ANNUAL REPORT

EXECUTIVE SUMMARY
Chapter 1: U.S.-China Economic and Trade Relations
Section 1: Year in Review: Economics and Trade
In the first half of 2016, China’s gross domestic product (GDP)
grew at 6.7 percent, according to official Chinese statistics. Facing a
more pronounced slowdown in growth, Chinese policymakers leaned
heavily on stimulus measures and infrastructure spending to boost
the economy. In the first quarter of 2016, China’s state-controlled
banks released a record $701 billion (renminbi [RMB] 4.7 trillion) of
credit, rivaling the $687 billion (RMB 4.6 trillion) released in 2009
during the global financial crisis. Government stimulus has largely
accrued to the inefficient state sector while the private sector
struggles to secure credit. In the first half of 2016, state sector investment
grew by over 20 percent year-on-year, while private investment
growth dropped to a record low of 2.8 percent. China’s rapidly
rising corporate debt—which stands at 169 percent of GDP—also
raises questions about the sustainability of the country’s economic
growth. The International Monetary Fund warned in its annual
review of China’s economy that China’s rising corporate debt was a
“serious and growing problem that must be addressed immediately,”
estimating the potential losses from bad corporate loans to be worth
7 percent of GDP.
Chinese leaders recognize these challenges, but have not yet taken
steps to decisively address them. In 2016, Chinese President and
General Secretary of the Chinese Communist Party (CCP) Xi Jinping
made “supply-side structural reform” the dominant theme of
economic policy. This concept includes cutting excess industrial capacity
and housing inventories, deleveraging, and reducing business
costs—reforms that increase economic efficiency, but leave the government
firmly in charge. The central government has put the onus
of implementing these broad policy planks on local governments.
Beijing’s ongoing failure to uphold its World Trade Organization
(WTO) commitments, ineffective efforts to cut industrial overcapacity,
and unfair treatment of U.S. companies are straining the bilateral
relationship. In 2015, the U.S. goods trade deficit with China
increased by 6.5 percent year-on-year to $367.2 billion, a new record;
in the first eight months of 2016, the goods deficit was $225 billion.
U.S. companies are finding it increasingly difficult to operate in
China, citing unclear laws and inconsistent regulatory enforcement,
policies that favor domestic competitors, and industrial overcapacity.
According to the American Chamber of Commerce in China’s
2016 Business Climate Survey, more than three-fourths of surveyed
U.S. companies reported they felt foreign businesses are less welcome
in China than in years past. Meanwhile, Chinese investment
in the United States is growing rapidly, driven by the Chinese gov-
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