Evaluate China’s Economic Policies and Their Impact on US Security

This brief is part of “Election 2024: Policy Playbook,” a series by the Baker Institute and Rice University that offers nonpartisan, expert analysis and recommendations to equip policy leaders governing the United States and Texas in 2025.

The Big Picture

• Despite recent U.S. tariff changes and security concerns, China remains one of America’s largest trading partners.
• In response to its faltering export-driven economy and new global trends, the Chinese Communist Party (CCP) announced major economic policy reforms after its July 2024 “third plenum” meeting of the 20th Party Congress.
• The most recent documents issued by the CCP suggest upcoming changes to government funding, investor rules, favored economic sectors, and ways the CCP can intervene in China’s economy.
• In response, the new U.S. administration should adjust its security and diplomatic policies toward China by monitoring its changes regarding national security, science and technology exchange agreements, and tariff policy.

Summarizing the Issue

Every five years, the CCP elects a new Central Committee, which typically holds seven plenary meetings before the next congress. Historically, the “third plenum” is designated as the meeting when major changes in the economy’s structure and planning are discussed, debated, and publicly announced via a series of documents in the months that follow. 

Famously, the third plenum of the 11th National Congress of CCP Party (Party Congress) in December 1978 established new forms of property and administration — the “special economic zones” — and new ways of stimulating private ownership and entrepreneurship.

The third plenum of the 18th Party Congress in December 2013 introduced “Decisions on Several Major Issues Concerning Comprehensively Deepening Reform,” which guided many successful social and economic changes, including “ending the one-child policy, reducing business red tape,” and many others. 

Meanwhile, China’s state enterprises and increasingly large and globally influential public stock and private enterprises — including Huawei, Alibaba, Tencent, among others — were encouraged to become global competitors and often given the resources and state backing to ensure they do so.

However, in recent years, a trade war and tit-for-tat raising of tariffs with the U.S. beginning in the Trump administration — followed by the COVID-19 pandemic’s shock to the worldwide economy — has left China’s export-driven economy slow to respond to current global economic trends. With travel restrictions only lifted in the fall of 2023, a year after the 20th Party Congress, the CCP has appeared to be struggling for economic balance. Chinese local governments have been hardest hit, having to deal with a falling housing market that supports most of their expenditures as they experience record levels of debt, including from the very costly enforcement of COVID-19 quarantines and, currently, high youth unemployment.

Expectations have been high that July 2024’s third plenum would result in bold action in order to return to high levels of economic growth. Some observers have suggested China will use the plenum to define new terms being spoken in the corridors of power in Beijing, including: 

• “New quality productive force,” which describes China identifying new transformative technologies and investing its enormous resources to ensure Chinese enterprises become global leaders in these new sectors. 
• “New national system,” which details a tightening of coordination and elimination of competition among Chinese enterprises to encourage their collective and stronger role in China’s national economic security. 

Needless to say, both terms have implications for a new U.S. administration as well as America’s economic and security partners overseas.

Expert Analysis

The 20th Party Congress began in November 2022, with its third plenum planned for fall 2023 being postponed until July 15–18, 2024. Despite the historically high levels of suspense and anticipation — especially given that it was delayed by a year — the recent third plenum largely delivered more of the same in its public documents, but with more emphasis on the security implications of the Chinese national economy.

As many expert observers have noted and discussed publicly, the summary documents for the plenum spent more time talking about the future economy and less about the current problems of the existing economy, which include: 

• Depressed housing market. 
• High local government debt. 
• Brain drain of China’s youth. 
• Low private entrepreneur confidence.

Many of the proposed changes in 2024’s third plenum documents were originally discussed during the 2013 third plenum, indicating that removing market barriers and creating more credible guarantees for private investment and enterprise still face opposition from the state economy and its supporters. There are some areas with newfound emphasis in the 2024 documents, however.

Even though future steps by Chinese policymakers are still forthcoming, the most recent documents suggest that there will be major changes in the organizational structure of government funding of scientific research as well as changes in investor rules — including foreign investment regulations — particularly in the high technology sector. Overall, China wishes to:

• Reverse the brain drain.
• Protect itself from technology proliferation containment strategies by the U.S. and its allies.
• Foster a highly innovative and competitive technology industry as the most advanced sector of the national economy.

Policy Actions

Because China is one of America’s largest trading partners and competitors — $147 billion in exports of goods to China in 2023, with $426 billion in imports —  the new U.S. administration may need to adjust to any unprecedented interventions in the Chinese economy.

In light of the new economic policies in China likely to come out of the third plenum, the following actions for the new U.S. administration are recommended:

1. Monitor changes to China’s economic investment rules, and in particular, the methods that CCP officials use to exert control over decision-making by both state and private enterprises, especially when the actions of the enterprise tie in with Chinese national security interests.
2. Extend of the U.S.-China Science and Technology Cooperation Agreement (STA), which expired at the end of August 2024, to better understand any major changes to China’s scientific research funding agendas, guidelines, and reporting as well as to ensure transparency and reciprocity in science and technology exchanges.
3. Continue joint discussion of new technologies that pose a potential threat to both the United States and China — especially AI, which is evolving rapidly in China — and incorporate these into future scientific and technology exchange agreements.
4. Negotiate an end to tariffs on the free flow of noncritical goods that increase inflation and harm consumers in both countries, which is work that the Biden administration is currently perusing. 
5. Try to reestablish public U.S. diplomacy efforts in China, especially programs that support American students studying Chinese in China or seeking to become experts in Chinese affairs and society, such as the Fulbright U.S. Student Program. That said, both sides must return to the reciprocity and transparency that guided the establishment of public diplomacy ties in the 1980s. Here, the future U.S. administration must be prepared to go against the advice of powerful American civil society interests, as well as their corporate and philanthropic benefactors, in order to negotiate a return to public diplomacy as a two-way street between the U.S. and Chinese government.

The Bottom Line

To continue competing with one of America’s largest trading partners, the new U.S. administration must account for upcoming changes in the way the Chinese government directs investment by domestic enterprises for national security reasons, reforms the way it structures scientific research and technological development, and alters the way it supervises institutions that affect public diplomacy with the U.S.

Special thanks to Thomas Kimbro for his research in support of this brief.

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