central goal of the
Chinese government was to make China's economy relatively self-sufficient. Foreign trade was
generally limited to obtaining those goods that could not be made or obtained in China. Such
policies created distortions in the economy. Since most aspects of the economy were managed
and run by the central government, there were no market mechanisms to efficiently allocate
resources, and thus there were few incentives for firms, workers, and farmers to become more
productive or be concerned with the quality of what they produced (since they were mainly
focused on production goals set by the government).
5 For additional information on TPA and TPP, see CRS In Focus IF10038, Trade Promotion Authority (TPA), by Ian F.
Fergusson, and CRS In Focus IF10000, TPP: Overview and Current Status, by Brock R. Williams and Ian F.
Fergusson.Congressional Research Servicee
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Morrison, Wayne M. China's Economic Rise: History, Trends, Challenges, and Implications for the United States, report, September 15, 2017; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1042483/m1/6/: accessed July 17, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.