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1 [1] (August 9, 2024)

handle is hein.crs/goveqhu0001 and id is 1 raw text is: Con ression I Research Servt hdoirnin~ th&~ gi latiw denk s~ rn. 1. 14 Updated August 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 still 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 In July 2024, the Third Plenum of the Communist Party of China (CPC) Central Committee focused on economic policies through 2035 to advance Chinese-style modernization, a term the CPC uses to refer to China's approach to economic development. The Plenum's decision affirmed 14th Five-Year Plan (FYP) (2021-2025) priorities (see text box). It featured plans to develop the digital economy and service sector; to deepen capital markets and securitize intellectual property; and to internationalize China's currency, the renminbi (RMB) and develop a digital RMB and PRC cross-border payment system. It mentioned plans for commodity trading platforms and global distribution centers; a pilot to extend rural land contracts by 30 years; household registration reforms to benefit rural migrants living in urban areas; and an expansion of how local government funds can be spent. At a May 2024 business forum before the Plenum, China's leader Xi Jinping emphasized employment, income growth, housing, education, and healthcare issues. Xi also called for resolutely dismantling institutional barriers hindering Chinese-style modernization. CPC policy debates include how to boost economic growth (particularly lagging consumer spending) and productivity; address inequalities; and reform national-local government tax-revenue sharing. Efforts to Boost Growth PRC leaders appear reluctant to adopt broad stimulus 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. Such measures include value-added tax export rebates, tax incentives for technology and research, and expanded financing for programs that promote a buy back of old appliances and EVs for new purchases. Other PRC government actions to boost the economy include * 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. * May 2024: The central bank announced $41.4 billion to convert unsold housing into subsidized housing. The Finance Ministry pledged to issue $138 billion in ultra- long-term special sovereign bonds through November 2024 to support 14th FYP (2021-2025) priorities. * July 2024: The central bank cut its one-year medium- term lending rate by 20 basis points to 2.3%. * August 2024: The State Council announced stimulus programs to boost domestic consumption in services. Manufacturing Investrnent 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 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%