According to the World Bank, China has "experienced the fastest sustained expansion by a major economy in history—and has lifted more th an 800 million people out of poverty." China has emerged as a major global economic power. For example, it ranks first in terms of economic size on a purchasing power parity (PPP) basis, value-added manufacturing, merchandise trade, and holder of foreign exchange reserves. China is currently the United States' largest merchandise trading partner, its third-largest export market, and its largest source of imports. China's large-scale purchases of U.S. Treasury securities (which totaled $1.2 trillion as of November 2017) have enabled the federal government to fund its budget deficits, which help keep U.S. interest rates relatively low. China's growing global economic influence has raised a number of questions, and in some cases, concerns, as to how China's rise will affect U.S. economic interests and influence on global economic policies. This report provides background on China's economic rise; describes its current economic structure; identifies the challenges China faces to maintain economic growth; and discusses the challenges, opportunities, and implications of China's economic rise for the United States. Such policies created distortions in the economy. The Economist Intelligence Unit (EIU) projects that China's real GDP growth will slow considerably in the years ahead, eventually converging on U.S. growth rates by the year 2036 (U.S. and Chinese real GDP growth are both projected at 1.6%); for some years thereafter, U.S. GDP growth is projected to be greater than China's ( Figure 5 ). Such flows have been a major source of China's productivity gains and rapid economic and trade growth. China has sought to develop a new growth model ("the new normal") that promotes more sustainable (and less costly) economic growth that puts greater emphasis on private consumption and innovation as the new drivers of the Chinese economy. Many analysts warn that without such reforms, China could face a period of stagnant economic growth and living standards, a condition referred to by economists as the "middle-income trap" (see text box). China's Incomplete Transition to a Market Economy

Despite China's three-decade history of widespread economic reforms, Chinese officials contend that China is a "socialist-market economy." The Chinese government responded in part by sharply increasing spending on fixed investment. China's Belt and Road Initiative

China's Belt and Road initiative (BRI), also called "One Belt, One Road" (OBOR), was launched in 2013 to boost economic integration and connectivity (such as infrastructure, trade, and investment) with its neighbors and various trading partners in Asia, Africa, Europe, and beyond. This initiative is from China, but it belongs to the world. The new bank aims to fund infrastructure projects in developing countries. The methods the Chinese government plans to use to achieve its goals have raised concerns among U.S. firms and policymakers because they appear to involve large subsidies, protection of domestic industries, directed policies to purchase technology and IPR from abroad, increased pressure on foreign firms to transfer technology in order to do business in China, and what appears to be a goal of deliberately reducing foreign participation in China's markets. In an interview on November 3, 2017, U.S. Trade Representative Robert Lighthizer stated that China's Made in China 2025 initiative was "a very, very serious challenge, not just to us, but to Europe, Japan and the global trading system." Many believe the key challenges for the United States are to convince China that (1) it has a stake in maintaining the international trading system, which is largely responsible for its economic rise, and should take a more active leadership role in maintaining that system; and (2) further economic and trade reforms are the surest way for China to grow and modernize its economy. Still others, who see China as a growing threat to the U.S. economy and the global trading system, advocate a policy of trying to contain China's economic power and using punitive measures (such as trade sanctions) to either counter the negative impact of China's industrial policies on U.S. firms or push China to modify distortive and discriminatory policies (such as the Made in China 2025 initiative).
Prior to the initiation of economic reforms and trade liberalization nearly 40 years ago, China maintained policies that kept the economy very poor, stagnant, centrally controlled, vastly inefficient, and relatively isolated from the global economy. Since opening up to foreign trade and investment and implementing free-market reforms in 1979, China has been among the world's fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2017, a pace described by the World Bank as "the fastest sustained expansion by a major economy in history." Such growth has enabled China, on average, to double its GDP every eight years and helped raise an estimated 800 million people out of poverty. China has become the world's largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and holder of foreign exchange reserves. This in turn has made China a major commercial partner of the United States. China is the largest U.S. merchandise trading partner, biggest source of imports, and third-largest U.S. export market. China is also the largest foreign holder of U.S. Treasury securities, which help fund the federal debt and keep U.S. interest rates low.
As China's economy has matured, its real GDP growth has slowed significantly, from 14.2% in 2007 to 6.9% in 2017, and that growth is projected by the International Monetary Fund (IMF) to fall to 5.8% by 2022. The Chinese government has embraced slower economic growth, referring to it as the "new normal" and acknowledging the need for China to embrace a new growth model that relies less on fixed investment and exporting, and more on private consumption, services, and innovation to drive economic growth. Such reforms are needed in order for China to avoid hitting the "middle-income trap," when countries achieve a certain economic level but begin to experience sharply diminishing economic growth rates because they are unable to adopt new sources of economic growth, such as innovation.
The Chinese government has made innovation a top priority in its economic planning through a number of high-profile initiatives, such as "Made in China 2025," a plan announced in 2015 to upgrade and modernize China's manufacturing in 10 key sectors through extensive government assistance in order to make China a major global player in these sectors. However, such measures have increasingly raised concerns that China intends to use industrial policies to decrease the country's reliance on foreign technology (including by locking out foreign firms in China) and eventually dominate global markets. U.S. Trade Representative Robert Lighthizer has described the Made in China 2025 initiative as "a very, very serious challenge, not just to us, but to Europe, Japan and the global trading system."
China's efforts to expand its economic influence globally are another area of concern to U.S. policymakers, including China's Belt and Road initiative (BRI) to finance and help build infrastructure projects in Asia, Africa, Europe, and elsewhere. Many analysts contend that China could use the initiative to boost its industries facing overcapacity (such as steel), gain new overseas markets, influence other countries to adopt China's economic model, and expand China's "soft power" in the numerous countries that may participate in the initiative.
China's growing global economic influence and the economic and trade policies it maintains have significant implications for the United States and hence are of major interest to Congress. While China is a large and growing market for U.S. firms, its incomplete transition to a free-market economy has resulted in economic policies deemed harmful to U.S. economic interests, such as industrial policies and theft of U.S. intellectual property. This report provides background on China's economic rise; describes its current economic structure; identifies the challenges China faces to maintain economic growth; and discusses the challenges, opportunities, and implications of China's economic rise for the United States.