RESEARCH: Economics and Trade REPORTS

December 2016 Trade Bulletin
Highlights of this Month’s Edition •Bilateral trade: U.S. exports to China jump 11.3 percent year-on-year in October 2016, leading to a smaller deficit. •Bilateral policy issues: At JCCT, China pledges to open entertainment sector to the United States, but U.S. concerns over Chinese biotechnology rules remain unaddressed. •Policy trends in China’s economy: China has passed a broad new cybersecurity law aimed at tightening government control over information flows and technology products, sparking complaints from foreign business and rights advocacy groups; Lou Jiwei replaced as Minister of Finance, raising concerns about China’s commitment to economic reform. • Sector focus – Singles’ Day and E-Commerce: Singles’ Day sets new record for online sales amid the continued rise of electronic transactions in China, offering new market opportunities for foreign firms.
November 2016 Trade Bulletin
Highlights of this Month’s Edition" • Bilateral trade: In the third quarter of 2016, the U.S. trade deficit declined year-on-year due to weakened imports; in the second quarter of 2016 U.S. service exports to China reach $10.8 billion, an 8 percent increase year-on-year. • Bilateral policy issues: China drops discriminatory aviation tax break; WTO rules against U.S. zeroing antidumping methodology; the United States advances WTO raw materials case against China. • Quarterly review of China’s economy: China’s GDP growth hit 6.7 percent for the third straight quarter; strong public investment, largely in real estate and infrastructure, has counterbalanced lower private sector investment and driven economic growth, but questions remain regarding the health of the underlying economy; RMB posts weakest rate against the dollar since 2010. • Policy trends in China’s economy: The CCP designates Xi Jinping as its “core” leader at the Sixth Plenum.
October 2016 Trade Bulletin
Highlights of this Month’s Edition: • Bilateral trade: U.S. deficit with China widens in August 2016 on higher imports, but cumulative deficit down year-to-date. • Bilateral policy issues: Under China’s presidency, leaders at the G20 Summit in Hangzhou pledged to strengthen macroeconomic policy coordination to maintain global growth, but failed to issue concrete proposals; the USTR is challenging China’s excessive government support for rice, corn, and wheat production at the WTO. • Policy trends in China’s economy: The decreasing efficiency of new credit, the speed with which China is accumulating debt, and the rise of nonperforming loans are contributing to China’s vulnerability to a banking crisis; McDonald’s and Yum! Brands to sell rights to operate in China as U.S. fast food restaurants face stagnant growth in China. • Sector focus – Rice, Corn, and Wheat: Chinese support for domestic farmers creates world’s largest stockpile of grain and may cost U.S. wheat farmers $650 million annually; U.S. rice farmers gain access to Chinese market for the first time; U.S. corn exports declined 91 percent from 2012 to 2015 as China blocked shipments of U.S. corn in 2014 and started diversifying its corn imports.
September 2016 Trade Bulletin
Highlights of this Month’s Edition: • Bilateral trade: The U.S. goods deficit with China continued to slow in July as growth in U.S. imports from China declined. • Bilateral policy issues: China hopes the G20 meeting focuses on maintaining economic growth and mobilizing funding for climate change and environmentally friendly growth. • Policy trends in China’s economy: The IMF warns of China’s rising debt levels in a new report; State Council approves plans for a Shenzhen-Hong Kong Stock Connect; China launches a $30 billion government-backed venture capital fund for industrial technology and pilots a limited program to allow SOE employees to own stocks. • Sector focus – Chinese distant water fishing: China’s distant water fishing fleet propped up by government subsidies that encourage excess capacity and overfishing, harming biodiversity.
August 2016 Trade Bulletin
Highlights of this Month’s Edition: • Bilateral trade: Weaker imports cause the U.S. goods deficit with China to fall 5.7 percent year-on-year in the first half of 2016; U.S. service exports to China reach record high, buoyed by high Chinese tourism spending in the United States. • Bilateral policy issues: The United States and the EU fault China for lack of transparency at the WTO and cite concerns over delayed Chinese economic reform; the United States argues against granting China automatic market economy status in December; USTR is challenging China’s raw materials export restrictions at the WTO. • Quarterly review of China’s economy: In the second quarter of 2016, GDP growth held steady from the previous quarter at 6.7 percent as Beijing again turned to stimulus measures to boost the economy. • Policy trends in China’s economy: Chinese government approves debt-for-equity swap trials despite reservations from major banks; news portals shut down for violating China’s original news reporting prohibition. • Sector focus – Market barriers to U.S. drugs, medical devices, and medical services: China’s aging population drives expansion in the health industry, but numerous market barriers limit access for U.S. firms.
Policy Considerations for Negotiating a U.S.-China Bilateral Investment Treaty
A U.S.-China Bilateral Investment Treaty (BIT) is unique among other existing BITs insofar as it will have to balance the interests of two world powers that are both capital-importing and capital-exporting nations. It will not only determine future investment relations between the world’s two biggest economies, but will also set the precedent for U.S. investment relations with other major developing countries. While a U.S.-China BIT could potentially unlock sizable benefits, a number of significant challenges—many of which are unique to China’s involvement—complicate the debates around a prospective U.S.-China BIT. This report briefly summarizes each country’s history with BITs, identifies potential challenges in moving forward with negotiations, and highlights potential implications of the U.S.-China BIT for the United States. Drawing on the 2012 U.S. Model BIT, the evolution of China’s BIT practice, and China’s 2012 BIT with Canada, this report concludes by discussing a number of questions U.S. policymakers should consider.
Chinese Tourism and Hospitality Investment in the United States
Chinese tourism to the United States has expanded rapidly over the past ten years. From 2005 to 2015, Chinese tourism spending in the United States has increased eight-fold, and in 2015 contributed $27 billion to the U.S. economy. Today, tourism constitutes a significant part of the United States’ exports to China, making up 57 percent of U.S. service exports to China in 2015 and 12 percent of U.S. exports to China overall. This increase has been driven by rising Chinese incomes which have made China the largest source of international tourists in the world. While many Chinese travel to the United States for traditional tourism, an increasing number of Chinese students travel to the United States for secondary and tertiary education, with China now contributing more students to the United States than any other country. As Chinese tourism has increased, Chinese investment in U.S. hotels and hospitality facilities has grown by a factor of 9 from 2013 to 2015 following looser Chinese rules on outbound investment. This paper examines the rise in Chinese tourism to the United States and Chinese investment in the U.S. hospitality sector and the consequences of these trends for the United States.
Meth Precursor Chemicals from China: Implications for the United States
Over the last 15 years, Mexican drug organizations have replaced domestic producers as the main manufacturers and distributors of meth in the United States. While Mexican cartels produce the majority (around 90 percent) of meth used in the United States, around 80 percent of precursor chemicals used in Mexican meth come from China. Precursor chemicals are increasingly being shipped from China to Mexico and Central America, where they are manufactured into meth, transported across the southern border of the United States, and brought into southwestern states—Texas, Arizona, and California—before being shipped across the country. Despite international counternarcotic efforts, meth precursor manufacturers in China continue to thrive because the country’s vast chemical and pharmaceutical industries are weakly regulated and poorly monitored. This report examines the extent of China’s illicit chemical production and the effectiveness of U.S. and international efforts to reduce precursor chemical flows.
July 2016 Trade Bulletin
Highlights of This Month’s Edition: • Bilateral trade: U.S. goods deficit with China continued to decelerate in May 2016 as growth in U.S. imports from China slowed. • Bilateral policy issues: At the eighth U.S.-China Strategic and Economic Dialogue, participants failed to achieve any major breakthroughs on fundamental strategic and economic issues, but left with some deliverables on financial sector and environmental cooperation. • Policy trends in China’s economy: Brexit raises economic questions in Beijing, but the reaction in Chinese markets is largely muted; MSCI, the world’s largest index provider, once again delayed the inclusion of China’s domestic shares in its emerging markets benchmark; China takes more steps to internationalize the RMB, meanwhile the PBOC spends $473 billion in foreign reserves to stabilize its value.
June 2016 Trade Bulletin
Highlights of This Month’s Edition: • Bilateral trade: U.S. imports from China increase from March as exports to China decline, widening trade deficit; • Bilateral policy issues: Chinese SOEs claim sovereign immunity in U.S. courts, revealing gap in U.S. foreign ownership laws; U.S.-China trade tensions escalate at the WTO, with each country alleging the other failed to comply with adverse WTO decisions (the United States challenges Chinese duties on U.S. poultry, while China challenges U.S. antidumping and countervailing methodology); • Policy trends in China’s economy: China has reopened its securitized bad debt market, starting with two deals worth $82 million; final roll-out of value-added tax seen as boost to the service sector; European Parliament votes overwhelmingly against granting China market economy status; China passes a broadly defined NGO law despite objections from foreign businesses, NGOs, and human rights groups; • Sector focus – Poultry: Numerous trade barriers restrict U.S. exports of poultry to China.