ANNUAL REPORT

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156 Circuit Industry Development sought to address these weaknesses and set targets, including achieving greater than $52 billion (RMB 350 billion) in annual IC revenue by 2015, maintaining a more than 20 percent compound annual industry-wide revenue growth rate through 2020,* and becoming a global leader in the primary semiconductor IC supply chain by 2030. 157 The guidelines also established nearly $107 billion (RMB 720 billion) of national and regional IC investment funds † to provide high-level support and funding between 2014 and 2017, with the goal of creating national champions, expanding domestic semiconductor fabrication capacity, and facilitating consolidation and global competitiveness of its national champions. 158 The creation of these funds represents a hybrid between the state-directed lending under previous FYPs and market forces by letting investors decide where funding should go. 159 While the 11th and 12th FYPs similarly attempted to create globally competitive Chinese semiconductor firms, the size of the funding under the 13th FYP is a key differentiator. Most countries provide subsidies to the semiconductor industry, but the scale of China’s support is unprecedented. 160 According to testimony from Jimmy Goodrich, vice president of global policy at the Semiconductor Industry Association, China’s semiconductor plan ‘‘is far more comprehensive, organized, and well-funded than many other plans they have put together to date.’’ 161 The National IC Industry Investment Fund has been instrumental in providing financing for the rapid increase in domestic capacity and acquisitions abroad. 162 Since 2014, China-headquartered firms have proposed or finalized more than 30 mergers and acquisition deals in the semiconductor industry, totaling nearly $20 billion. 163 Chinese buyers have been particularly active in the United States, with at least six completed acquisitions in 2015 and four completed acquisitions and three minority investments in 2016 (see Table 1). A majority of these investments went to small semiconductor firms; the proposed acquisition of Micron Technology, the fifth-largest semiconductor supplier by revenue in 2015, and the minority investment in Marvell Technology Group, the 24th-largest, were the two exceptions. 164 Table 1: Chinese Attempted and Completed Acquisitions and Investments in U.S. Semiconductor Companies, 2015–2016 U.S. Target Specialty Chinese Investor Value (US$ millions) Status FlipChip International Designer of wafer chip assembly and packaging Tianshui Huatian Technology $40.2 Acquisition completed, April 2015 dkrause on DSKHT7XVN1PROD with USCC * In 2014, total IC sales reached $77.3 billion. China’s semiconductor industry increased at a 20.5 percent compound annual growth rate from 2004 to 2014. PricewaterhouseCoopers, ‘‘China’s Impact on the Semiconductor Industry: 2015 Update,’’ March 2016. † The National IC Industry Investment Fund will include $17.9 billion (RMB 120 billion); local governments and private equity investment funds are expected to provide $97.5 billion (RMB 600 billion) of this funding by 2020. PricewaterhouseCoopers, ‘‘A Decade of Unprecedented Growth: China’s Impact on the Semiconductor Industry 2014 Update,’’ January 2015, 74. VerDate Sep 11 2014 12:16 Nov 02, 2016 Jkt 020587 PO 00000 Frm 00066 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2016\FINAL\06_C1_C2_M.XXX 06_C1_C2_M
Table 1: 157 Chinese Attempted and Completed Acquisitions and Investments in U.S. Semiconductor Companies, 2015–2016—Continued U.S. Target Specialty Chinese Investor Value (US$ millions) Status WiSpry Designer of chips for wireless communication products AAC Technologies Holdings $16.6 Acquisition completed, May 2015 OmniVision Technologies Designer of chips for advanced digital imaging solutions for consumer and commercial applications CITIC Capital Holdings, Goldstone Investment, Hua Capital Management $1,900 Merger completed, July 2015 Bridgelux Designer of chips for light-emitting diode (LED) commercial and industrial lighting China Electronics Corporation, Chongqing Linkong Development Investment $130 Acquisition completed, July 2015 Atmel Designer and manufacturer of microcontrollers and touch technology for the automotive, industrial, and consumer markets China Electronics Corporation $3,400 Withdrawn after higher bid from competitor, U.S. firm Dialog Semiconductor, who was later outbid by U.S. firm Micron Technologies, September 2015 Pericom Semiconductor Corp. Designer of integrated connectivity, advanced timing, and signal integrity for the computing, communications, and consumer markets Montage Technology Group (subsidiary of China Electronics Corporation) $400 Pericom rejected bid, citing a lack of committed financing and potential regulatory hurdles in China, Taiwan, and the United States, November 2015; U.S. firm Diodes acquired Pericom for $413 million that same month Xcerra Corporation (semiconductor test interface board business) Designer of semiconductor and electronics manufacturing testing equipment Fastprint Hong Kong Co. (subsidiary of Shenzhen Fastprint Circuit Tech Co.) $2.3 Acquisition of its semiconductor test interface business completed, December 2015 dkrause on DSKHT7XVN1PROD with USCC VerDate Sep 11 2014 12:16 Nov 02, 2016 Jkt 020587 PO 00000 Frm 00067 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2016\FINAL\06_C1_C2_M.XXX 06_C1_C2_M
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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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85 and Espionage Operations, oral t
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87 217. Kane Wu, “Chinese Compani
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89 271. Office of the U.S. Trade Re
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93 Lardy, senior fellow at the Pete
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99 pany competitiveness and stimula
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Page 209 and 210: 195 The ultimate impact of the ruli
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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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ANNUAL REPORT

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