US-China Commission Report - Fatal System Error

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U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION LARRY M. WORTZEL, Chairman CAROLYN BARTHOLOMEW, Vice Chairman COMMISSIONERS PETER T.R. BROOKES DANIEL A. BLUMENTHAL MARK T. ESPER JEFFREY L. FIEDLER Hon. PATRICK A. MULLOY Hon. WILLIAM A. REINSCH Hon. DENNIS C. SHEA DANIEL M. SLANE PETER VIDENIEKS MICHAEL R. WESSEL T. SCOTT BUNTON, Executive Director KATHLEEN J. MICHELS, Associate Director The Commission was created on October 30, 2000, by the Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Pub. L. No. 106–398, 114 STAT. 1654A–334 (2000) (codified at 22 U.S.C. § 7002 (2001), as amended by the Treasury and General Government Appropriations Act for 2002 § 645 (regarding employment status of staff) & § 648 (regarding changing annual report due date from March to June), Pub. L. No. 107–67, 115 STAT. 514 (Nov. 12, 2001); as amended by Division P of the ‘‘Consolidated Appropriations Resolution, 2003,’’ Pub. L. No. 108–7 (Feb. 20, 2003) (regarding Commission name change, terms of Commissioners, and responsibilities of Commission); as amended by Pub. L. No. 109–108 (H.R. 2862) (Nov. 22, 2005) (regarding responsibilities of Commission and applicability of FACA); as amended by Pub. L. No. 110–161 (Dec. 26, 2007) (regarding changes in annual report due date; submission of financial reports; printing and binding of Congressional reports; employee compensation and performance reviews; and applicability of House rules for travel by members and staff). The Commission’s full charter http://www.uscc.gov/about/charter.php and Statutory Mandate http://www.uscc.gov/about/overview.php are available via the World Wide Web. (II)
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION OCTOBER 27, 2008 The Honorable Robert C. Byrd, President Pro Tempore of the U.S. Senate, Washington, DC 20510 The Honorable Nancy Pelosi, Speaker of the U.S. House of Representatives, Washington, DC 20510 DEAR SENATOR BYRD AND SPEAKER PELOSI: On behalf of the U.S.-China Economic and Security Review Commission, we are pleased to transmit the Commission’s 2008 Annual Report to the Congress—the sixth major Report presented to Congress by the Commission—pursuant to Public Law 106–398 (October 30, 2000), as amended by Public Law 109–108 (November 22, 2005). This report responds to the mandate for the Commission ‘‘to monitor, investigate, and report to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China.’’ In this Report, the Commission reached a broad and bipartisan consensus; it approved the Report unanimously, with all 12 members voting to approve and submit it. In accordance with our mandate, this Report includes detailed treatment of our investigations of the areas identified by Congress for our examination and recommendation. These areas are: • PROLIFERATION PRACTICES—The role of the People’s Republic of China in the proliferation of weapons of mass destruction and other weapons (including dual-use technologies), including actions the United States might take to encourage the People’s Republic of China to cease such practices; • ECONOMIC TRANSFERS—The qualitative and quantitative nature of the transfer of United States production activities to the People’s Republic of China, including the relocation of high technology, manufacturing, and research and development facilities, the impact of such transfers on United States national security, the adequacy of United States export control laws, and the effect of such transfers on United States economic security and employment; • ENERGY—The effect of the large and growing economy of the People’s Republic of China on world energy supplies and the role the United States can play (including joint research and development efforts and technological assistance) in influencing the energy policy of the People’s Republic of China; • UNITED STATES CAPITAL MARKETS—The extent of access to and use of United States capital markets by the People’s Republic of China, including whether or not existing disclosure and transparency rules are adequate to identify People’s Republic of China companies engaged in harmful activities; • REGIONAL ECONOMIC AND SECURITY IMPACTS—The triangular economic and security relationship among the United States, [Taiwan] and the People’s Republic of China (including the military modernization and force deployments of the People’s Republic of China aimed at [Taiwan]), the national budget of the iii
Page 1 and 2: USCC 2008 ANNUAL REPORT
Page 3: 1 2008 REPORT TO CONGRESS of the U.
Page 8 and 9: CONTENTS Page TRANSMITTAL LETTER TO
Page 10 and 11: INDEX OF TABLES AND FIGURES 2008 RE
Page 12 and 13: 2 economic, security, diplomatic, a
Page 14 and 15: 4 China’s Capital Investment Vehi
Page 16 and 17: 6 • Antidumping penalties imposed
Page 18 and 19: 8 rities of other nations and cause
Page 20 and 21: 10 Conclusions China’s Current En
Page 22 and 23: 12 other countries that rely on Chi
Page 24 and 25: 14 vein, there appears to be a stro
Page 26 and 27: 16 lator of all financial services
Page 28 and 29: 18 • Identifying substandard ship
Page 30 and 31: 20 During the year, China continued
Page 32 and 33: 22 U.S. inspections of prisons to e
Page 34 and 35: 24 to the uncertainty during the su
Page 36 and 37: 26 U.S. exports to China were 20 pe
Page 38 and 39: 28 currency for RMB to obtain forei
Page 40 and 41: 30 of supply and demand in the fore
Page 42 and 43: 32 troversial is whether the treaty
Page 44 and 45: 34 erty (IP) rights holders from en
Page 46 and 47: 36 New Currency Rules China’s und
Page 48 and 49: 38 brought in 2006 by the United St
Page 50 and 51: 40 sectoral talks on farm trade. In
Page 52 and 53: 42 tinue buying foreign exchange, t
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44 difference between temporary, th
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46 The Administrative Structure and
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48 U.S. dollar and has appreciated
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50 Development Committee and other
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52 drawn some fairly conventional l
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54 demonstrates the great length to
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56 cent revelations of the activiti
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58 of China by way of the investmen
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60 Ltd. attempted to acquire the U.
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62 not be applied necessarily in th
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64 economy—from ports and telecom
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66 asset allocations, benchmarks, a
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68 the investments, viewing them as
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70 and printed circuits in order to
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72 2006, R&D spending in China from
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74 tios—two of Asia’s technolog
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76 The last time the United States
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78 pendent players. However, this m
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80 aviation industry and has a role
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SECTION 4: A CASE STUDY OF THE LOCA
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85 The rise of industrial fish farm
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87 According to the Southern Shrimp
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89 the increasing import base. The
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91 nated fish are discovered after
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93 At the time this Report was comp
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95 port with the hope it will be ad
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97 Restaurants also are exempted by
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99 entire dusted product is from Ch
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101 written and approved, which is
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RECOMMENDATIONS The U.S.-China Trad
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105 gress could enable consumers to
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107 26. ‘‘China Central Bank to
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109 82. USTR, ‘‘2008 National T
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111 121. U.S.-China Economic and Se
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113 173. ‘‘China’s Stake in B
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117 282. International Working Grou
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121 361. Food & Water Watch, ‘‘
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123 Louisiana and the U.S. Gulf Coa
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126 While witnesses concluded that
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128 China’s Nonproliferation Comm
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130 State during the interdiction o
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132 Northwest National Laboratory
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134 UN Security Council resolutions
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136 ployment, this change would inf
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138 ing Iran’s missile program on
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SECTION 2: CHINA’S VIEWS OF SOVER
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142 ficing the principle behind it.
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144 baseline. Other states enjoy ov
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146 India, Vietnam, Taiwan, and oth
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148 as, ‘‘What constitutes a sp
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150 The proposed PAROS treaty itsel
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152 enhance China’s assertions of
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154 Media and Public Opinion Warfar
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SECTION 3: THE NATURE AND EXTENT OF
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158 Today, China’s space program
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160 The Management Structure for Ch
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162 • Launching geostationary orb
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164 bility to conduct cyber operati
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166 tions between the NIPRNet and t
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RECOMMENDATIONS China’s Prolifera
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170 ENDNOTES FOR CHAPTER 2 1. U.S.-
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172 41. U.S.-China Economic and Sec
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174 80. Janice E. Thomson, ‘‘St
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176 112. Reinhard Drifte, ‘‘Jap
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CHAPTER 3 CHINA’S ENERGY AND ENVI
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185 A growing share of energy deman
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187 pleted. Without the discovery a
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189 A Survey of China’s Interests
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191 projects that imports of natura
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193 and design of the units. 71 Chi
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195 dioxide, nitrous oxide, mercury
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197 sions are realized and producti
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199 ferent interests that motivate
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201 the oil, gas, coal, and power i
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203 fluential figures in business a
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205 The Terminology Used to Describ
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207 velop international and domesti
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209 that growth must occur in an en
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211 servation. Officials highlighte
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213 grated Gasification Combined Cy
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215 Obtaining sufficient movement f
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217 nology and finding ways to make
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219 • As the negotiations for a p
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223 tent.aspxdata=EmergingMktlconte
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225 13, 2008. These tools include s
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229 ergy Group, Environmental Energ
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CHAPTER 4 CHINA’S FOREIGN ACTIVIT
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233 China will seek to displace the
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235 China to help resolve them. 22
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237 presenting itself as an accepta
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239 China’s infrastructure invest
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241 IMF. The Angolan government exp
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243 China’s Conventional Arms Sal
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245 Kurlantzick testified that Chin
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247 pendent of their legislatures a
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249 diplomacy and in the internatio
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SECTION 2: CHINA’S RELATIONSHIPS
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PART 1: TAIWAN The Significance of
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255 PRC pressure directed against T
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257 this end. 150 (Additional infor
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259 Discussions Regarding Arms Sale
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261 ernment is committed to set ann
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263 • Arms purchases from the Uni
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265 China, appreciation of the RMB,
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267 Days later, although they did n
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Introduction PART 3: THE REPUBLIC O
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271 South Korean officials emphasiz
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273 mount among the ROK’s diploma
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275 Even after approving these grad
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277 exercising undue influence—be
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RECOMMENDATIONS China’s Expanding
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283 42. UN Conference on Trade and
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287 134. Calculation performed by C
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289 184. ‘‘Factbox: Key facts o
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CHAPTER 5 CHINA’S MEDIA AND INFOR
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293 The central role of the Propaga
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295 thoritarian post-Soviet governm
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297 Some of the measures taken by C
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299 Images of ‘‘Jing-Jing’’
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301 Legislation was introduced duri
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303 In addition to promoting a powe
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305 Chinese Government Restrictions
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307 search engine and the servers s
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309 media, the Internet, popular en
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311 ENDNOTES FOR CHAPTER 5 1. David
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313 image-of-internet-police-jingji
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318 China’s prison labor system,
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320 most literal sense, the term la
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322 treatment of Falun Gong practit
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324 lowing its signing. According t
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326 granted just three of 18 prison
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328 Mr. Marck, who is the partial o
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330 complaints involving internatio
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RECOMMENDATIONS • The Commission
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334 28. U.S. Department of Homeland
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COMPREHENSIVE LIST OF THE COMMISSIO
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339 gram. By expanding this volunta
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341 27. The Commission recommends t
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343 43. The Commission recommends t
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345 ADDITIONAL VIEWS OF COMMISSIONE
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347 ADDITIONAL VIEWS OF COMMISSIONE
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APPENDIX I UNITED STATES-CHINA ECON
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351 (iii) make all subsequent appoi
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353 (2) Information. The Commission
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355 In each Section and Subsection
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357 ecutive Schedule under section
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360 member of the Academic Advisory
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362 nomic, defense, and foreign pol
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364 formulated by the Committee suc
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366 Commissioner Shea is an attorne
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368 than twenty years, leaving his
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APPENDIX III PUBLIC HEARINGS OF THE
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373 May 20, 2008: Public Hearing on
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APPENDIX IIIA LIST OF WITNESSES TES
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377 Alphabetical Listing of Panelis
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379 Alphabetical Listing of Panelis
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382 REPUBLIC OF KOREA, JAPAN AND TA
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APPENDIX V LIST OF U.S. SANCTIONS I
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387 Date Imposed Entity/Person Cont
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APPENDIX VII ABBREVIATIONS AND ACRO
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393 UNGA UN PKO USD USDA USITC USTR
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