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

dkrause on DSKHT7XVN1PROD with $$_JOB54Addressing complaints about China’s backtracking on promises tomake its economy friendlier to foreign companies, Gary Locke, thenU.S. Department of Commerce secretary and currently U.S. ambassadorto China, said that U.S. firms are frequently shut out of theChinese market or forced to share technologies to gain access. 162Ambassador Locke said the ‘‘fundamental problem boils down tothe distance between the promises of China’s government and action.’’163Over the last several years, the Chinese government has creatednew policies and government bodies to guide foreign investmentand safeguard the domestic economy and national security in theface of FDI inflows:The 2011 Catalogue Guiding Foreign Investment in Industry: Thedraft 2011 Catalogue Guiding Foreign Investment in Industry identifiessectors and industries of the Chinese economy in which foreigninvestment is encouraged, restricted, or prohibited. 164 An updateof the catalogue published in 2007, the 2011 Catalogue is focusedon encouraging foreign investment in industries related toChina’s goal of developing cutting-edge industries with highervalue-addedones, including sophisticated manufacturing, new technologies,and clean energy. 165 Book, newspaper publishing, audiovisualproducts, and ‘‘Internet culture businesses’’ (excludingmusic) are among those that will remain off-limits to foreign investment.166 The U.S. Chamber of Commerce and the AmericanChamber of Commerce in China called China’s use of catalogues toguide foreign investment ‘‘at odds with the . . . principles of openand market-based economies.’’ 167National Security Review Process: The State Council promulgatedthe Notice of the General Office of the State Council on Establishmentof a Security Review System for the Merger and Acquisitionof Domestic Enterprises by Foreign Investors (Notice) in February2011. The following month, China’s Ministry of Commerce issuedinterim provisions for implementing the notice. 168 The new foreigninvestmentsecurity review regime sets up an interministerialpanel under the State Council. The National Development and ReformCommission and the Ministry of Commerce are assigned leadroles in coordinating the ministries and agencies that would reviewproposed transactions. 169 Transactions in the following sectors orareas could be subject to review if they lead to foreign investors obtaining‘‘actual control’’ of a domestic enterprise: military and militarysupport enterprises; enterprises near key and/or sensitive militaryfacilities; other entities associated with national defense andsecurity; and domestic enterprises in sectors that ‘‘relate to nationalsecurity,’’ which are listed as ‘‘important’’ agriculture products,energy and resources, infrastructure, and transportation services,as well as key technologies and major equipment manufacturingindustries. 170 A final rule published in August 2011 by China’sMinistry of Commerce clarified certain aspects of the securityreview system but still utilized a broad definition of national securityand provided little guidance in assessing whether a transactioncould be subject to a review. 171The United States and China currently are negotiating a bilateralinvestment treaty with the goal of expanding investment opportunities.Supporters of the treaty hope it will improve the in-VerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00066 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464