About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


1 [1] (February 11, 2025)

handle is hein.crs/govesld0001 and id is 1 raw text is: Con re sian I Research S inVirnin~ h&fl gi Iaflv d~bate>~nt1 I Updated February 11, 2025 China's Economy: Current Trends and Issues The government of the People's Republic of China (PRC or China) reports that China's real gross domestic product (GDP) grew by 5% in 2024. While the PRC government has sought to restrict negative commentary about China's economy, some PRC and international experts have said that China's GDP growth rate has been lower than officially reported, likely between 2% and 3% in 2024. China's growth is also 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 of China's model still feature in current PRC 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 Trump Administration have expressed concern that PRC industrial policies and related subsidies are fueling PRC export expansion in sectors such as electric vehicles (EVs), semiconductors, solar energy, and steel. Economic Policies and Efforts to Boost Growth 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 referring to China's approach to economic development. The Plenum's decision affirmed priorities in the PRC's 14th Five-Year Plan (FYP) (2021- 2025), which include developing the digital economy and service sector; deepening capital markets and securing intellectual property; internationalizing China's currency, the renminbi (RMB), and developing a digital RMB and PRC cross-border payment system (see text box). Other priorities include establishing commodity trading platforms and global distribution centers; conducting a pilot to extend rural land contracts by 30 years; reforming the household registration system to benefit rural migrants living in urban areas; and expanding how local government funds can be spent. At a May 2024 forum, China's leader Xi Jinping 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 income inequalities; and reform national-local government tax-revenue sharing. PRC leaders appear reluctant to adopt broad stimulus to boost domestic consumption as they try to reduce debt levels. They instead have pursued narrow stimulus measures and government-led fixed asset investment in manufacturing to boost growth. Such measures have included extending value-added tax export rebates, tax incentives for technology and research, and financing for programs that promote a buy back of old appliances and EVs for new purchases. In December 2024, the annual Central Economic Work Conference of senior PRC leaders reiterated support for PRC industrial and science and technology policies to promote high quality growth, moderately loose monetary policy, and proactive fiscal policies aimed at boosting growth and stabilizing prices, employment, and China's balance of payments. The conference also touted buy back programs to boost consumption. Other economic measures in 2024 included * March: The PRC government was to issue up to $539 billion in local government special purpose bonds, to pay off local government debt and support projects. * May: 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: The central bank cut its one-year medium-term lending rate by 20 basis points to 2.3%. * August: The State Council announced stimulus programs to boost domestic consumption in services. Manufacturing Investment and Excess Capacity To boost growth, in 2020, Xi revived a dual circulation policy, last used during the 2009 global financial crisis, to expand production while promoting exports. (In 2009, while global industry contracted, the PRC government funded production in 13 PRC industries, generating excess capacity in China that it then exported.) Amid weak domestic demand, PRC government investment in