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1 [1] (April 6, 2022)

handle is hein.crs/govehkb0001 and id is 1 raw text is: Con gresConal Research SerVcs asasam Inorming hlgis4latIv debate sinc'e 1914 China's Economy: Current Trends and Issues The People's Republic of China (PRC or China) was the first major economy to announce a return to economic growth in June 2020 since the outbreak of the Coronavirus Disease 2019 (COVID-19) pandemic; its economic performance since then has been uneven. Repeated lockdowns under zero-COVID tolerance policies have periodically disrupted manufacturing and transportation. Tightened border controls have curtailed two-way goods and services trade, tourism, and student and business travel. Weak domestic demand and debt pressures, particularly in the property sector, are also constraining growth. In 2021, China relied on government spending and exports to boost economic growth by 8.1%, from a low 2020 base of 2.2% growth. The PRC government targets 5.5% growth for 2022, while the International Monetary Fund (IMF) projects 4.8% growth. Some economists assess China may struggle to meet these targets due to domestic constraints and global economic pressures with Russia's invasion of Ukraine. Systemic Economic Challenges China still heavily relies on fixed asset investment and exports for growth. The PRC government faces challenges that predate the pandemic, including slower growth, rising labor costs, trade pressures, consumer inflation, and high levels of corporate and government debt. China's total debt-household, corporate, and government-reached 290% of GDP in 2020 (Figure 1), with the majority of debt held by companies. China's property market accounts for almost 30% of GDP, a higher percentage than in most countries, while private consumption accounts for an estimated 37% of GDP, a low share for an economy of China's size and top global trade position. Property is a main source of local government revenue and a key factor in corporate valuations and household net worth, which complicates efforts to reduce debt and address inequality, despite China's leader Xi Jinping's stated goals. In 2016, the Chinese government initiated a campaign to rein in debt accrued by banks, local governments, and firms. The government restructured several companies and realigned investments in these firms with state goals, established state trusteeship, and transferred assets to state investors. In 2018, Xi pledged to tackle financial risk as one of three tough battles facing the government, which included poverty and pollution. The campaign led to several bank bailouts in 2019, but defaults fell in 2020, likely due to the government's pandemic stimulus and relaxation of the rules. In August 2020, the government launched a three red lines policy for property developers that sets: (1) a 70% ceiling on liability to asset ratios; (2) a 100% cap on net debt to equity ratio; and (3) a cash requirement to cover short-term liabilities. Several property firms, most notably Evergrande, have since struggled to maintain liquidity. China also imposed new data and security restrictions on firms, arguably fueling volatility in China's technology sector and capital markets. Updated April 6, 2022 Figure I.China's Debt as a Share of GDP 300% Total 200 0821 0220421 0822 I' iushis s, Corporate 4 Govemment* Source: CRS with data from the Bank for International Settlements. Notes: *Government debt in nominal value. Does not include financial sector debt. Comparable U.S. debt as a share of U.S. GDP was 295.5% in 2020. T srs to ostG The PRC government appears reluctant to further ease fiscal and monetary policies as it seeks to deleverage the property sector and contain market risks. The government is instead using targeted fiscal measures to boost growth, such as value added tax (VAT) rebates for certain exports and tax incentives for research and technology. China faces shortages and rising prices of raw materials, agriculture products, and energy. The government is trying to cap raw materials prices through de facto price controls it requires industry associations to set and enforce. In 2021, China's fiscal spending was flat, fixed asset investment grew by 4.9%, and industrial production grew by 9.6%. (Figure 2.) Figure 2.Key Economic Trends (2012 to 2021) Index, 200 175 150 125 100 75 50 - 2012 = 100 Fixed Asset Investment (rinus rural households) \ te 03 r r-4 C rJ ni c Lfl W r- o o 0 0 0 0 rJ rv4 r J rd r~i r q 0 ca 0 rJ -- ri ri Source: CRS with data from China's National Bureau of Statistics. A Politburo meeting of senior Communist Party of China (CPC) leaders in December 2021 and the government's work report issued in March 2022 set a moderate growth