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1 [1] (July 9, 2024)

handle is hein.crs/govepxe0001 and id is 1 raw text is: Con re &on I Research Servte infoirnin~ th&~ gi Iativ debate s~ rn. 1. 14 Updated July 9, 2024 China's Economy: Current Trends and Issues The International Monetary Fund (IMF) assesses that the People's Republic of China's (PRC's or China's) real gross domestic product (GDP) grew by 5.2% in 2023 and projects 5.0% real GDP growth in 2024. This growth is unbalanced, with supply much higher than domestic demand. The World Bank says that soft domestic demand, weak domestic and foreign business confidence, tepid productivity growth, and systemic debt, among other issues, could constrain PRC future growth prospects. Some economists contend that the economic returns of China's growth model, which has emphasized government investment and exports, is diminishing. These elements appear to feature in China's current economic policies, however. The PRC government is seeking to reduce debt and boost growth and productivity by investing in innovation, education, digital infrastructure, advanced manufacturing, and emerging technologies. It is also pursuing state-led industrial policies to advance its economic and technology development goals. Such statist approaches can distort markets and incentivize production well above what China can absorb domestically. As products supported by PRC industrial policies come to market, China appears to be looking to foreign markets for growth. China's share of global manufacturing output was about 30% as of 2022, highlighting the potential influence of PRC production and export policies on U.S. and global markets. Some in Congress and the Biden Administration have expressed concerns that PRC industrial policies and related subsidies are fueling PRC export expansion in sectors such as electric vehicles (EVs), semiconductors, solar energy, and steel. The Third Plenum The Third Plenum of the Communist Party of China (CPC) Central Committee (to be held on July 15-18, 2024) is expected to focus on economic policies out to 2035 under an official agenda of advancing Chinese-style modernization. At a May 2024 business forum, China's leader Xi Jinping emphasized issues that could be featured at the Plenum, such as employment, income growth, housing, education, and healthcare. Xi also called for resolutely dismantling institutional barriers hindering Chinese-style modernization, a term the CPC uses to refer to the PRC's political and economic model. While many analysts expect overall policy continuity, some possible areas of CPC debate include: * Options to boost economic growth and productivity; * Options to address regional and demographic inequalities and boost regional economic integration; * Cuts in interest rates and bank reserve requirements; * Reform of land and household registration; and * Reform of the tax-revenue sharing framework between the national and local governments. Efforts to B :ot Growth PRC leaders appear reluctant to adopt broad stimulus measures to boost domestic consumption as they try to reduce debt levels. They have pursued narrow stimulus measures and government-led fixed asset investment in manufacturing to boost growth. The PRC government has used value-added tax export rebates and tax incentives for technology and research. In 2024, it expanded financing and buy back programs-similar to ones it used in 2009 -that promote the exchange of old appliances and EVs for new purchases. In May 2024, the Ministry of Finance pledged to issue $138 billion in ultra-long-term special sovereign bonds (at 20- to 50-year ranges) through November 2024 to support priorities in China's 14th Five- Year Plan (2021-2025) (see text box). In March 2024, the PRC government said it would issue up to $539 billion in local government special purpose bonds, typically used to fund infrastructure projects and pay off government debt. In May 2024, the PRC central bank announced $41.4 billion to convert unsold housing inventory into subsidized housing. Manufacturing Investment and Excess Capacity To boost growth, Xi has revived a dual circulation policy that PRC leaders last used in the 2009 financial crisis that seeks to expand production while promoting exports. In 2009, the PRC government used this approach to fund production in 13 manufacturing industries while global industry contracted, generating excess capacity that China then exported to other markets. Amid weak domestic demand, the PRC government's increased investment in manufacturing is fueling deflation, stressing corporate margins, and expanding production beyond what China's market can absorb. Fixed-asset investment in manufacturing grew by 9.6% in the first five months of 2024 over the same period in 2023 with investment growth in prioritized sectors: rail, shipping, and aerospace (35% increase); metal products (18% increase); and information technology (15% increase). In May 2024, the PRC government announced a third investment phase of its semiconductor fund with $47.5 billion over five years. PRC industrial policies and related subsidies are fueling PRC exports and could distort global markets in sectors such as semiconductors, EVs, solar energy, and steel. For example, China is projected to account for almost half of all new global capacity in mature semiconductors (e.g., 28