Since the market reforms of leader Deng Xiaoping in the s, the ruling Chinese Communist Party CCP has pursued a mixed economy that combines socialist planning with elements of private enterprise. China is intended to push the economy through this difficult transition and over the so-called middle-income trap , in which growth plateaus as wages start to rise, that has bedeviled many other developing countries.
China accelerates preexisting efforts by devoting more resources and intensifying centralized policy planning to coordinate across government, private companies, and academia. The plan includes publicly stated policies, as well as more opaque actions, which some analysts say are meant to shield China from accusations of violating its commitments to the World Trade Organization WTO and avoid retaliation. These tactics include:. Setting explicit targets. Providing direct subsidies. The government will increase direct support for the China industries through state funding, low interest loans, tax breaks, and other subsidies.
China remains committed to open economy and reform
The exact amount is unclear, but some outside estimates [PDF] put the likely number in the hundreds of billions of dollars. Foreign investment and acquisitions. Chinese companies, both private and state-backed, have been encouraged to invest in foreign companies, notably semiconductor firms, to gain access to advanced technology. Mobilizing state-backed companies. Much of this investment comes from SOEs, or companies or funds backed by the Chinese government.
Assessing China’s Economic Reform Agenda
Forced transfer agreements. Foreign companies complain that to invest or do business in China, they must enter into joint ventures with Chinese firms under terms that require them to share sensitive intellectual property and advanced technological know-how. The Pentagon warned in that state-led Chinese investment in U. In April , U.
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In the economic realm, critics say that China is distorting global markets by prioritizing political considerations over economic incentives. Meanwhile, companies based in the United States, Europe, and elsewhere complain of an asymmetry in which China is free to invest in foreign countries, but foreign companies selling to and operating in China are highly constrained by investment requirements and other regulations. They also argue that they are only imitating what other successful developed countries have done. The United States used tariffs and other government support to nurture native industries in the early days of its industrialization, while the rapid development of the so-called Asian tigers, such as South Korea in the twentieth century , featured extensive state support.
Analysts say China is also drawing inspiration from more recent industrial policies by countries such as Japan and Germany, which have sought to integrate new information technologies into their manufacturing sectors. Many European and U. Germany also lacks targets for replacing imports or quotas for indigenous production.
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German officials, like many other Western policymakers, have complained that while their economy is open to Chinese investment, market access for their companies in China is severely limited. As the perceived threat from Chinese industrial policy has blurred the lines between trade policy and national security, the U.
CFIUS and other potential investment-review measures. Still, the Trump administration argues that the agency is understaffed and lacks enough authority to respond to the scale of the threat from Chinese investments, especially since some firms purposely structure deals to hide the involvement of Chinese state funds. He has so far held off implementing these. Tariffs and other trade remedies. The administration had already applied tariffs on solar panels and steel and aluminum imports, a move it said was necessary in part due to Chinese overproduction.
Washington raised that tariff to 25 percent in May , after U. Trump has also threatened to extend the 25 percent tariffs to all remaining imports of Chinese goods. Other restrictions on Chinese firms. The U. A report by the House Intelligence Committee declared Huawei and ZTE threats to national security due to the potential for Beijing to use their networks for spying or sabotage, and the Commerce department restricted their ability to sell their products, contract with government agencies, and otherwise operate in the United States.
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