ANNUAL REPORT

CONTENTS
Page
TRANSMITTAL LETTER TO THE CONGRESS ............................................................... iii
COMMISSIONERS APPROVING THE REPORT .............................................................. vi
EXECUTIVE SUMMARY ............................................................................................... 1
KEY RECOMMENDATIONS ................................................................................... 29
INTRODUCTION .......................................................................................................... 31
2016 REPORT TO CONGRESS OF THE
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
Chapter 1: U.S.-China Economic and Trade Relations ............................. 35
Section 1: Year in Review: Economics and Trade ............................................. 35
Introduction ...................................................................................................... 35
China’s Domestic Rebalancing ........................................................................ 36
U.S.-China Bilateral Trade and Investment .................................................. 46
United States and China at the WTO ............................................................ 70
Conclusions ....................................................................................................... 75
Section 2: State-Owned Enterprises, Overcapacity, and China’s Market
Economy Status ................................................................................................ 91
Introduction ...................................................................................................... 91
China’s State Capitalism in the Global Context ............................................ 92
Overcapacity and Global Markets ................................................................... 103
Evaluation of China’s Nonmarket Economy Status ...................................... 114
Implications for the United States .................................................................. 119
Conclusions ....................................................................................................... 120
Recommendations ............................................................................................. 126
Section 3: 13th Five-Year Plan ........................................................................... 137
Introduction ...................................................................................................... 137
China’s 13th FYP: Blueprint for 2016–2020 .................................................. 138
Urbanization ..................................................................................................... 141
China’s Energy Sector and Environmental Reforms ..................................... 144
China’s Industrial Policies ............................................................................... 148
China’s Fiscal and Financial Reforms ............................................................ 161
Implications for the United States .................................................................. 171
Conclusions ....................................................................................................... 174
Recommendations ............................................................................................. 180
Chapter 2: U.S.-China Security Relations .................................................... 193
Section 1: Year in Review: Security and Foreign Affairs ................................. 193
Introduction ...................................................................................................... 193
Major Developments in China’s National Security and Military Modernization
in 2016 ................................................................................................ 193
PLA Exercises and Training in 2016 .............................................................. 216
China’s Global Security Activities in 2016 ..................................................... 218
U.S.-China Security Relations in 2016 ........................................................... 229
Conclusions ....................................................................................................... 235
Section 2: China’s Force Projection and Expeditionary Capabilities ............... 255
Introduction ...................................................................................................... 255
Factors Driving China’s Interest in Expeditionary Capabilities .................. 256
Evolving PLA Missions .................................................................................... 260
(VII)