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1 (November 13, 2008)

handle is hein.crs/crsmthabexf0001 and id is 1 raw text is: Order Code RS22984 November 13, 2008 SCRS Report for Congress China and the Global Financial Crisis: Implications for the United States Wayne M. Morrison Specialist in Asian Trade and Finance Foreign Affairs, Defense, and Trade Division Summary Over the past several years, China has enjoyed one of the world's fastest growing economies and has been a major contributor to world economic growth. However, the current global financial crisis threatens to slow China's economy. Although its exposure to troubled U.S. sub-prime mortgage securities is believed to be relatively limited, China's export industries and sectors dependent on foreign investment could be hard hit if the economies of its major trading partners, including the United States, experience a sharp slowdown. This possibility concerns the Chinese government, which views rapid economic growth as critical to maintaining social stability. China is a major economic power and holds huge amounts of foreign exchange reserves, and thus it could play a major role in responding to the current crisis. For example, in an effort to help stabilize the U.S. economy, China might boost its holdings of U.S. Treasury securities, which would help fund the Federal Government's purchases of troubled U.S. assets. However, this could raise a number of issues and concerns for U.S. policymakers. This report will be updated as events warrant. China's Stake in the Current Crisis China's economy is heavily dependent on global trade and investment flows. In 2007, China overtook the United States to become the world's second largest merchandise exporter after the European Union (EU). China's net exports (exports minus imports) contributed to one-third of its GDP growth in 2007. The Chinese government estimates that the foreign trade sector employs more than 80 million people, of which 28 million work in foreign-invested enterprises. Foreign direct investment (FDI) flows to China have been a major factor behind its productivity gains and rapid economic growth. FDI flows to China in 2007 totaled $75 billion, making it the largest FDI recipient among developing countries and the third largest overall, after the EU and the United States. A global economic slowdown (especially among its major export markets the United Invest in China, September 10, 2007. Congressional Research Service The Library of Congress Prepared for Members and Committees of Congress