ANNUAL REPORT

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dkrause on DSKHT7XVN1PROD with USCC 188 cember 1, 2015; Pete Carey, ‘‘Shareholders Approve ISSI Acquisition by Chinese Consortium,’’ Mercury News, June 29, 2015; PR Newswire, ‘‘ISSI Announces Completion of Acquisition by Uphill,’’ December 7, 2015; Allison Gatlin, ‘‘Micron Snubs Tsinghua, Favors Another Chinese Partnership: Analyst,’’ Investor’s Business Daily, February 16, 2016; Michael Moran, ‘‘Despite High Profile Failures, Chinese Firms Continue to Acquire and Invest in the US,’’ Forbes, May 26, 2016; Digitimes, ‘‘Chinese Semiconductor Industry’s Latest Move: Sage Micro’s Low-Key Acquisition of Initio,’’ January 28, 2016; VeriSilicon Holdings Company, ‘‘VeriSilicon Completes Acquisition of Vivante,’’ January 6, 2016; Arash Massoudi, James Fontanella-Khan, and Shawn Donnan, ‘‘Tsinghua Kills $3.8bn Investment Plan in Western Digital,’’ Financial Times, February 23, 2016; Exar, ‘‘Exar Signs Definitive Agreement to Sell its iML Subsidiary for $136 Million, Net of Cash,’’ June 2, 2016; James Fontanella- Khan, ‘‘Fairchild Rejects $2.6bn Chinese Offer,’’ Financial Times, February 16, 2016; Branden Campbell, ‘‘Chinese LED Maker Sanan Buys Tech Firm for $226M,’’ Law360, March 11, 2016; Global Communications Semiconductors, ‘‘Press Release,’’ August 1, 2016; BusinessWire, ‘‘GigOptix Announces Investment from Shanghai Pudong Science and Technology Investment Co.,’’ March 22, 2016; MFlex, ‘‘MFLEX Enters into Definitive Merger Agreement to Be Acquired by Suzhou Dongshan Precision Manufacturing Co., Ltd. for $23.95 Per Share,’’ February 4, 2016; Eamon Murphy, ‘‘Chinese PE firm E-Town Dragon Closes Acquisition of Mattson Technology,’’ May 11, 2016; Tim Ahmann and Diane Bartz, ‘‘ON Semiconductor Wins Conditional U.S. Antitrust Approval to Buy Fairchild,’’ Reuters, August 25, 2016; Don Clark, ‘‘China’s Tsinghua Discloses Investment in Marvell Technology,’’ Wall Street Journal, May 13, 2016; IHS, ‘‘Global Semiconductor Market Slumps in 2015, IHS Says’’ BusinessWire; and Analogix Semiconductor, ‘‘Shanhai Capital to Acquire Analogix Semiconductor,’’ September 22, 2016. 166. U.S.-China Economic and Security Review Commission, Hearing on China’s 13th Five-Year Plan, written testimony of Jimmy Goodrich, April 27, 2016, 5. 167. Don Clark, ‘‘Qualcomm to Pay $975 Million Antitrust Fine to China,’’ Wall Street Journal, February 10, 2015. 168. Qualcomm, ‘‘Qualcomm and China’s National Development and Reform Commission Reach Resolution,’’ February 9, 2015; Don Clark, ‘‘Qualcomm to Pay $975 Million Antitrust Fine to China,’’ Wall Street Journal, February 10, 2015. 169. Qualcomm, ‘‘Form 10–K,’’ September 27, 2015. 170. Eva Dou and Don Clark, ‘‘Qualcomm Launches Unit to Help Chinese Smartphone Makers Sell Overseas,’’ Wall Street Journal, April 26, 2015. 171. PR Newswire, ‘‘SMIC, Huawei, imec, and Qualcomm in Joint Investment on SMIC’s New Research and Development Company,’’ June 23, 2015; Gartner, ‘‘Worldwide Semiconductor Foundry Market Grew 4.4 Percent in 2015, According to Final Results by Gartner,’’ April 12, 2016. 172. PR Newswire, ‘‘SMIC, Huawei, imec, and Qualcomm in Joint Investment on SMIC’s New Research and Development Company,’’ June 23, 2015. 173. PR Newswire, ‘‘SMIC, Huawei, imec, and Qualcomm in Joint Investment on SMIC’s New Research and Development Company,’’ June 23, 2015. 174. Qualcomm, ‘‘Press Release: Qualcomm and Guizhou Province Sign Strategic Cooperation Agreement and Form Joint Venture to Design and Sell World-Class Server Chipsets in China,’’ January 17, 2016. 175. Ian King, ‘‘Intel Spends $1.5 Billion to Boost China Market Access,’’ Bloomberg Technology, September 26, 2014. 176. Intel, ‘‘Press Release: Intel and Tsinghua Unigroup Collaborate to Accelerate Development and Adoption of Intel-based Mobile Devices,’’ September 25, 2014. 177. Paul Bischoff, ‘‘Intel, Spreadtrum, and the Chinese Government Team up to Wipe out Qualcomm ‘Monopoly,’ ’’ TechinAsia, October 16, 2014. 178. 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dkrause on DSKHT7XVN1PROD with USCC 189 ness, September 2015, 1; Richard Dobbs et al., ‘‘Debt and (Not Much) Deleveraging,’’ McKinsey Global Institute, February 2015. 185. Bank of International Settlements, ‘‘Credit to the Non-Financial Sector,’’ June 6, 2016. 186. Michael Pettis, professor of finance at Beijing University, meeting with Commission, Beijing, China, June 24, 2016. 187. Andrew Polk, China director at Medley Global Advisors, meeting with Commission, Beijing, China, June 24, 2016. 188. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016, 10. 189. Economist, ‘‘Weak Local Government Revenue Growth Raises Fiscal Concerns,’’ April 16, 2015. 190. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016. 191. Chong-En Bai, Chang-Tai Hsieh, and Zheng (Michael) Song, ‘‘The Long Shadow of a Fiscal Expansion,’’ Brookings Papers on Economic Activity, Conference Draft, September 15–16, 2016, 13, 23. 192. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016, 12–13. 193. International Monetary Fund, ‘‘The People’s Republic of China: 2016 Article IV Consultation,’’ August 2016. 194. International Monetary Fund, ‘‘The People’s Republic of China: 2016 Article IV Consultation,’’ August 2016, 23–24. 195. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016, 3, 7–8. 196. Amy He, ‘‘The World’s Biggest Uprooting,’’ China Daily, April 11, 2014; Liyan Qi, ‘‘China’s National Pension Fund a ‘Time Bomb,’ Researcher Says,’’ Wall Street Journal, November 13, 2014. 197. Xinhua, ‘‘Six Provinces Face Imminent National Pension Deficit,’’ August 16, 2016. Staff translation. 198. Li Keqiang, Report on the Work of the Government (Third Session of the 12th National People’s Congress, Beijing, China, March 5, 2016), 17; World Bank, ‘‘Global Economic Prospects: Divergences and Risks,’’ June 2016, 10. 199. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016, 10. 200. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016, 4. 201. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016, 12–13, 15–16; State Council of the People’s Republic of China, Guiding Opinions on Promoting Central- Local Fiscal Power and Expenditure Responsibilities Reform, August 24, 2016. Staff translation. 202. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016. 203. State Council of the People’s Republic of China, Guiding Opinions on Promoting Central-Local Fiscal Power and Expenditure Responsibilities Reform, August 24, 2016. Staff translation. 204. Mark Magnier, ‘‘China’s New Tax Regime to Spur Service Economy,’’ Wall Street Journal, April 28, 2016; China’s Ministry of Finance, Tax Policy Department, How Does the VAT Work in China? 205. Deloitte, ‘‘Taxation and Investment in China 2015: Reach, Relevance, and Reliability,’’ 10. 206. State Council of the People’s Republic of China, VAT Reform—A Critical Step in China’s Supply-Side Reform, Xinhua, March 21, 2016; Mark Magnier, ‘‘China’s New Tax Regime to Spur Service Economy,’’ Wall Street Journal, April 28, 2016. 207. Zheng Yangpeng, ‘‘Local Governments ‘to Be Hit by Adjustment to VAT,’ ’’ China Daily, April 7, 2016. 208. U.S.-China Economic and Security Review Commission, Hearing on the 13th Five-Year Plan, written testimony of Yilin Hou, April 27, 2016, 6–7, 16. 209. Barry Naughton, ‘‘Local Debt Restructuring: A Case of Ongoing Authoritarian Reform,’’ China Leadership Monitor 47 (July 14, 2015): 4; Nicholas Zhu, ‘‘Regional and Local Governments—China: Key Factors Shaping Standalone Credit Strength,’’ August 24, 2016,’’ Moody’s Investors Service, 4, 8. 210. Barry Naughton, ‘‘Local Debt Restructuring: A Case of Ongoing Authoritarian Reform,’’ China Leadership Monitor 47 (July 14, 2015): 4. 211. Nicholas Zhu, ‘‘Regional and Local Governments—China: Key Factors Shaping Standalone Credit Strength,’’ August 24, 2016,’’ Moody’s Investors Service, 4. VerDate Sep 11 2014 12:16 Nov 02, 2016 Jkt 020587 PO 00000 Frm 00099 Fmt 6601 Sfmt 6621 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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105 Table 2: Select Chinese Overcap
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107 levels. 135 The situation is on
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109 Figure 5: China’s Monthly Cru
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111 Figure 6: U.S. Steel Industry Q
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123 Addendum I: Section 15 of China
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125 Addendum II: AD and CVD Investi
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Page 209 and 210: 195 The ultimate impact of the ruli
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Page 217 and 218: 203 Reform and Reorganization of th
Page 221 and 222: 207 • PLA Army Headquarters: Chin
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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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