2011 report to congress - U.S.-China Economic and Security Review ...

dkrause on DSKHT7XVN1PROD with $$_JOBCHAPTER 1THE U.S.–CHINA TRADEAND ECONOMIC RELATIONSHIPSECTION 1: THE U.S.–CHINA TRADE ANDECONOMIC RELATIONSHIP’S CURRENT STATUSAND SIGNIFICANT CHANGES DURING 2011IntroductionIn the ten years since China joined the World Trade Organization(WTO), China has maintained a steep growth trajectory, outpacingboth Germany and Japan to become the second largest economyin the world. China’s gross domestic product (GDP) has grownfrom $1.32 trillion in 2001 to a projected $5.87 trillion in 2011.This represents an increase of more than 400 percent. In certainindustries, such as automobiles, mobile handsets, and personalcomputers, China’s market already exceeds that of America’s. Concurrently,China has lifted 400 million of its citizens out of povertyand has experienced the largest rural-to-urban migration in history.1At the same time, the concerns that originally surrounded China’saccession to the WTO—that China’s blend of capitalism andstate-directed economic control conflict with the organization’s freemarket principles—have proven to be prophetic. Although Chinadid not meet all of the traditional requirements for accession, theWTO took a calculated gamble that China could effectuate the reformsnecessary to conform to those requirements within a reasonableperiod of time. The U.S.-China Economic and Security ReviewCommission was established by the United States Congress in partto monitor the outcome of that gamble. Ten years later, China’sstate-directed financial system and industrial policy continue tocontribute to trade imbalances, asset bubbles, misallocation of capital,and dangerous inflationary pressures. Meanwhile, China’slegal reforms are in jeopardy from a bureaucratic backlash. 2 China’sadherence to WTO commitments remains spotty despite thedecade that the country’s rulers were given to adjust. These circumstancescreate an uneven playing field for China’s trading partnersand threaten to deprive other WTO signatories of the benefitof their bargain.Each of these issues will be analyzed in detail in this section, beginningwith an examination of U.S.-China trading relations, followedby U.S.-China financial relations and, finally, an evaluationof China’s role in the WTO. The fact that a decade has now passedsince China’s controversial admission to the WTO means that(21)VerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00033 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464