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456 Korea runs perpetual merchandise trade deficits primarily with China (and also Russia); 138 possible financing sources for these deficits include overseas business activities, illicit activities, foreign aid, and remittances. 139 Figure 2: China-North Korea Trade, 2006–2015 Source: China General Administration of Customs via CEIC database. To help facilitate bilateral trade and tourism, North Korea has established 11 special economic zones (SEZs) near the North Korea-China border, which have been heavily promoted under Kim Jong-un, though most are not operational due to North Korea’s business environment, bureaucratic constraints, and tensions in bilateral relations. 140 According to Curtis Melvin, a researcher at the U.S.-Korea Institute at the Johns Hopkins University School of Advanced International Studies, ‘‘North Korea’s business environment is not a welcoming destination for Chinese capital even when relations are relatively good because with no credible commitment to policies, there is ultimately nothing preventing the DPRK from shaking down or seizing assets of Chinese investors at some point in the future when the bilateral environment changes.’’ 141 Beijing seeks to build improved infrastructure connecting some of these SEZs to China, but these projects have largely stalled in recent years. 142 Lu Chao, director of the North and South Korea Research Center at the Liaoning Academy of Social Sciences in China, notes that cross-border economic development projects between Dandong and North Korea, including a $338 million bridge linking Dandong (China) and Sinuiju (North Korea), have been delayed indefinitely by Pyongyang since December 2013 when Kim Jong-un purged and executed his uncle and high-level official Jang Song-taek, who was important in facilitating bilateral economic ties. 143 dkrause on DSKHT7XVN1PROD with USCC North Korea Foreign Trade Trends, July 2016, 12; Analyst, Korea Trade-Investment Promotion Agency, interview with Commission staff, September 5, 2016. VerDate Sep 11 2014 14:49 Nov 01, 2016 Jkt 020587 PO 00000 Frm 00101 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2016\FINAL\09_C3_M.XXX 09_C3_M C3S4Fig2.eps
dkrause on DSKHT7XVN1PROD with USCC 457 Total Chinese investment in North Korea is unclear due to the lack of reliable data, but several analysts assess official Chinese investment accounts for approximately 95 percent of foreign direct investment in North Korea. 144 Chinese companies largely view the North Korean investment climate as difficult, opaque, and risky because of inadequate legal protections for foreign investors in North Korea and its poor infrastructure. 145 In addition to North Korea’s SEZs, China operates a free trade zone in Dandong and two others are set to operate in the border region,* providing North Korea with another source of hard currency. According to public reports, Chinese citizens can buy a limited amount of North Korean goods duty-free within 20 kilometers of these areas. 146 An expert on the North Korean economy told the Commission that China has ambitious goals for expanding trade and investment through the Korean Peninsula by eventually expanding high-speed rail from China through North Korea and South Korea to further open the Chinese market and access North Korean ports. 147 Chinese firms are able to circumvent barriers to investment in North Korea by importing North Korean labor, which is not prohibited under UNSCR 2270, providing a major source of hard currency for the Kim regime. According to North Korean defectors, Pyongyang has steadily increased the number of workers it sends to China in recent years. 148 There are arrangements in Dandong and in Tumen—another Chinese city that borders North Korea— to allow North Korean laborers to cross the border for work. 149 According to Mr. Lee, at least 70,000–80,000 North Korean workers are employed in China as of August 2016, and ‘‘in a few years this [number] is likely to reach a few hundred thousand;’’ of the total workers in China, he assesses 30,000 North Koreans work in Dandong and 4,000 work in Tumen. 150 These workers are reportedly only allowed to keep one-third of their monthly wages; the rest must be sent to the Kim regime. 151 The U.S. Department of State estimates North Korea receives compensation in the low hundreds of millions of dollars from work abroad, mostly in China and Russia. 152 Another critical area of support for the Kim regime is Chinese energy assistance to Pyongyang (aside from coal, mentioned earlier), and includes fuel, hydropower, solar panels, and power lines from China connecting into North Korea. 153 Among these, certain types of fuel are now sanctioned under UNSCR 2270, namely aviation fuel, including rocket fuel. 154 A North Korea economy expert told the Commission that electricity access in North Korea is now probably better than at any time since the famine in the 1990s, due in part to Chinese solar panel exports. 155 While the actual amount of Chinese fuel provided to North Korea is unknown (since China stopped reporting crude oil exports in 2014), evidence suggests it is rising, as more cars and trucks appear on the roads in Pyongyang and Chinese exports of automobiles and related components to North Korea over January–August 2016 have increased 29 per- * The Guomenwan trade zone in Dandong opened in October 2015. The Ji’an Joint Border Economic Zone has been built but is not open, and the Helung Joint Border Economic Zone has yet to be constructed. Xinhua, ‘‘Largest City on China-North Korean Border Dandong Opens Border Trade Zone,’’ October 15, 2016. Staff translation. http://news.xinhuanet.com/world/2015- 10/15/c_1116838250.htm; Lee Je-hun, ‘‘Report: N. Korea-China Relations Maybe Not So ‘Strained’ after All,’’ Hankyoreh (South Korea), November 13, 2015. VerDate Sep 11 2014 14:49 Nov 01, 2016 Jkt 020587 PO 00000 Frm 00102 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2016\FINAL\09_C3_M.XXX 09_C3_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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141 dkrause on DSKHT7XVN1PROD with
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143 lifetime cost of bringing the e
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145 gets achieved). 57 Using satell
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147 cost of compliance,’’ and p
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151 boost the efficiency of China
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Table 1: 157 Chinese Attempted and
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Table 1: 159 Chinese Attempted and
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163 Figure 4: China’s Total Debt-
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173 weapons, opens the U.S. militar
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175 ests, and allow for greater vol
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177 Addendum I: Key Targets in Chin
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179 Addendum I: Key Targets in Chin
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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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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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