RL33534
China's Economic Conditions
October 11, 2007
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Summary
Since the initiation of economic reforms in 1979, China has become one of the world's fastest-growing economies. From 1979 to 2006 China's real gross domestic product (GDP) grew at an average annual rate of 9.7%. Real GDP grew by 11.1% in 2006 and by 11.5% during the first half of 2007 (over the same period in 2006). While China is expected to continue to enjoy rapid economic growth in the years ahead and could become the world's largest economic within a decade, it faces a number of challenges, including widespread corruption, an efficient banking system, over -dependence on exports and investment for growth, pollution, and widening income disparities. The government has indicated its goal over the coming years of creating a "harmonious society" that would promote more balanced economic growth and address a number of economic and social issues. Trade and foreign investment continues to play a major role in China's booming economy. In 2006, exports rose by 27% to $969 billion, while imports were up by 20% to $792 billion. This produced an trade surplus of about $177 billion. From 2003 to 2006, the value of total Chinese trade doubled. On the basis of current trends, China could surpass the United States in 2007 to become the second largest merchandise exporter (after the European Union). Well over half of China's trade is conducted by foreign firms operating in China. The combination of trade surpluses, foreign direct investment flows, and large-scale purchases of foreign currency have helped make China the world's largest holder of foreign exchange reserves at $1.4 trillion as of August 2007. China's economy continues to be a concern to many U.S. policymakers. On the one hand, U.S. consumers, exporters, and investors have greatly benefitted from China's rapid economic and trade growth. 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 China often does not play by the rules when it comes to trade and they have called for greater efforts to pressure China to fully implement its World Trade Organization (WTO) commitments and to change various economic policies deemed harmful to U.S. economic interests, such as its currency policy, its use of subsidies to support state-owned firms, trade and investment barriers to U.S. goods and services, and failure to ensure the safety of its exports to the United States. Concerns have also been raised over China's rising demand for energy and raw materials, its impact on world prices for such commodities, increased pollution levels, and efforts China has made to invest in energy and raw materials around the world, including countries (such as Iran and Sudan) where the United States has major political and human rights concerns. This report provides an overview of China's economic development, challenges China faces to maintain growth, and the implications of China's rise as a major economic power for the United States. This report will be updated as events warrant.
