China's Economic Conditions

China’s Economic Conditions
Updated November 20, 2008
Wayne M. Morrison
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

China’s Economic Conditions
Since the initiation of economic reforms 30 years ago, China has become one
of the world’s fastest-growing economies. From 1979 to 2007 China’s real gross
domestic product (GDP) grew at an average annual rate of 9.8%. Real GDP grew
11.4% in 2007 (the fastest annual growth since 1994). However, China faces a
number of challenges, including the fallout from the global financial crisis,
widespread government corruption, an inefficient banking system, over-dependence
on exports and fixed investment for growth, pollution, widening income disparities,
growing inflationary pressures, and the current global financial crisis. The Chinese
government has indicated that it intends, over the coming years, to create a
“harmonious society” that would promote more balanced economic growth and
address a number of economic and social issues.
Trade and foreign investment continues to play a major role in China’s booming
economy. From 2004 to 2007, the value of total Chinese merchandise trade nearly
doubled. In 2007, China’s exports (at $1,218 billion) exceeded U.S. exports (1,162
billion) for the first time. China’s imports were $956 billion and its trade surplus was
$262 billion (a historic high). Well over half of China’s trade is conducted by
foreign firms operating in China. The combination of large trade surpluses, foreign
direct investment flows, and large-scale purchases of foreign currency have helped
make China the world’s largest holder of foreign exchange reserves at $1.9 trillion
at the end September 2008.
China’s economy continues to be a concern to many U.S. policymakers. On the
one hand, U.S. consumers, exporters, and investors have greatly benefitted from
China’s rapid economic and trade growth. On the other hand, the surge in Chinese
exports to the United States has put competitive pressures on various U.S. industries.
Many U.S. policymakers have argued that China often does not play by the rules
when it comes to trade and they have called for greater efforts to pressure China to
fully implement its World Trade Organization (WTO) commitments and to change
various economic policies deemed harmful to U.S. economic interests, such as its
currency policy, its use of subsidies to support state-owned firms, trade and
investment barriers to U.S. goods and services, and failure to ensure the safety of its
exports to the United States. Concerns have also been raised over China’s rising
demand for energy and raw materials, its impact on world prices for such
commodities, increased pollution levels, and efforts China has made to invest in
energy and raw materials around the world, including countries (such as Iran and
Sudan) where the United States has political and human rights concerns. The current
global financial crisis has raised a number of questions over how China might
respond in terms of stimulating its own economy and possibly assisting troubled
economies around the world.
This report provides an overview of China’s economic development, challenges
China faces to maintain growth, and the implications of China’s rise as a major
economic power for the United States. This report will be updated as events warrant.

Most Recent Developments..........................................2
An Overview of China’s Economic Development........................2
China’s Economy Prior to Reforms................................2
The Introduction of Economic Reforms............................3
China’s Economic Growth Since Reforms: 1979-Present..............3
Causes of China’s Economic Growth..............................4
Measuring the Size of China’s Economy................................5
Foreign Direct Investment in China....................................6
China’s Trade Patterns..............................................8
China’s Major Trading Partners...................................9
Major Chinese Trade Commodities...............................10
China’s Growing Appetite for Imported Oil........................12
China’s Growing Overseas Direct Investment...........................13
Major Long-Term Challenges Facing the Chinese Economy...............16
Fallout From the Current Global Financial Crisis........................19
Appendix. China’s Growing Economic Ties with Africa, North Korea, and
Iran ........................................................21
China-Africa Trade...........................................21
China’s Imports From Africa................................21
China’s Mineral Fuel Imports From Africa.....................22
China’s Exports to Africa..................................23
China’s Trade with North Korea.................................24
China’s Trade With Iran.......................................25
List of Tables
Table 1. China’s Average Annual Real GDP Growth: 1960-2008...........4
Table 2. Comparisons of U.S., Japanese, and Chinese GDP and Per Capita GDP
in Nominal U.S. Dollars and PPP, 2007............................6
Table 3. Major Foreign Investors in China: 1979-2007....................7
Table 4. Foreign Direct Investment by Sectors in 2007.....................8
Table 5. China’s Merchandise World Trade, 1979-2007...................8
Table 6. China’s Major Trading Partners: 2007........................10
Table 7. Major Chinese Exports: 2007...............................11
Table 8. Major Chinese Imports: 2007...............................12
Table 9. Top 10 Destinations for China’s Overseas Direct Investment: 2005..15
Table 10. Top Five African Sources of Chinese Imports: 2004-2007........22
Table 11. Top Five Chinese Imports from Africa: 2004-2007..............22

Table 13. China’s Top Five African Export Markets: 2004-2007...........23
Table 14. Top Five Chinese Exports to Africa: 2004-2007................24
Table 15. Major Chinese Exports to North Korea: 2004-2007 .............25
Table 16. Major Chinese Imports from North Korea: 2004-2007...........25

China’s Economic Conditions
The rapid rise of China as a major economic power within a time span of about
30 years is often described by analysts as one of the greatest economic success stories
in modern times. From 1979 (when economic reforms began) to 2007, China’s real
gross domestic product (GDP) grew at an average annual rate of over 9.8%; in 2007,
it rose by 11.4%. The Chinese economy in 2007 (in real terms) was nearly 14 times
larger than it was in 1979, and real per capita GDP was more than 10 times larger.
By some measurements, China is now the world’s second largest economy and some
analysts predict it could become the largest within a few decades.
China’s economic rise has led to a substantial increase in U.S.-China economic
relations. Total trade between the two countries surged from $5 billion in 1980 to
$387 billion in 2007 (U.S. data). In 2007, China was the United States’ second
largest trading partner, its third largest export market, and its largest source of
imports. Many U.S. companies have extensive manufacturing operations in China
in order to sell their products in the booming Chinese market and to take advantage
of low cost labor for manufacturing products for export. These operations have
helped U.S. firms remain internationally competitive and have supplied U.S.
consumers with a variety of low cost goods. China’s large-scale purchases of U.S.
Treasury securities have enabled the federal government to fund its budget deficits
and help keep U.S. interest rates relatively low.
However, the emergence of China as a major economic superpower has raised
concern among many U.S. policymakers. Some express concern over the large and
growing U.S. trade deficits with China, which rose from $10.4 billion in 1990 to
$256 billion in 2007, and are viewed by many Members as an indicator that U.S.-
Chinese commercial relations are imbalanced or unfair. Others claim that China uses
unfair trade practices (such as an undervalued currency and subsidies to domestic
producers) to flood U.S. markets with low cost goods, and that such practices
threaten American jobs, wages, and living standards. Numerous bills have beenth
introduced in the 110 Congress to address various Chinese economic trade practices
deemed to be unfair, such as its currency policy.
China faces a number of significant economic challenges, including the fallout
from the global financial crisis (which could slow its exports and hence economic
growth), a weak banking system, widening income gaps, growing pollution,
unbalanced economic growth (through over-reliance on exports), and widespread
economic efficiencies resulting from non-market policies. The Chinese government
views a growing economy as vital to maintaining social stability.
This report provides background on China’s economic rise and current
economic structure and the challenges China faces to keep its economy growing
strong, and describes Chinese economic policies that are of concern to U.S.

Most Recent Developments
!On November 20, 2008, the Bank of China reported that the
exchange rate between the Chinese renminbi and the U.S. dollar
stood at 6.83, an appreciation of 18.7% since China’s currency was
reformed in July 2005.
!On November 15, 2008, Chinese President Hu Jintao attended the
summit meeting of the Group of 20 (G-20) countries in Washington,
D.C. to discuss the current global financial crisis. Hu stated that
“steady and relatively fast growth in China is in itself an important
contribution to international financial stability and world economic
!On November 9, 2008, the Chinese government announced it would
implement a two-year $586 billion stimulus package, mainly
dedicated to infrastructure projects.
!On October 24, 2008, the Chinese government reported that
approved foreign direct investment over the first nine months of

2008 had fallen by 26% over the same period in 2007.

!On October, 8 2008, China’s central bank announced plans to cut
interest rates and the reserve-requirement ratio in order to help
stimulate the economy. The announcement coincided with
announcements by the U.S. Federal Reserve and other central banks
of major economies around the world to lower their benchmark
interest rates. China cut its rates again on October 29.
!On June 13, 2008, the Netherlands Environmental Assessment
Agency announced that, according to its estimates, China in 2007
became the world’s largest emitter of CO2, surpassing the United
States by 14%, and accounting for two-thirds of last year’s global
carbon dioxide increase.
!On May 12, 2008, China’s Sichuan Province was struck by a strong
earthquake. The Chinese government estimated that (as of June 23,
2008) 69,181 people were killed, 374,171 injured, and 18,498 were
An Overview of China’s Economic Development
China’s Economy Prior to Reforms
Prior to 1979, China maintained a centrally planned, or command, economy.
A large share of the country’s economic output was directed and controlled by the
state, which set production goals, controlled prices, and allocated resources
throughout most of the economy. During the 1950s, all of China’s individual

household farms were collectivized into large communes. To support rapid
industrialization, the central government undertook large-scale investments in
physical and human capital during the 1960s and 1970s. As a result, by 1978 nearly
three-fourths of industrial production was produced by centrally controlled state-
owned enterprises according to centrally planned output targets. Private enterprises
and foreign-invested firms were nearly nonexistent. A central goal of the Chinese
government was to make China’s economy relatively self-sufficient. Foreign trade
was generally limited to obtaining only those goods that could not be made or
obtained in China.
Government policies kept the Chinese economy relatively stagnant and
inefficient, mainly because there were few profit incentives for firms and farmers;
competition was virtually nonexistent, and price and production controls caused
widespread distortions in the economy. Chinese living standards were substantially
lower than those of many other developing countries. The Chinese government
hoped that gradual reform would significantly increase economic growth and raise
living standards.
The Introduction of Economic Reforms
Beginning in 1979, China launched several economic reforms. The central
government initiated price and ownership incentives for farmers, which enabled them
to sell a portion of their crops on the free market. In addition, the government
established four special economic zones along the coast for the purpose of attracting
foreign investment, boosting exports, and importing high technology products into
China. Additional reforms, which followed in stages, sought to decentralize
economic policymaking in several sectors, especially trade. Economic control of
various enterprises was given to provincial and local governments, which were
generally allowed to operate and compete on free market principles, rather than under
the direction and guidance of state planning. Additional coastal regions and cities
were designated as open cities and development zones, which allowed them to
experiment with free market reforms and to offer tax and trade incentives to attract
foreign investment. In addition, state price controls on a wide range of products were
gradually eliminated.
China’s Economic Growth Since Reforms: 1979-Present
Since the introduction of economic reforms, China’s economy has grown
substantially faster than during the pre-reform period (see Table 1). From 1960 to
1978, real annual GDP growth was estimated at 5.3% (a figure many analysts claim
is overestimated, based on several economic disasters that befell the country during
this time, such as the Great Leap Forward from 1958-1960 and the Cultural
Revolution from 1966-1976). During the reform period (1979-the present), China’s
average annual real GDP grew by 9.8%; it grew by an estimated 11.4% in 2007 over
the previous year. Since economic reforms were begun, the size of the economy in

real terms has increased 14-fold, and real per capita GDP (a common measurement
of living standards) has gone up 10-fold.1
Table 1. China’s Average Annual Real GDP Growth: 1960-2008
Time Average Annual
PeriodGrowth (%)
1960-1978 (pre-reform)5.3
1979-2007 (post-reform)9.8
1998 7.8
1999 7.6
2001 8.3
2002 9.1
2004 10.1
2006 11.1
First half 200811.4
Source: Official Chinese government data and Economist Intelligence Unit.
Causes of China’s Economic Growth
Economists generally attribute much of China’s rapid economic growth to two
main factors: large-scale capital investment (financed by large domestic savings and
foreign investment) and rapid productivity growth. These two factors appear to have
gone together hand in hand. Economic reforms led to higher efficiency in the
economy, which boosted output and increased resources for additional investment in
the economy.
China has historically maintained a high rate of savings. When reforms were
initiated in 1979, domestic savings as a percentage of GDP stood at 32%. However,
most Chinese savings during this period were generated by the profits of state-owned
enterprises (SOEs), which were used by the central government for domestic

1 Calculated by CRS from data in Global Insight’s Country Intelligence on China’s
Economy, Detailed Quarterly Forecast, January 2, 2008.

investment. Economic reforms, which included the decentralization of economic
production, led to substantial growth in Chinese household savings (these now
account for half of Chinese domestic savings). As a result, savings as a percentage
of GDP has steadily risen; it reached nearly 50% in 2005, among the highest savings
rates in the world.
Several economists have concluded that productivity gains (i.e., increases in
efficiency in which inputs are used) were another major factor in China’s rapid
economic growth. The improvements to productivity were caused largely by a
reallocation of resources to more productive uses, especially in sectors that were
formerly heavily controlled by the central government, such as agriculture, trade, and
services. For example, agricultural reforms boosted production, freeing workers to
pursue employment in the more productive manufacturing sector. China’s
decentralization of the economy led to the rise of nonstate enterprises, which tended
to pursue more productive activities than the centrally controlled SOEs.
Additionally, a greater share of the economy (mainly the export sector) was exposed
to competitive forces. Local and provincial governments were allowed to establish
and operate various enterprises on market principles, without interference from the
central government. In addition, foreign direct investment (FDI) in China brought
with it new technology and processes that boosted efficiency.
Measuring the Size of China’s Economy
The actual size of the China’s economy has been a subject of extensive debate
among economists. Measured in U.S. dollars using nominal exchange rates, China’s
GDP in 2007 was $3.2 trillion; its per capita GDP (a commonly used living-standards
measurement) was $2,450. Such data would indicate that China’s economy and
living standards are significantly lower than those of the United States and Japan,
respectively considered to be the number-one and number-two largest economies (see
Table 2).
Many economists, however, contend that using nominal exchange rates to
convert Chinese data into U.S. dollars substantially underestimates the size of
China’s economy. This is because prices in China for many goods and services are
significantly lower than those in the United States and other developed countries.
Economists have attempted to factor in these price differentials by using a purchasing
power parity (PPP) measurement, which attempts to convert foreign currencies into
U.S. dollars on the basis of the actual purchasing power of such currency (based on
surveys of the prices of various goods and services) in each respective country. This
PPP exchange rate is then used to convert foreign economic data in national
currencies into U.S. dollars.
Because prices for many goods and services are significantly lower in China
than in the United States and other developed countries (while prices in Japan are
higher), the PPP exchange rate raises the estimated size of Chinese economy from
$3.2 trillion (nominal dollars) to $7.3 trillion (PPP dollars), significantly larger than
Japan’s GDP in PPPs ($4.3 trillion), and a little over half the size of the U.S.
economy. PPP data also raise China’s per capita GDP from $2,450 (nominal) to

$5,380. The PPP figures indicate that, while the size of China’s economy is
substantial, its living standards fall far below those of the U.S. and Japan. China’s
per capita GDP on a PPP basis was only 11.7% of U.S. levels. Thus, even if China’s
GDP were to overtake that of the United States in the next few decades, its living
standards would likely remain substantially below those of the United States for
many years to come.2
Table 2. Comparisons of U.S., Japanese, and Chinese GDP and
Per Capita GDP in Nominal U.S. Dollars and PPP, 2007
Nominal GDPGDP in PPPNominal PerPer Capita
Country($ billions)($ billions)Capita GDPGDP in PPP
United States13,84113,84145,82045,820
J a pan 4,378 4,284 34,340 33,610
China 3,242 7,328 2,450 5,380
Source: Economist Intelligence Unit (estimated, based on World Bank Data).
Foreign Direct Investment in China
China’s trade and investment reforms and incentives led to a surge in foreign
direct investment (FDI), which has been a major source of China’s capital growth.
Annual utilized FDI in China (excluding the financial sector) grew from $636 million
in 1983 to $75 billion in 2007.3 The cumulative level of FDI in China at the end of
2007 stood at nearly $760 billion, making China one of the world’s largest
destinations of FDI.
Based on cumulative FDI for 1979-2007 about 40% of FDI in China has come
from Hong Kong, 9.7% from the British Virgin Islands,4 8.1% from Japan, and 7.4%
from the United States. (See Table 3).5 The United States was China’s fifth largest

2 In December 2007, the World Bank lowered its previous estimate of China’s 2005 GDP
on a PPP basis by 40% (to $5.3 trillion), based on price survey data supplied by the Chinese
government for the first time. The new PPP estimates are believed to be more accurate than
those made previously. See CRS Report RS22808, How Large is China’s Economy? Does
it Matter?, by Wayne M. Morrison and Michael F. Martin.
3 In 2005, China announced that previous year’s FDI data excluded investment in the
banking, insurance, and securities sectors. It henceforth began to report two overall FDI
figures: one that includes the financial sector and one that excludes it. China’s FDI
including the financial sector totaled $72.4 billion in 2005, $69.5 billion in 2006, and $82.7
billion in 2007. China does not include the financial sector in its country breakdown of FDI.
4 The British Virgin Islands is a large source of FDI because of its status as a tax haven.
5 Much of the FDI originating from the British Virgin Islands and Hong Kong may originate
from other foreign investors. For example, Taiwanese businesses are believed to invest in
China through other countries in order to circumvent government restrictions. In addition,

source of U.S. FDI in 2007, accounting for 3.5% of total.6 U.S. FDI flows to China
peaked at $5.4 billion in 2002, but have declined every year since. U.S. FDI in China
in 2007 fell by nearly 13% over the previous year.
The largest sector for FDI flows to China in 2007 was manufacturing, which
accounted for about 55% of total (see Table 4).7 The Chinese government estimates
that through June 2007, it had approved over 610,000 foreign funded companies and
that 28 million people were employed by such firms (10% of all people employed in8
urban areas).
Table 3. Major Foreign Investors in China: 1979-2007
($ billions and % of total)
Cumulative Utilized
FDI: 1979-2007Utilized FDI in 2007
% of% Change
CountryAmount% of TotalAmountTotalover 2006
T otal 760.2 100.0 74.8 100.0 13.4
Hong Kong300.039.520.237.130.0
British Virgin Islands73.89.716.622.141.8
J a pan 61.2 8.1 3.6 4.8 -24.6
United States56.
South Korea38.
Source: Invest in China, []. Top six investors according to cumulative FDI
from 1979 to 2007. Data do not reflect FDI in the financial sector, which the government does not
report by country.
Note: Chinese data on FDI differ significantly from that of investor countries.

5 (...continued)
some Chinese investors might be using these locations to shift funds overseas in order to re-
invest in China to take advantage of preferential investment policies (this practice is often
referred to as “round-tipping”). Thus the actual level of FDI in China may be overstated.
6 According to the Chinese government , major U.S. investors in China (based on 2003 sales
volumes) include Motorola ($5.8 billion in sales volume), General Motors ($2.2 billion),
Dell Computer ($2.1 billion), Hewlett Packard ($1.3 billion), and Kodak ($0.6 billion).
7 Communications equipment, computers, and other electronic equipment accounted for the
largest manufacturing sector for FDI.
8 Xinhua News Agency, August 28, 2007.

Table 4. Foreign Direct Investment by Sectors in 2007
($ billions and % of total)
SectorsUtilizedFDI% of Total
Total74.8 100.0
Manufacturing40.9 54.6
Real Estate Development17.1 23.7
Leasing and Commercial Services4.0 5.3
Wholesale and Retail Trade2.7 3.6
Transport, Storage, and Posts2.0 2.7
Source: Chinese National Bureau of Statistics.
China’s Trade Patterns
Economic reforms have transferred China into a major trading power. Chinese
exports rose from $14 billion in 1979 to $1,218 billion in 2007, while imports over
this period grew from $16 billion to $956 billion (see Table 5). In 2004, China
surpassed Japan as the world’s third-largest trading economy, after the European
Union (EU) and the United States, and in 2007 it may have become the second
largest exporter, surpassing the United States. China’s exports has grown
dramatically in recent years, doubling in size from 2004 to 2007, with an average
annual growth rate of 29%. Imports over this period increased by 70%. China’s
trade surplus, which totaled $32 billion in 2004, surged to $262 billion in 2007.
Table 5. China’s Merchandise World Trade, 1979-2007
($ billions)
YearExportsImportsTrade Balance
1979 13.7 15.7 -2.0
1980 18.1 19.5 -1.4
1985 27.3 42.5 -15.3
1995 148.8 132.1 16.7
2000 249.2 225.1 24.1
2001 266.2 243.6 22.6
2002 325.6 295.2 30.4
2003 438.4 412.8 25.6
2004 593.4 561.4 32.0
2005 762.0 660.1 101.9
2006 969.1 791.5 177.6
2007 1,218.0 955.8 262.2
2008 projection*1,475.01,176.6298.4
*Projections based on actual data for January-August 2008.
Source: International Monetary Fund, Direction of Trade Statistics and
Global Trade Atlas (using official Chinese statistics).

Merchandise trade surpluses, large-scale foreign investment, and large purchases
of foreign currencies to maintain its exchange rate with the dollar and other
currencies have enabled China to accumulate the world’s largest foreign exchange
reserves. China’s accumulation of foreign exchange reserves has been particularly
acute over the past few years. China' total reserves reached $1.9 trillion at the end
September $1.9 trillion, making it the world's largest holder.
China’s Major Trading Partners
China’s trade data often differ significantly from those of its major trading
partners, especially with the United States. This is largely due to the large share of
China’s trade (both exports and imports) passing through Hong Kong (which reverted
back to Chinese rule in July 1997 but is treated as a separate customs area by most
countries, including China and the United States). China treats a large share of its
exports through Hong Kong as Chinese exports to Hong Kong for statistical
purposes, while many countries that import Chinese products through Hong Kong
generally attribute their origin to China for statistical purposes.
According to Chinese trade data, its top five trading partners in 2007 were the
European Union (EU), Japan, the United States, the 10 nations that constitute the
Association of Southeast Asian Nations (ASEAN), and Hong Kong (see Table 6).
China’s largest export markets were, the EU, the United States, and Hong Kong,
while its top sources for imports were the Japan, the EU, and ASEAN (the United
States ranked sixth). China maintained substantial trade surpluses with the United
States, the EU, and Hong Kong, but had deficits with Japan and ASEAN. China
reported that it had a $163 billion trade surplus with the United States (U.S. data
show that it had a $256 billion deficit with China).
U.S. trade data indicate that the importance of the U.S. market to China’s export
sector is likely to be much higher than is reflected in Chinese trade data. Based on
U.S. data on Chinese exports to the United States and Chinese data on total Chinese
exports, it is estimated that Chinese exports to the United States as a share of total
Chinese exports totaled 33.6% in 2007. A growing level of Chinese exports is from
foreign-funded enterprises (FFEs) in China. According to Chinese data, FFEs were
responsible for 57% of Chinese exports in 2007 compared with 41% in 1996. A
large share of these FFEs are owned by Hong Kong and Taiwan investors, many of
whom have shifted their labor-intensive, export-oriented, firms to China to take
advantage of low-cost labor. A large share of the products made by such firms is
likely exported to the United States.
Additional information on China’s trade with other countries and regions,
including Africa, Iran, and North Korea, can be found in Appendix 1.

Table 6. China’s Major Trading Partners: 2007
($ billions)
CountryTotal TradeChineseExportsChineseImportsTrade
European Union356.2245.2111.0134.2
United States302.1232.769.4163.3
Japan 236.0102.1134.0-31.9
ASEANa 202.5 94.2 108.4 -14.1
Hong Kong197.2184.312.8171.6
Source: China Monthly Statistics.
Note: Chinese data on its bilateral trade often differ substantially from the official trade data of many
of its trading partners.
a. Association of Southeast Asian Nations (ASEAN) member countries are Indonesia, Malaysia, the
Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar (Burma), and Vietnam.
Major Chinese Trade Commodities
China’s abundance of cheap labor (the average labor cost per hour in China was9
$1.35, compared with $24.50 in the United States in 2006) has made it
internationally competitive in many low-cost, labor-intensive manufactures. As a
result, manufactured products constitute an increasingly larger share of China’s trade.
A substantial amount of China’s imports is comprised of parts and components that
are assembled in Chinese factories (major products include consumer electronic
products and computers), then exported. China’s top 10 exports and imports in 2007
are listed in Tables 8 and 9, respectively, using the harmonized tariff system (HTS)
on a four digit level.

9 EIU Industry Wire, April 4, 2007.

Table 7. Major Chinese Exports: 2007
% of
2007 Tot a l 2006-2007
Description($billionsExports % Change
Total Exports 1,218.0100.025.7
Automatic data processing machines
and units thereof; magnetic or optical
readers, machines for transcribing and
processing coded data, NESOI93.57.70.5
Electric apparatus for line telephony
etc, parts78.66.5566.2
Television receivers, including video
monitors and video projectors36.23.0182.4
Parts etc for typewriters and other
office machines32.72.7-0.9
Electronic integrated circuits and
micro-assemblies; parts thereof24.02.011.1
Liquid crystal devices nesoi, lasers,
optical appliances and instruments,
and parts20.61.739.2
Printing machinery used for printing
by means of plates, cylinders and other
printing components; other printers,
copying machines and facsimile
machines, whether or not combined;
parts and accessories thereof: printing
machinery used for printing by means
plates, cylinders and other printing
components 18.7 1.5 4,548.1
Sweaters, pullovers, and vests, etc,
knit or crocheted16.01.324.8
Electrical transformers, static
converters (for example,
rectifiers) and inductors; parts
Women’s or girls’ suits, ensembles,
etc. not knit13.41.17.8
Source: World Trade Atlas.
Notes: Harmonized Tariff, four-digit level. NESOI means not elsewhere specified or

Table 8. Major Chinese Imports: 2007
Value% of2006-2007
Description($billions)Total% Change
Total 995.8100.020.8
Electronic integrated circuits and micro-
assemblies; parts thereof129.513.520.8
Crude oil from petroleum and bituminous
mi nerals 79.7 8.3 20.0
Liquid crystal devices NESOI; lasers; optical
appliances and instruments NESOI; parts and
accessories thereof45.24.725.9
Iron ores and concentrates33.83.562.5
Automatic data processing machines and
units thereof; magnetic or optical readers,
machines for transcribing and processing
coded data, NESOI20.02.10.5
Electric apparatus for line telephony etc, and
parts 18.8 2.0 416.5
Parts etc for typewriters & other office
machines 17.5 1.8 -8.7
Parts for television, radio and radar apparatus19.72.518.8
Oil (not crude) from petrol and bituminous
mineral etc.
Diodes, transistors and similar devices;
photosensitive semiconductor devices;
light-emitting diodes; mounted piezoelectric
crystals; parts thereof15.61.618.7
Soybeans 11.5 1.2 53.1
Source: World Trade Atlas.
Notes: Harmonized Tariff, four-digit level. NESOI means not elsewhere specified or included.
China’s Growing Appetite for Imported Oil
China’s rapid economic growth has fueled a growing demand for energy, such
as petroleum, and that demand is becoming an increasingly important factor in
determining world oil prices. China is now the world’s second largest consumer of
oil products (after the United States) at 7.8 million barrels per day (bpd) in 2007
(compared to 4.8 million in 2007), and that level is projected to 13.6 million bpd by
2030 (depending on China’s future growth and energy policies).10 China became a
net oil importer (i.e., imports minus exports) in 1993. Net oil imports grew from 632
thousand bpd in 1997 to about 3.7 million bpd in 2007, nearly a six fold increase (see

10 Global Insight, Global Petroleum Outlook Forecast Tables (Long-Term), August 2008.

Figure 1), and making it the world’s third largest net oil importer (after the United
States and Japan). China’s net oil imports are projected to rise to 13.1 million bpd
by 2030, a level that would be comparable to the European Union in that year.
China’s dependence on imported oil could rise from about the current level of about11

50% to 80% by 2030.

Figure 1. China’s Net Oil Imports: 1997-2007

Source: U.S. Energy Administration.
China’s Growing Overseas Direct Investment
A key aspect of China’s economic growth strategy has been to attract foreign
investment into China. However, in 2000, China’s leaders initiated a new “go
global” strategy, which sought to encourage firms (especially state-owned
enterprises) to invest overseas. The Chinese government generally refers to these
activities as overseas direct investment (ODI). There appears to be several factors
driving this investment:
!China’s massive accumulation of foreign exchange reserves has led
government officials to seek more profitable ways of investing these
holdings (which traditionally have mainly been put into relatively
safe, low yield assets, such as U.S. Treasury securities). On
11 International Energy Agency, 2007 World Energy Outlook, p. 168. Estimates are based
on Reference Scenario projections, which assume no new government policies and measures
or technological breakthroughs.

September 29, 2007, the Chinese government officially launched the
China Investment Corporation (under the direction of the State
Council) in an effort to better manage its foreign exchange reserves.
It reportedly will initially manage over $200 billion, making it one
of the world’s largest sovereign wealth funds. Some analysts believe
that China will increasingly use its reserves to purchase foreign
firms, or shares of foreign firms, that are perceived to be profitable.
!As a developing country, China has traditionally sought to attract
FDI into the country in order to, through joint ventures, gain access
to foreign technology and management skills to help domestic firms
become more efficient and internationally competitive. Now the
Chinese government is attempting to promote the development of
internationally recognized Chinese brands. One strategy has been to
purchase (or attempt to purchase) existing companies and their
internationally-recognized brand names (as well as to obtain
technology and management skills). For example, in April 2005
Lenovo Group Limited, a Chinese computer company, purchased
IBM Corporation’s personal computer division for $1.75 billion.12
On June 20, 2005, Haier Group, a major Chinese home appliances
manufacturer, made a $1.28 billion bid to take over Maytag
Corporation, although the bid was later withdrawn.
!Acquisition of energy and raw materials has been a major priority of
China’s overseas investment strategy. As such, China has sought to
either purchase or invest in foreign energy and raw material
companies, infrastructure projects (such as oil and gas pipelines, oil
refineries, and mines), and joint ventures.13 For example, in June

2005, the China National Offshore Oil Corporation (CNOOC),

through its Hong Kong subsidiary (CNOOC Ltd.), made a bid to buy
a U.S. energy company, UNOCAL, for $18.5 billion, although
CNOOC later withdrew its bid due to opposition by several
congressional Members. In August 2005, the China National
Petroleum Corporation (CNPC), China’s largest oil company,
purchased PetroKazakhstan Inc., a Canadian-registered company, for
$4.2 billion.14 According to the Eurasia Group, since the 1990s
CNPC has signed energy deals with Sudan worth $10 billion, with
$4 billion in actual investment.15

12 The Chinese government is believed to be the largest shareholder in the company.
13 For a monthly listing of China’s international activities relating to energy and raw
materials, see China Institute at the University of Alberta at [http://www.uofaweb.].
14 Asia Times, August 24, 2005.
15 Eurasia Group, China’s Overseas Investments in Oil and Gas Production, October 16,

2006, p. 20.

China reported that its ODI in 2007 (excluding the finance sector) totaled $18.7
billion (up from $2.9 billion in 2003), ranking it as the world’s 13th largest investor.
It is estimated that China’s cumulative ODI through 2007 was $93.7 billion.16 One
Chinese official estimated that annual ODI flows could reach $60 billion, with a total
cumulation of $120 billion by 2010.17
Table 9 lists the top 10 destinations for China’s cumulative ODI as of 2005.
Hong Kong was by far the major destination (accounting for 64%), followed by the18
Cayman Island, the British Virgin Islands, South Korea, and the United States.
Some analysts contend that much of the ODI going to Hong Kong and Caribbean
islands represents “round tipping,” that is investment that is sent overseas but then
re-invested elsewhere (including China). Some analysts suspect that some of that
capital could be going into tax havens.
Table 9. Top 10 Destinations for China’s
Overseas Direct Investment: 2005
($ millions)
Country Cumulative FDI
Hong Kong36,510
Cayman Islands8,936
British Virgin Islands1,984
South Korea882
United States823
Russian Federation466
Total Chinese ODI57,200
Source: China Statistical Yearbook, 2006.

16 Cygnus, Economy Monitor, Chinese Economy, May-June 2008, p.7.
17 Anbound-China Market, June 12, 2007 (for estimate of estimated annual flow in 2010)
and Glob@l Finance Center, Chinese Outward Direct Investment (ODI), May 5, 2007 (for
estimate of cumulative flow in 2010).
18 In terms of regions, Asia accounted for 71.0% of China’s ODI, followed by Latin America
(20.0%), Europe (2.8%), Africa (2.8%), North America (2.2%), and Oceania (1.1%).

Major Long-Term Challenges
Facing the Chinese Economy
China’s economy has shown remarkable economic growth over the past several
years, and many economists project that it will enjoy fairly healthy growth in the near
future. However, economists caution that these projections are likely to occur only
if China continues to make major reforms to its economy. Failure to implement such
reforms could endanger future growth.
!The global financial crisis. This crisis currently poses the biggest
overall threat to China’s economic growth. China is highly
dependent on foreign trade and investment for its economic growth
and thus an economic slowdown among China’s major trading
partners could have a big impact on China’s future growth
(discussed in more detail below).
!An inflexible currency policy. China does not allow its currency
to float and therefore must make large-scale purchases of dollars to
keep the exchange rate within certain target levels. Although the
yuan has appreciated someone since reforms were introduced in July
2005, analysts contend that it remains highly undervalued against the
dollar. Economists warn that China’s currency policy has made the
economy overly dependent on exports and fixed investment for
growth and has promoted easy credit policies by the banks. These
policies may undermine long-term economic stability by causing
overproduction in various sectors, increasing the level of non-
performing loans held by the banks and boosting inflationary19
!State-owned enterprises (SOEs), which account for about one-
third of Chinese industrial production, put a heavy strain on China’s
economy. Over half are believed to lose money and must be
supported by subsidies, mainly through state banks. Government
support of unprofitable SOEs diverts resources away from
potentially more efficient and profitable enterprises. In addition, the
poor financial condition of many SOEs makes it difficult for the
government to reduce trade barriers out of fear that doing so would
lead to widespread bankruptcies among many SOEs.
!The banking system faces several major difficulties due to its
financial support of SOEs and its failure to operate solely on market-
based principles. China’s banking system is regulated and
controlled by the central government, which sets interest rates and
attempts to allocate credit to certain Chinese firms. The central

19 For further information on the economic consequences of China’s currency policy, see
CRS Report RL32165, China’s Currency: Economic Issues and Options for U.S. Trade
Policy, by Wayne M. Morrison and Marc Labonte.

government has used the banking system to keep afloat money-
losing SOEs by pressuring state banks to provide low- interest loans,
without which a large number of the SOEs would likely go bankrupt.
Currently, over 50% of state-owned bank loans now go to the SOEs,
even though a large share of loans are not likely to be repaid. The
precarious financial state of the Chinese banking system has made
Chinese reformers reluctant to open the banking sector to foreign
competition. Corruption poses another problem for China’s banking
system because loans are often made on the basis of political
connections. This system promotes widespread inefficiency in the
economy because savings are generally not allocated on the basis of
obtaining the highest possible returns.
!Growing public unrest. The Chinese government reported that
there were over 87,000 protests (many of which became violent) in

2005 (compared with 53,000 protests in 2003) over such issues as20

pollution, government corruption, and land seizures. A number of
protests in China have stemmed in part from frustrations among
many Chinese (especially peasants) that they are not benefitting from
China’s economic reforms and rapid growth, and perceptions that
those who are getting rich are doing so because they have
connections with government officials. Protests have broken out
over government land seizures and plant shutdowns in large part due
to perceptions that these actions benefitted a select group with
connections. A 2005 United Nations report stated that the income
gap between the urban and rural areas was among the highest in the
world and warned that this gap threatens social stability. The report
urged China to take greater steps to improve conditions for the rural
poor, and bolster education, health care, and the social security
system.21 The global financial crisis could lead to wide-spread lay-
offs in China, which could prompt worker unrest.
!The lack of the rule of law in China has led to widespread
government corruption, financial speculation, and misallocation of
investment funds. In many cases, government “connections,” not
market forces, are the main determinant of successful firms in China.
Many U.S. firms find it difficult to do business in China because
rules and regulations are generally not consistent or transparent,
contracts are not easily enforced, and intellectual property rights are
not protected (due to the lack of an independent judicial system).
The lack of the rule of law in China limits competition and
undermines the efficient allocation of goods and services in the
economy. Recent reports of slave labor in northern China has also
raised public anger over the lack of enforcement of labor laws.

20 See CRS Report RL33416, Social Unrest in China, by Thomas Lum.
21 China’s Human Development Report 2005.

!Poor government regulatory environment. China maintains a
weak and relatively decentralized government structure to regulate
economic activity in China. Laws and regulations often go
unenforced or are ignored by local government officials. As a result,
many firms cut corners in order to maximize profits. This has lead
to a proliferation of unsafe food and consumer products being sold22
in China or exported abroad. Growing concerns over the health
and safety of Chinese products (such as fish, petfood, tires, and toys)
in the United States and other countries could lead consumers to
reduce their purchases of Chinese products and could undermine
China’s efforts to develop and promote internationally recognized
Chinese brands.
!Growing pollution. The level of pollution in China continues to
worsen, posing series health risks to the population. The Chinese
government often disregards its own environmental laws in order to
promote rapid economic growth. According to the World Bank, 20
out of 30 of the world’s most polluted cities are in China, with
significant costs to the economy (such as health problems, crop
failures and water shortages). According to one government
estimate, environmental damage costs the country $226 billion, or
10% of the country’s GDP, each year. The Chinese government
estimates that there are over 300 million people living in rural areas
that drink unsafe water (caused by chemicals and other
contaminants). Toxic spills in 2005 and 2006 threatened the water
supply of millions of people. China is the largest producer and
consumer of coal, which accounts for about 70% of China’s energy
use. Although growing environmental degradation has been
recognized as a serious problem by China’s central government, it
has found it difficult to induce local governments to comply with
environmental laws, especially when such officials feel doing so will
come at the expense of economic growth.
In October 2006, the Chinese government formally outlined its goal of building
a “harmonious socialist society” by taking steps (by 2020) to lessen income
inequality, improve the rule of law, beef up environmental protection, reduce
corruption, and improve the country’s social safety net (such as expanding health care
and pension coverage to rural areas). In March 2007, the Chinese National People’s
Congress (NPC) passed a law to strengthen property laws to help prevent local
governments from unfairly seizing land from farmers, and in June 2007 it passed a
new labor contract law to enhance labor rights. In addition, the government has
scrambled to improve health and safety laws and regulations.

22 See CRS Report RS22713, Health and Safety Concerns Over U.S. Imports of Chinese
Products: An Overview, by Wayne M. Morrison.

Fallout From the Current Global Financial Crisis23
Although Chinese financial institutions are not believed to have invested heavily
in U.S. sub-prime securities, it is likely that China’s economy will likely be indirectly
impacted, mainly through economic slowdowns by its major trading partners (the
United States, Europe, and Japan), which could significantly reduce China’s exports
to these partners as well as diminished levels of FDI. Global Insight, an international
forecasting firm, projected in October 2008 that China’s GDP growth would slow
from 11.9% in 2007 to 9.8% in 2008, to 8.4% in 2009.24
In addition, there have been numerous indicators of a slowdown in the economy
even before the severity of the current global financial crisis became apparent.
Chinese real GDP for January through September 2008 grew by 9.9%, which was 2.325
percentage points lower than growth in same period in 2007. In March 2008,
China's Labor and Social Security Minister Tian Chengping warned that the
employment situation in China in 2008 was expected to be “very severe,” noting that
towns and cities would be able to provide only 12 million new jobs out of 20 million
new job seekers. More than half of China’s toy exporters reportedly shut down in the
first seven months of 2008, and toy exports from January to August 2008 were 20.8%26
lower than they were during the same period in 2007. The real estate market in
several Chinese cities has exhibited signs of a bursting bubble, including a slow
down in construction, falling prices, and growing levels of unoccupied buildings. In
addition, the value of China’s largest stock market, the Shanghai Stock Exchange
Composite Index, has fallen by two-thirds (from January 1 to September November

4, 2008).

China has taken a number of steps to stimulate its economy. On November 9,

2008, it announce that it would implement a two-year $586 billion stimulus package,

mainly dedicated to infrastructure projects. Interest rates were cut twice in October
and real estate taxes were cut. The government also pledged to cut export targets and
boost subsidies to small and medium-sized firms.
Analysts debate what role China might play in responding to the global financial
crisis, given its huge foreign exchange reserves but its relative reluctance to become
a major player in global economic affairs and its tendency to be cautious with its
reserves. Some have speculated that China, in order to help stabilize its most
important trading partner, the United States, would boost purchases of U.S. securities27
(especially Treasury securities). This would help the U.S. government fund the

23 For additional information, see CRS Report RS22984, China and the Global Financial
Crisis: Implications for the United States by Wayne M. Morrison.
24 Global Insight, China, October 8, 2008.
25 In addition, year on year GDP growth in the third quarter was 9%. Exports grew by 22.3%
, a drop of 4.8 percentage points over the same period in 2007.
26 China Xinhua News Agency, October 14, 2008.
27 In September 2008, China overtook Japan to become the largest foreign holder of U.S.

purchases of troubled assets and programs stimulate the economy.28 Additionally,
China might try to shore up the U.S. economy by buying U.S. stocks.
On September 21, 2008, the White House indicated that President Bush had
called Chinese President Hu Jintao about the financial crisis and steps the
Administration was planning to take. An unnamed Chinese trade official was
reported by Inside U.S. Trade as stating that “the purpose of that call was to ask for
China’s help to deal with this financial crisis by urging China to hold even more U.S.
Treasury bonds and U.S. assets.” The official was further quoted as saying that China
recognized that it “has a stake” in the health of the U.S. economy, both as a major
market for Chinese exports and in terms of preserving the value of U.S.-based assets
held by China” and that a stabilized U.S. economy was in China’s own interest.29
Some contend that taking an active role to help the United States (and other troubled)
economies would boost China’s image as a positive contributor to the world
economic order, similar to what occurred during the 1997-1998 Asian financial crisis
when it offered financial assistance to Thailand and pledged not to devalue its
currency even though other East Asian economies had done so, a move that was
highly praised by U.S. officials at the time.
On the other hand, there are a number of reasons why China would be reluctant
to significantly increase its purchases of U.S. investments. One concern would be
whether increased Chinese investments in the U.S. economy would produce long-
term economic benefits for China. Some Chinese investments in U.S. financial
companies have fared poorly, and Chinese officials would be reluctant to put
additional money into investments that were deemed to be too risky.30 Secondly, a
sharp economic downturn of the Chinese economy would likely increase pressure
on the government to invest money at home, rather than overseas. Many analysts
(including some in China) have questioned the wisdom of China’s policy of
investing a large volume of foreign exchange reserves in U.S. government securities
(which offer a relatively low rate of return) when China has such huge development
needs at home. Many Chinese officials contend that maintaining strong economic
growth in China is the most effective action China can take to promote global
growth. Several economists in the West have suggested for years that China should
boost domestic spending and appreciate its currency to promote more balanced
growth, greater economic efficiency, and improve the country’s living standards.

27 (...continued)
Treasury securities. See CRS Report RL34314, China's Holdings of U.S. Securities:
Implications for the U.S. Economy, by Wayne M. Morrison, Marc Labonte.
28 Such a move would help keep U.S. interest rates relatively low. Likewise, if China
decided not to sharply increase its purchases of U.S. securities, U.S. interest rates could go
29 Inside U.S. Trade, China Trade Extra, September 24, 2008.
30 For example in June 2007, China’s sovereign wealth fund bought $3 billion worth of
shares from Blackstone LP (a U.S. private equity firm) at $31 each, but the value of those
shares fell to below $8 as of October 2008.

Appendix. China’s Growing Economic Ties
with Africa, North Korea, and Iran
China has sought to expand its trade with countries around the world, especially
those that posses energy and raw materials China needs to sustain its rapid economic
growth, such as those in Africa. Although China’s trade with these countries is
relatively small (compared with its major trading partners), it is growing rapidly.
China is also a major trading partner of various countries that pose challenges to U.S.
foreign policy, such as Iran, Sudan, and North Korea.31
China-Africa Trade
China’s Imports From Africa. China’s imports from Africa as a percent of
its total imports grew from 2.8% in 2004 to 3.8% in 2007 (to $36.3 billion).32 As a
whole, Africa was China’s seventh largest source of imports in 2007. China’s
imports from Africa grew by 25.9% over the previous year (compared to total
Chinese imports growth of 20.8%). Mineral fuels were by far China’s largest import
from Africa, accounting for 72% of total imports. Angola was China’s largest source
of imports from Africa, accounting for 35% of those imports in 2007, followed by
South Africa, Sudan, the Congo, and Equatorial Guinea. China’s imports from Sudan
were up 112% over the previous year (see Tables 11 and 12). In 2006, China was
Sudan’s largest source of imports (18.2% of total).33

31 For additional information on policy challenges posed by North Korea, see CRS Report
RL33590, North Korea’s Nuclear Weapons Development and Diplomacy, by Larry A.
Niksch; and CRS Report RL32493, The North Korean Economy: Leverage and Policy
Analysis, by Dick K. Nanto, Emma Chanlett-Avery. For information on policy challenges
posed by Sudan, see CRS Report RL33574, Sudan: The Crisis in Darfur and Status of the
North-South Peace Agreement, by Ted Dagne.
32 In comparison, U.S. imports from Africa in 2006 were $92.0 billion. Note, the United
States reports import trade data on a customs basis, while China reports imports on a cost,
insurance, and freight (C.I.F.) basis. The C.I.F. basis differs from the customs basis in that
the former includes the cost of insurance and freight and thus raises the value of imports
(which the customs basis does not), by about 10%.
33 Central Intelligence Agency, the 2008 World Factbook.

Table 10. Top Five African Sources of Chinese Imports:
($ millions)
20042005200620072006-2007 % Change
Africa Total 15,64121,11428,76836,33025.9
Angola 4,7186,58110,93112,88517.9
South Africa 2,9553,4444,0956,60861.4
Sudan 1,7062,6151,9414,114111.9
Congo 1,5692,2782,7852,8281.6
Equatorial Guinea9951,4862,5381,697-33.1
Source: World Trade Atlas. Official Chinese statistics.
Table 11. Top Five Chinese Imports from Africa: 2004-2007
($ millions and %)
HS 2 Commodity2004200520062007% ofTotal2006-2007
Description2007% Change
Mineral fuel, oil, etc10,135 14,676 21,083 25,99771.8 23.3
Ores, slag, ash1,393 1,577 2,116 3,2989.155.9
Precious stones and
metals742 967 1,196 1,3583.813.5
Wood473 524 705 9152.529.8
Iron and steel4394753158512.4170.6
Source: World Trade Atlas. Official Chinese statistics.
China’s Mineral Fuel Imports From Africa. Africa has become an
important source of China’s surging energy needs. In 2007, 72% of China’s imports
from Africa were mineral fuels. China’s fuel imports from Africa rose from $10.1
billion in 2004 to $26.0 billion in 2007. In 2007, Africa supplied 24.8% of China’s
imported mineral fuels (compared with 9.1% in 1997). Angola was China’s second
largest overall mineral fuel supplier and its largest African supplier. Other majorth
African suppliers (and the world rank) of mineral fuel to China were Sudan (7), the
Congo (12th), Equatorial Guinea (18th), and Libya (19th) (see Table 12).

Table 12. Top Five African Suppliers of
Mineral Fuel to China: 2007
Rank as a Supplier
CountryImports ($millions)of Mineral Fuel to
Equatorial Guinea 1,56618
Africa Total25,997 —
Source: Global Trade Atlas.
China’s Exports to Africa. The share of Chinese exports going to Africa
rose from 2.3% in 2004 to 3.1% in 2007 (to $37.3 billion).34 If Africa were treated
as a single trading partner, it would rank as China’s seventh largest export market in
2007. Exports to Africa grew by 39.7% over the previous year (compared to China’s
total exports growth of 25.7%). Major Chinese exports to Africa in 2007 included
electrical machinery, machinery (such as computers and components), vehicles
(mainly motorcycles and trucks), apparel, and iron and steel products. The top five
African destinations of Chinese exports in 2007 were South Africa, Egypt, Nigeria,
Algeria, and Morocco (see Tables 13 and 14). In 2006, China was Sudan’s second
largest export market (31% of total).35
Table 13. China’s Top Five African Export Markets: 2004-2007
($ millions)
Country20042005200620072006-2007% Change
Africa Total13,81518,68726,70537,31439.7
South Africa2,9523,8265,7697,42928.8
Egyp t 1,389 1,935 2,976 4,432 48.9
Nige ria 1,719 2,305 2,856 3,800 33.1
Alge ria 981 1,405 1,952 2,709 48.8
Morocco 944 1,206 1,570 2,162 37.8
Source: World Trade Atlas. Official Chinese statistics.

34 In comparison, total U.S. exports to Africa in 2007 were $23.7 billion (2.0% of total U.S.
exports in 2007).
35 Central Intelligence Agency, the 2008 World Factbook

Table 14. Top Five Chinese Exports to Africa: 2004-2007
($ millions)
HS 2 Commodity2004200520062007% ofTotal2006- 2007
Description2007% Change
Electrical machinerya1,9052,7994,1225,80615.640.9
and parts
Machinery, mechanical1,3742,1413,2204,51712.140.3
appliances, and parts
Vehicles (excluding9361,4482,0233,1658.556.4
Knit apparel8289381,5372,9407.991.3
Iron/steel products6549031,2251,9205.156.7
Source: World Trade Atlas. Official Chinese statistics.
a. Includes electrical machinery and equipment and parts thereof; sound recorders and reproducers;
television image and sound recorders and reproducers; and parts and accessories of such articles.
China’s Trade with North Korea
China is North Korea’s largest trading partner and a major supplier of foreign
aid (largely in the form of food and fuel).36 In 2007, Chinese exports to, and imports
from, North Korea totaled $1.4 billion and $582 million, respectively. North Korea
was China’s 68th largest source of imports (0.06% of total) and its 68th largest export
market (0.11% of total).37 Chinese exports to North Korea rose by 13.0% and
imports were up 24.3%, over 2006 levels. China accounted for 37.3% of North
Korea’s exports and 39.8% of its imports (2005 data).38 According to Chinese data,
its top five exports to North Korea (2007) were oil, machinery, electrical machinery
(such as TVs), plastics, and vehicles (see Table 15), while its top imports from North
Korea were ores, coal, woven apparel, fish, and iron and steel (see Table 16).

36 See CRS Report RL31785, Foreign Assistance to North Korea, by Mark E. Manyin; and
CRS Report RL32493, The North Korean Economy: Background and Policy Analysis, by
Dick K. Nanto and Emma Chanlett-Avery.
37 Source: World Trade Atlas.
38 Economist Intelligence Unit, Country Report, North Korea, February 2008, p. 5.

Table 15. Major Chinese Exports to North Korea: 2004-2007
($ millions and % change)
20042005200620072006-/2007% Change
Total Exports 7951,0851,2321,39213.0
Mineral fuel, oil, etc. (mainly oil)20428634840215.7
Machinery 40 77 83 104 25.0
Electrical machinery (such as TVs)46579869-29.0
Pl astics 32 52 52 55 5.0
Vehicles (except railway)1828285492.1
Source: World Trade Atlas.
Table 16. Major Chinese Imports from North Korea: 2004-2007
($ millions and % change)
200420052006 20072006-2007% Change
Total Imports58249746858224.3
Mineral fuel, oil, etc. (mainly coal)5311210217055.1
Ores, slag, and ash599211816438.5
Woven apparel49586360-4.7
Iron and steel7572354528.2
Fish and seafood261924330-30.8
Source: World Trade Atlas.
China’s Trade With Iran
According to the International Monetary Fund (IMF), China was Iran’s largest
second trading partner, after EU in 2006.39 China was Iran’s fourth largest export
market (at $9.0 billion), and its second largest source of imports (at $4.9 billion).
China has become an increasingly important trading partner for Iran in recent years.
Iranian exports to China as a share of its total exports rose from 9.7% in 2002 to
12.9% in 2006, while Iranian imports from China as a share of its total imports
increased from 4.7% to 10.6%.
Iran constitutes a relatively minor, though growing, trading partner for China.
According to Chinese data, Iran was its 16th largest trading partner in 2007. China’s
exports to, and imports from, Iran totaled $7.3 billion and $13.3 billion, respectively.
China’s exports to Iran rose by 62.1% and imports from Iran were up by 33.7%.
China’s top exports to Iran in 2007 were iron and steel ($1.6 billion), machinery
($1.1 billion), vehicles and parts ($880 million). China’s imports from Iran were
dominated by crude oil, which totaled $11.6 billion and constituted 87.2% of total
Chinese imports. Iran was China’s third largest source of mineral fuels imports in

39 China was the largest if EU countries are counted separately.

2007; these constituted 11.1% of China’s total world oil of these products.40

According to press reports, China’s state-owned oil companies have signed oil and
gas deals with Iran worth over $100 billion.41

40 The Iran Daily (July 25, 2007) contended that Iran had become China’s largest source of
oil imports.
41 Reuters News, December 21, 2006.