ANNUAL REPORT

Introduction
CHAPTER 1
U.S.-CHINA ECONOMIC
AND TRADE RELATIONS
SECTION 1: YEAR IN REVIEW:
ECONOMICS AND TRADE
China is navigating a complex economic transformation as it experiences
a slower pace of growth. The Chinese leadership proclaimed
during the 2013 Third Plenary Session of the 18th Chinese Communist
Party (CCP) Central Committee (hereafter, “Third Plenum”)
that it is working toward a more market-based economic system.
However, Party documents and official actions indicate the Chinese
government’s approach to reform is different from the liberal market
reform Western observers expect. By “reform,” China’s leaders
mean an economy that more efficiently achieves the strategic goals
of the state. While reform in the Chinese sense allows for incremental
movements toward a free market in certain areas, it precludes
any changes that substantially reduce the government’s power over
the economy.
Beijing’s state-directed approach raises questions about the sustainability
of China’s economic growth. Government stimulus has
largely accrued to the state sector while the private sector struggles
to secure credit, endangering China’s rebalancing. Within China’s
economic downturn, a tale of two Chinas is emerging. In one, traditional
drivers of growth—heavy industry and low-end manufacturing—are
in decline, while in another, newer sectors—services, consumer
goods, and technology—are burgeoning. Still, the old economy
remains critical for some provinces, and the new economy—so vital
to China’s future growth—is nascent, underfunded, and not pulling
its weight. National-level economic data also belie sharp discrepancies
between the northeastern and western provinces dependent on
the old economy and the southern and eastern regions with more
diversified economies. 1 Externally, China’s rebalancing has proceeded
slowly as the country continues to run massive global trade surpluses:
in 2015, China’s global trade surplus in goods and services
reached $595 billion, up from $382 billion in 2014. 2
This section examines China’s domestic and external rebalancing
as well as key developments in U.S.-China bilateral and multilateral
engagement since the Commission’s 2015 Annual Report to
Congress. For analysis of some of the key challenges China faces as
it seeks to rebalance its economy, see Chapter 1, Section 2, “State-
Owned Enterprises, Overcapacity, and China’s Market Economy
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