Monday, August 25, 2008

[IWS] CRS: CHINA'S ECONOMIC CONDITIONS [7 August 2008]

IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations
-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor
---------------------- Stuart Basefsky
New York, NY 10016
-------------------------------Director, IWS News Bureau
________________________________________________________________________

Congressional Research Service (CRS)
Order Code RL33534

China's Economic Conditions
Updated August 7, 2008
Wayne M. Morrison, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade Division
http://assets.opencrs.com/rpts/RL33534_20080807.pdf
[full-text, 30 pages]

Summary
Since the initiation of economic reforms in 1979, China has become one of the
world's fastest-growing economies. From 1979 to 2007 China's real gross domestic
product (GDP) grew at an average annual rate of 9.8%. Real GDP grew 11.4% in
2007 (the fastest annual growth since 1994). While China is expected to continue to
enjoy rapid economic growth in the years ahead and could become the world's largest
economy within a decade or so, it faces a number of challenges, including
widespread government corruption, an inefficient banking system, over-dependence
on exports and fixed investment for growth, pollution, widening income disparities,
and growing inflationary pressures, to name a few. The Chinese government has
indicated that it intends, over the coming years, to create 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. From 2004 to 2007, the value of total Chinese merchandise trade nearly
doubled. In 2007, China's exports (at $1,218 billion) exceeded U.S. exports (1,162
billion) for the first time. China's imports were $956 billion and its trade surplus was
$262 billion (a historic high). Well over half of China's trade is conducted by
foreign firms operating in China. The combination of large 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 $1.5 trillion
at the end 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 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.


Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
An Overview of China's Economic Development . . . . . . . . . . . . . . . . . . . . . . . . 2
China's Economy Prior to Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Introduction of Economic Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
China's Economic Growth Since Reforms: 1979-Present . . . . . . . . . . . . . . 3
Causes of China's Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Measuring the Size of China's Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Direct Investment in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
China's Trade Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
China's Major Trading Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Major Chinese Trade Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
China's Growing Appetite for Imported Oil . . . . . . . . . . . . . . . . . . . . . . . . 12
China's Growing Overseas Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Major Long-Term Challenges Facing the Chinese Economy . . . . . . . . . . . . . . . 16
Outlook for China's Economy and Implications for the United States . . . . . . . . 19
Appendix 1. China's Growing Economic Ties with Africa, North Korea,
and Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
China-Africa Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
China's Imports From Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
China's Mineral Fuel Imports From Africa . . . . . . . . . . . . . . . . . . . . . 23
China's Exports to Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
China's Trade with North Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
China's Trade With Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

List of Tables
Table 1. China's Average Annual Real GDP Growth: 1960-2008 . . . . . . . . . . . 4
Table 2. Comparisons of U.S., Japanese, and Chinese GDP and Per Capita GDP
in Nominal U.S. Dollars and PPP, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. Major Foreign Investors in China: 1979-2007 . . . . . . . . . . . . . . . . . . . . 7
Table 4. Foreign Direct Investment by Sectors in 2007 . . . . . . . . . . . . . . . . . . . . . 8
Table 5. China's Merchandise World Trade, 1979-2007 . . . . . . . . . . . . . . . . . . . 8
Table 6. China's Major Trading Partners: 2007 . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 7. Top 10 Chinese Exports: 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 8. Top 10 Chinese Imports: 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table 9. Top 10 Destinations for China's Overseas Direct Investment: 2005 . . 16
Table 10. Top Five African Sources of Chinese Imports: 2004-2007 . . . . . . . . 22
Table 11. Top Five Chinese Imports from Africa: 2004-2007 . . . . . . . . . . . . . . 23
Table 12. Top Five African Suppliers of Mineral Fuel to China: 2007 . . . . . . . 23
Table 13. China's Top Five African Export Markets: 2004-2007 . . . . . . . . . . . 24
Table 14. Top Five Chinese Exports to Africa: 2004-2007 . . . . . . . . . . . . . . . . 24
Table 15. Major Chinese Exports to North Korea: 2004-2007 . . . . . . . . . . . . . 25
Table 16. Major Chinese Imports from North Korea: 2004-2007 . . . . . . . . . . . 25
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

****************************************
Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
Telephone: (607) 255-2703                
Fax: (607) 255-9641                       
E-mail: smb6@cornell.edu                  
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