Since President Xi took office in 2013, Beijing has significantly bolstered its involvement in the Pacific Islands region, which comprises three U.S. territories and three countries freely associated with the United States that are important for U.S. defense interests in the Indo-Pacific. Much of China’s engagement in the region has focused on expanding economic ties with the Pacific Islands, but it has also increased its footprint in the diplomatic and security realms. This report examines China’s interests in the region, its comprehensive engagement in the Pacific Islands, and the implications of its expanding presence and influence for the United States.
This hearing is intended to explore U.S. policy options available to address Chinese market distortions. The first panel, “A Coordinated Policy Response to Chinese State Capitalism,” will address industrial policy challenges like subsidies, price distortions, and investment restrictions. The second panel, “A Coordinated Policy Response to China’s Techno-nationalism,” will focus on challenges from China’s push to develop domestic-led intellectual property, including technology transfer, IP or data theft, and restrictions on cross-border data flows.
Highlights of This Month’s Edition
• Bilateral trade: U.S. goods deficit with China increases 11.8 percent in the first four months of 2018 as growth in U.S. imports from China outpaces exports.
• Bilateral policy issues: The United States and China issue a joint statement on the ongoing trade negotiations, but outcomes remain in flux as tariff and investment action deadlines near; the U.S. government considers alternative penalties for ZTE’s violation of its 2017 settlement with U.S. authorities; China drops antidumping probe into U.S. sorghum, but U.S. soy exports still threatened.
• Policy trends in China’s economy: China compels multinational companies to list Taiwan as a Chinese territory, increasingly using Chinese domestic laws as leverage.
• Sector Focus — Autos: China’s auto market continues to grow, albeit slower than in previous years; as China prepares to lower tariffs on auto imports, European firms are better positioned to take advantage of increased market access than U.S. firms, most of which manufacture cars in China through joint ventures.
The Chinese government is seeking to revamp its state sector through a series of billion dollar “megamergers” involving central state-owned enterprises (SOEs). These megamergers consolidate state control in strategic sectors of economy and eliminate intra-state competition in China. However, they also contribute to increased debt levels among Chinese SOEs and undermine the competitiveness of U.S. businesses and other global firms. This report assesses the objectives of China’s megamergers strategy and evaluates the implications of SOE megamergers (and, more broadly, Chinese government control over the economy) for the global competitive landscape.
China’s digital game market has emerged as the largest in the world but remains heavily restricted to U.S. game companies. U.S. companies are required to license their games to Chinese operators who appear to claim a majority of the revenue a U.S. game earns in China. Intellectual property rights conditions in China create significant challenges for U.S. firms, facilitating piracy in other international markets through China’s manufacture of piracy-enabling devices and restricting the commercial viability of certain gaming genres and platforms within China due to widespread piracy. Chinese companies have acquired several foreign game companies, raising data privacy concerns given the power of the Chinese government to request information from domestic companies and the broad array of data that can be collected by mobile games.
The report examines five categories of China’s advanced weapons systems (counter-space, unmanned systems, maneuverable reentry vehicles, directed energy and electromagnetic railguns) and artificial intelligence applications for national defense. The report also assesses the implications of China’s advanced weapons programs for the United States and its allies and provides recommendations.
The U.S.-China Economic and Security Review Commission was created by the United States Congress in October 2000 with the legislative mandate to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.