ANNUAL REPORT

3
Chinese buyers’ ability to pay. The Committee on Foreign Investment
in the United States (CFIUS) reviews foreign investments
in the United States for national security implications.
In 2014, the latest year for which data are available, China led
foreign countries in CFIUS reviews with 24 reviewed transactions
out of more than 100 total acquisition deals. Although the
number of Chinese transactions reviewed increased in absolute
terms, it declined as a share of all Chinese acquisitions, and the
vast majority of reviewed transactions proceed.
• China appears to be conducting a campaign of commercial espionage
against U.S. companies involving a combination of cyber
espionage and human infiltration to systematically penetrate
the information systems of U.S. companies to steal their intellectual
property, devalue them, and acquire them at dramatically
reduced prices.
• The U.S. government’s efforts to address tensions in the U.S.-China
relationship continue to yield only limited results. At the final
round of the Strategic and Economic Dialogue talks under
the Obama Administration, participants failed to achieve any
major breakthroughs but left with some deliverables on financial
sector cooperation. Industrial overcapacity topped the U.S.
economic agenda, replacing currency as its primary concern, but
China only made a vague pledge with regard to steel overcapacity.
The unwelcoming investment climate for U.S. companies in
China, along with China’s recently passed law restricting foreign
nongovernmental organizations, also added friction to the
talks.
• China’s adherence to the World Trade Organization (WTO) principles
and its Protocol of Accession remains mixed, partly due
to China’s opaque subsidy regime. Recently, the United States
initiated WTO cases on China’s aircraft taxation, export restrictions
on raw materials, and agricultural subsidies. The United
States also requested consultations over China’s continued imposition
of antidumping duties on U.S. broiler chicken products,
in violation of an earlier WTO ruling.
Section 2: State-Owned Enterprises, Overcapacity, and China’s
Market Economy Status
Although Beijing has taken superficial steps toward meaningful
state-owned enterprise (SOE) reform, including pursuing plans for
mixed-ownership and SOE consolidation, it has effectively abandoned
its boldest reform proposals. Rather than restructuring the
state sector to reduce corporate debt and increase efficiency, the Chinese
government continues to prop up nonviable companies with
government subsidies, discounted production inputs, and favorable
lending from state banks. As a result, SOEs remain the driving force
behind key sectors of the Chinese economy despite incurring significant
losses. Under President Xi, the Chinese government has not
only expanded its control over SOEs, but also exerted its influence
over private companies. By enhancing government oversight, centralizing
bureaucratic coordination, and regulating market entry in