China's Economy: Findings of a Research Trip

Publication Date: February 1998

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

Type:

Coverage: China

Abstract:

China’s economic ascendency has aroused great interest in the Congress. This report combines first-hand impressions of China’s economy and U.S.-China commercial relations with an analysis of publicly available data and reporting. China’s economy presents divergent and contradictory images. On the one hand, it is dynamic with considerable potential to become a world class power in many areas. On the other hand, visions of China as an economic power constantly collide with the stark reality of the country’s poverty, uneven development, and
glaring structural weaknesses. While Asia’s financial crisis has elevated a sense of urgency among Chinese officials to push forward with fundamental reforms of the country’s banking system and state-owned enterprises, a slowing economy will make the reforms more difficult to carry out.

In the Hong Kong Special Administrative Region (HKSAR), most officials appeared confident that Hong Kong’s special role as China’s main source of finance and services would continue to grow in the future. Their confidence was based on Hong Kong’s successful transition to date, and on China’s own obvious self-interest in maintaining the HKSAR as its “Golden Goose.” At the same time, the challenge that Asia’s financial crisis is posing for both Hong Kong and China, as well as Hong Kong’s own growing internal problems, illustrated that the so-called “one countrytwo systems” arrangement remains delicate, subtle, and vulnerable to stress.

China’s economic expansion was seen to be having a huge, albeit uncertain, impact, not only on the rest of the world, but on China itself. The effects, both positive and negative, encompass shifts in world trade, production, and employment, the environment, foreign relations, and China’s Communist and authoritarian system of governance. The rapid expansion of China’s economy has also coincided with an intensification of U.S.-China commercial ties. China’s market holds tremendous allure for a growing number of U.S. companies, but it remains a very difficult one in which to do business. Although China’s reforms and economic dynamism are gradually improving the business environment, its domestic market remains substantially regulated, and there are few short-cuts to commercial success.

The U.S. trade deficit with China is large, rapidly expanding, and increasingly sensitive politically. For many Americans, the deficit symbolizes an imbalanced trading relationship where Chinese firms have relatively more access to the U.S. market than American firms have to China’s market. Chinese and U.S. officials proposed divergent solutions for curbing the deficit.

China’s bid to join the World Trade Organization (WTO) is widely viewed as an enormously important, complicated, and risky undertaking. Depending on the terms of the accession agreement, China’s entry could either weaken or strengthen its own economy, selected U.S. economic interests, as well as the world trading system. It is not clear what forces or events might push either side to reach a compromise or mutually acceptable agreement.