China's Economic Conditions

Publication Date: March 2009

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

Type:

Coverage: China

Abstract:

Since the initiation of economic reforms in 1979, China has become one of the world's fastest-growing economies. From 1979 to 2005 China's real GDP grew at an average annual rate of 9.7%; it grew by 9.9% in 2005. During the first quarter of 2006, China's real GDP grew by 10.2%. Many economists speculate that China could become the world's largest exporter within the next few years and the largest economy within a few decades, provided that the government is able to continue and deepen economic reforms, particularly in regard to its inefficient state-owned enterprises (SOEs), the state banking system, and fixed exchange rate system. In addition, China faces several other difficult challenges, such as pollution and growing income inequality, that threaten social stability.

Trade continues to play a major role in China's booming economy. In 2005, exports rose by 28.4% to $762 billion, while imports grew by 17.6% to $660 billion, producing a $102 billion trade surplus. China is now the world's third-largest trading economy after the United States and Germany. China's trade boom is largely the result of large inflows of foreign direct investment (FDI) into China, which totaled $60 billion in 2005. Over half of China's trade is accounted for by foreign-invested firms in China.

China's economy continues to be a concern to many U.S. policymakers. On the one hand, China's economic growth presents huge opportunities for U.S. exporters. On the other hand, the surge in Chinese exports to the United States has put competitive pressures on various U.S. industries. Many U.S. policymakers have argued that greater efforts should be made to pressure China to fully implement its World Trade Organization (WTO) commitments (especially in terms of protecting U.S. intellectual property rights) and change various economic policies deemed harmful to U.S. economic interests, such as its currency policy and its use of subsidies to support its state-owned firms.

This report replaces IB98014, China's Economic Conditions, by Wayne M. Morrison, and will be updated as events warrant.