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1 [1] (January 12, 2021)

handle is hein.crs/govebvc0001 and id is 1 raw text is: China's Economy: Current Trends and Issues China emerged in June 2020 as the first major country to announce a return to economic growth since the outbreak of the COVID-19 pandemic. product (GDP) growth in the second quarter and 4.9% GDP growth in the third quarter of 2020. The International Monetary Fund (IMF) projects China's economy to grow by 1.9% in 2020. China is still grappling with a slow recovery of domestic demand and its top export markets and has relied on government spending and exports to boost growth. China is facing growing restrictions on its overseas commercial activities and access to foreign technology and pressures for firms to diversify China-based supply chains. Against this backdrop, China's leadership is deliberating the country's economic direction and industrial plans for the next 5 to 15 years. See CRS In Focus IF11684, China's 14th Five-Year Plan: A First Look, by Karen M. Sutter and Michael D. Sutherland. 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 introduced VAT exemptions for certain goods and services. China's central bank extended monetary support with interest rate cuts, eased loan terms, and injected liquidity into banks. Shifting from efforts to reduce debt, the government announced the issuance of $142.9 billion of special treasury bonds for the first time since 2007; increased the quota for local government special bonds (a source of infrastructure funding); and fast-tracked the issuance of corporate bonds to cover pandemic costs but with potential broader uses. The government says it seeks to control credit risk but the need for additional fiscal and monetary support to boost growth may undermine this goal. Systemic Economic Challenges China is grappling with economic challenges that predate the pandemic, including slowing domestic growth, rising labor costs, trade pressures including U.S. tariffs, rising consumer inflation, and rising corporate and government debt levels. In November 2020, China's Purchasing Manager's Index was 52.1% and value-added manufacturing was up by 7.7% over November 2019-in a sign of manufacturing expansion. November 2020 retail sales increased 5% over November 2019, but January to November 2020 sales were down 5% over the same period in 2019. The ongoing outbreak of African Swine Flu since 2018 has decimated over half of China's pork herd and led Updated January 12, 2021 to acute shortages. The government initially tapped strategic pork reserves and increased imports from Europe and Brazil, but could not compensate for the drop in imports from the United States since China imposed tariffs in 2018. China has increased U.S. pork imports in 2020. In August 2020, President Xi launched a campaign against food waste, signaling a focus on boosting domestic food supply and agricultural technology, including a focus on seeds. The Communist Party of China (CPC)'s Politburo meeting in April 2020 prioritized strengthening food, energy and supply chain security and stabilizing employment, financial and market operations, and foreign trade and investment. Figure I. China's Industrial Production and Retail Sales (December 2019 to November 2020) Index, Dec 2019= 100 120 110 100ReilSk 90 80 Fixed Asset Investment 70 (minus rura housholdsi D J F M A M J J A S O N 2019 2020 Source: CRS with data from China's National Bureau of Statistics. Since 2016, the Chinese government has pursued a deleveraging campaign to reign in bad debt accrued by local governments, commercial banks, and unauthorized shadow lending. China's total debt across sectors- household, corporate, government, and financial sector- could reach 335% of GDP in 2020, according to the International Institute of Finance. China also has an estimated $90 billion and another $100 billion in U.S. dollar-denominated debt due in 2020 and 2021, respectively. Onshore, Chinese companies owe an estimated $694.6 billion in 2020 and $706 billion in 2021. The deleveraging campaign led to several regional bank bailouts in 2019. While the number of defaults dropped in 2020-likely due to stimulus measures and laxer rules- debt and nonperforming loan challenges persist and could grow if policies push loan forbearance and growth. In late 2020, the government reined in Alibaba's lending business, signaled it may increase its role in Ant Group, and took control of economically-troubled Hongxin Semiconductor and Honor, Huawei's smartphone business. Trade Outlook China's trade recovered in the third quarter of 2020, with medical equipment, electronics, and machinery driving growth. In March 2020, China increased VAT export rebates for 1,500 products, including steel, building .congross.gov