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1 1 (October 19, 2020)

handle is hein.crs/govdccp0001 and id is 1 raw text is: &~ ~ riE SE .$rCh &~ ~ ~ October 19, 2020 China's Economy in 2020: Navigating Headwinds China emerged in June 2020 as the first major country to announce a return to economic growth since the outbreak of the COVID-19 pandemic. The government reported 3.2% gross domestic product (GDP) growth in the second quarter and 4.9% GDP growth in the third quarter of 2020. The International Monetary Fund (IMF) projects China's economy to grow by 1.9% in 2020. China is still grappling with the economic effects of the COVID-19 pandemic, however, including sluggish domestic consumption, slow recovery in its top export markets, and reliance on government spending and exports to boost initial growth. China also is facing growing restrictions on its overseas commercial activities and access to foreign technology and pressures for firms to diversify China-based supply chains. Against this backdrop, China's leadership is deliberating the country's economic direction and national industrial plans for the next 5 to 15 years. C ovl D- 9~ rk o'M a§re&koB oa GG Rnns'kWk To boost economic growth, China since February 2020 has provided an estimated $506 billion in stimulus and increased the government's budget deficit target to a record high of 3.6% of GDP, up from 2.8% in 2019. China reduced the value-added tax (VAT) rate and introduced VAT exemptions for certain goods and services. China's central bank extended monetary support with interest rate cuts, eased loan terms, and injected liquidity into banks. Shifting from efforts to reduce debt, the government announced the issuance of $142.9 billion of special treasury bonds for the first time since 2007; increased the quota for local government special bonds (a source of infrastructure funding); and fast-tracked issuance of corporate bonds to cover pandemic costs but with potential broader uses. The IMF estimates that the fiscal measures and financing plans announced amounted to 4.1% of the China's GDP, as of July 2020. The government says it seeks to control credit risk but the need for additional fiscal and monetary support to boost growth may undermine this goal. ~Ss'c.k E:cncanic 4, sc China also is grappling with economic challenges that predate the pandemic, including slowing domestic growth, rising labor costs, trade pressures including U.S. tariffs, rising consumer inflation, and rising corporate and government debt levels. In September 2020, China's Purchasing Manager's Index was 51.5% a sign of modest expansion but industrial activity remains below 2019 levels. August 2020 retail sales were reliant on government stimulus to increase 0.5% over August 2019. The ongoing outbreak of African Swine Flu since 2018 has decimated over half of China's pork herd and led to acute shortages. The Chinese government has tapped strategic pork reserves and increased imports from Europe and Brazil, but this has not compensated for the decline in imports from the United States since China imposed tariffs on U.S. pork in 2018. China has now increased U.S. pork imports to meet demand and implement purchase targets set in the January 2020 U.S.-China trade agreement. In August 2020, President Xi launched a campaign against food waste, signaling a potential focus on strengthening domestic food supply and the possibility that shortages are more serious than official reporting indicates. Food and energy security was one of six economic priorities at the Communist Party of China (CPC)'s Politburo meeting in April 2020. Figure I. China's Industrial Production and Retail Sales (January 2019 to July 2020) output ts mrcovting faste than inestnent o consumer demand ;Z) M.1 ?&v kB 5(13 \1w !jl Ma.' Mw Cav1 Da.fflob Q Source: Gavekal with data from China's National Bureau of Statistics. Since 2016, the Chinese government has pursued a deleveraging campaign to reign in bad debt accrued by local governments, commercial banks, and unauthorized shadow lending. China's total debt across sectors household, corporate, government, and financial sector could reach 335% of GDP in 2020, according to the International Institute of Finance. China also has an estimated $90 billion and another $100 billion in U.S. dollar-denominated debt due in 2020 and 2021, respectively. Onshore, Chinese companies owe an estimated $694.6 billion in 2020 and $706 billion in 2021. The deleveraging campaign led to several regional bank bailouts in 2019. The number of defaults dropped in 2020 likely due to stimulus measures and laxer rules but debt and nonperforming loan challenges persist and could grow if policy measures push loan forbearance and growth. China's trade recovered in the third quarter of 2020, but future export drivers are uncertain. Initial export growth was mainly driven by a short-term surge in medical personal protective equipment and consumer electronics. China lost share in machinery and some consumer goods during the first 8 months of 2020, areas it may seek to boost. In March 2020, China increased VAT export rebates for 1,500 products, including steel, building materials, insecticides, chemicals, and agricultural goods. In August . . . . . . . . . . . . . - -. - - - p\w -- , gnom goo mppm qq\ a , q 'S I 11LULANUALiN,

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