ANNUAL REPORT

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136 247. Associated Press, ‘‘China, EU Agree to Steel Working Group amid Dumping Concerns,’’ July 13, 2016. 248. Christian Oliver, ‘‘EU Legislators Push Back on China’s Bid for Market Economy Status,’’ Financial Times, May 12, 2016. 249. Christian Oliver, ‘‘EU Legislators Push Back on China’s Bid for Market Economy Status,’’ Financial Times, May 12, 2016. 250. U.S.-China Economic and Security Review Commission, Hearing on China’s Shifting Economic Realities and Implications for the United States, oral testimony of Bernard O’Connor, February 24, 2016. 251. U.S.-China Economic and Security Review Commission, Hearing on China’s Shifting Economic Realities and Implications for the United States, oral testimony of Bernard O’Connor, February 24, 2016. 252. U.S. Government Accountability Office, CBP Action Needed to Reduce Duty Processing Errors and Mitigate Nonpayment Risk, July 2016, 17. 253. World Trade Organization, ‘‘Accession of the People’s Republic of China,’’ November 23, 2001. dkrause on DSKHT7XVN1PROD with USCC VerDate Sep 11 2014 12:16 Nov 02, 2016 Jkt 020587 PO 00000 Frm 00046 Fmt 6601 Sfmt 6621 G:\GSDD\USCC\2016\FINAL\06_C1_C2_M.XXX 06_C1_C2_M
dkrause on DSKHT7XVN1PROD with USCC SECTION 3: CHINA’S 13TH FIVE–YEAR PLAN Introduction The 13th Five-Year Plan (FYP) * (2016–2020)—ratified by the National People’s Congress in March 2016—established Chinese President and General Secretary of the Chinese Communist Party (CCP) Xi Jinping’s vision for China’s development over the next five years. This plan largely reiterates commitments from the 11th (2006–2010) and 12th (2011–2015) † FYPs to reorient the drivers of China’s economy away from large-scale infrastructure investment and export-led growth toward greater domestic consumption. Addressing China’s structural challenges and ensuring long-term prosperity are critical to preserving the CCP’s legitimacy and hold on power. However, the Chinese government’s ability to reach these objectives depends on its willingness to relinquish a substantial degree of state control, overcome entrenched interests, and endure the short-term and medium-term economic pain that structural reform creates. The CCP and Chinese government view the state as a key part of the solution, not the problem. 1 Thus, for the Chinese government, reform means retaining or strengthening state control while attempting to increase the efficiency of state-owned enterprises (SOEs) and state-designated industries—a contradiction of fundamental free market principles. With slowing growth, the Chinese government faces even greater difficulty balancing its competing priorities: long-term, sustainable growth versus short-term economic growth. Whether the 13th FYP reforms will be implemented is not an economic question but a political one. The Chinese government risks instability if it implements reforms too quickly, but risks falling into the middle-income trap ‡ if reforms are implemented too slowly or not at all. 2 The middle-income trap would ensnare the Chinese economy in a cycle of low growth because rising * FYPs are overarching roadmaps that lay out the central government’s top policy objectives and establish measurable targets for government performance to guide government ministries’ and local governments’ behavior. The broad FYP is then followed by a cascade of local government, ministerial, and industry plans that outline in greater detail how the Chinese government will achieve these objectives. For a detailed analysis of China’s five-year planning system, see Sebastian Heilmann and Oliver Melton, ‘‘The Reinvention of Development Planning in China, 1993–2012,’’ Modern China 39:6 (August 2013): 580–628; U.S.-China Economic and Security Review Commission, Hearing on China Ahead of the 13th Five-Year Plan: Competitiveness and Market Reform, written testimony of Oliver Melton, April 22, 2015. † For analysis of the 12th FYP, see Joseph Casey and Katherine Koleski, ‘‘Backgrounder: China’s 12th Five-Year Plan,’’ U.S.-China Economic and Security Review Commission, June 24, 2011. ‡ The middle-income trap is an economic development situation where a rapidly developing, low-income economy reaches middle-income status ($10,000–$16,000 per capita), but then growth slows, preventing the country from reaching high-income status. According to analysis by the World Bank, only 13 of the 101 middle-income economies in 1960 reached high income by 2008. These economies are Equatorial Guinea, Greece, Hong Kong, Ireland, Israel, Japan, Mauritius, Portugal, Puerto Rico, South Korea, Singapore, Spain, and Taiwan. Greg Larson, Norman Loayza, and Michael Woolcock, ‘‘The Middle-Income Trap: Myth or Reality?’’ World Bank Malaysia Hub, March 2016. 1: 104230. VerDate Sep 11 2014 12:16 Nov 02, 2016 Jkt 020587 PO 00000 Frm 00047 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2016\FINAL\06_C1_C2_M.XXX 06_C1_C2_M (137)
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USCC 2016 ANNUAL REPORT
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1 2016 REPORT TO CONGRESS of the U.
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U.S.-CHINA ECONOMIC AND SECURITY RE
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• The safety of food, drug, and o
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CONTENTS Page TRANSMITTAL LETTER TO
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IX Page Recommendations ...........
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2 ernment’s “going out” strat
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4 economically and politically stra
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6 wage rates are determined by free
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8 while allowing a greater role for
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10 began construction on its first
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12 from—the People’s Republic o
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14 cluding cyber and human intellig
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16 exporter of manufactured goods,
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18 Pakistan’s economic and securi
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20 Beijing appears to remain skepti
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22 trends in Hong Kong with regard
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24 UNSCR 2270. However, in May and
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26 Korea, designating Dandong Hongx
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28 tional order—both before and a
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30 to examine China’s economic an
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32 debt, and jeopardizing long-term
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Introduction CHAPTER 1 U.S.-CHINA E
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37 Statistics with Chinese Characte
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39 up from 52.3 percent in the seco
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41 Early signs suggest President Xi
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43 Figure 4: China’s Total Debt b
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45 reserves to defend the RMB. 75 I
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47 The pace of U.S. export growth t
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49 The United States continued to r
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51 commitments, China has only take
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53 Table 3: Top Five Business Chall
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55 U.S. Tech Firms and Their Chines
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57 ment of Justice’s May 2014 ind
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59 Internet Censorship As a result
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61 on the future of U.S.-China rela
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63 Chapter 1, Section 2, “State-O
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65 Table 5: Failed Chinese Bids for
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67 • Accelerating Bilateral Inves
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69 cess capacity, which will share
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71 United States Challenges Chinese
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73 rulings of the DSB [Dispute Sett
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75 Conclusions • In 2015, the U.S
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77 Addendum I: WTO Cases Recent and
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79 ENDNOTES FOR SECTION 1 1. Lucy H
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81 55. Gabriel Wildau and Don Weinl
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83 119. American Chamber of Commerc
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195 The ultimate impact of the ruli
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197 Environmental Impact of China
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201 China’s Maritime Disputes in
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203 Reform and Reorganization of th
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207 • PLA Army Headquarters: Chin
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211 Figure 5: Type 072A Tank Landin
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215 Figure 7: JL-2 Missile Range Co
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221 Space-Tracking Facility in Arge
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223 Table 1: Significant PLA Bilate
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227 Nigeria will be the first expor
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231 tional annexes to the 2014 Noti
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233 Select U.S.-China Security-Rela
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257 China’s Core Interests—Cont
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259 guerrillas in Colombia and held
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271 stan. 109 In 2014, the PLA Air
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275 conflict Chinese expeditionary
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279 RECOMMENDATIONS Developments in
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SECTION 3: CHINESE INTELLIGENCE SER
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291 Strategic Support Force In Dece
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293 of advanced intelligence, surve
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295 tives, and sexual entrapment. 4
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297 information to a Chinese intell
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299 such as power transmission grid
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301 for transferring trade secrets
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303 nal U.S. discussions of issues
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305 ENDNOTES FOR SECTION 3 1. U.S.-
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307 29. U.S. Department of Justice,
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309 63. U.S. Department of Justice,
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311 106. Eric Holder, “Attorney G
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314 sure its own ambitions in South
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316 Chinese foreign direct investme
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318 • Pakistan: In 2015, China an
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320 India “Acts East” and Puts
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322 Counter Terrorism and Religious
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324 tivities of the Dalai Lama and
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326 incursions across the border fr
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328 conducive to sea lane protectio
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330 Karachi Port, that could eventu
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332 India and OBOR India has not en
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334 China’s Arms Sales to Pakista
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336 For China, the goals of CPEC ar
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338 according to Mr. Small, “The
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340 side the Treaty on the Non-Prol
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342 Facets of U.S.-India Defense Re
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344 of China, but has advocated for
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346 • Recent U.S.-China tensions
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348 24. Debasish Roy Chowdhury, “
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350 71. Jeff Smith, Cold Peace: Chi
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352 127. U.S.-China Economic and Se
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354 2016, 86; Andrew Small, The Chi
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358 Taiwan’s Economic Challenges
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364 agreements. 57 Since then, many
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366 $67.2 billion, comprising 25.4
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368 Foreign Direct Investment China
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370 is leading the initiative, have
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374 Taiwan and the 11-Dash Line The
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384 trade-based partner to an innov
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390 • China’s military moderniz
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410 Hong Kong’s Political Gossip
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414 moving up one place compared to
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418 Chinese Censorship of Prize-Win
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420 Hong Kong and the ‘‘Panama
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424 Table 1: Select PLA Hong Kong G
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428 sitive periods in Hong Kong, le
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436 150. Commission meeting with Ta
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442 Korea. The resolution also bans
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444 increase pressure on Pyongyang.
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446 pand China-South Korea ties. 54
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448 Technical Details of THAAD The
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456 Korea runs perpetual merchandis
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460 pressure is more likely to brin
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462 ty for sanctions violations, co
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479 sailors would be stationed in J
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485 Table 1: U.S. Goods Trade with
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489 basis for President Obama’s c
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APPENDIX II BACKGROUND OF COMMISSIO
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APPENDIX III PUBLIC HEARINGS OF THE
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537 June 9, 2016: Public Hearing on
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APPENDIX IIIA LIST OF WITNESSES TES
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541 Alphabetical Listing of Panelis
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APPENDIX IV LIST OF RESEARCH MATERI
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547 China’s Military Agreements w
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APPENDIX V ACRONYMS AND ABBREVIATIO
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551 OPM PBOC PLA PMI PPI PPP PRC QD
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553 2016 COMMISSION STAFF MICHAEL R
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