China Prepares to Confront U.S. Militarily and Backslides on Market Reforms
By Gary Feuerberg
Epoch Times Washington, D.C. Staff Nov 26, 2007

http://en.epochtimes.com/news/7-11-26/62312.html


CONCERNED OVER CHINA'S MILITARY BUILD-UP: Daniel A. Blumenthal spoke on Capitol Hill, Nov 15, of China's continual build-up of military capacity with the intent to challenge the U.S. Mr. Blumenthal is Vice Chairman of the U.S.-China Economic and Security Review Commission for its 2007 annual report. He is a Resident Fellow in Asian Studies at the American Enterprise Institute, and a defense policy expert on China and Taiwan. (Gary Feuerberg / Epoch Times)
WASHINGTON, D.C.—The Chinese communist leadership appears to be back-tracking on implementing market-based reforms that the U.S. and other market economies regard as necessary for good trade relations. The Chinese regime's new policy retains state-control of a number of industries, including telecommunications, civil aviation, and information technology, as well as 155 of China's largest corporations, and nearly all the nation's largest banks.

China's retrenchment on economic reform is one of the key findings of the U.S. Economic and Security Review Commission (USCC), which released its weighty, 333-page annual report, November 15, on Capitol Hill.

According to the Commission, China is "developing its military in ways that enhance its capacity to confront the United States," especially with its focus on cyber warfare and anti-satellite weapons. The report is critical of China's increased use of military and industrial espionage.

Potential threats to the U.S. economy are seen looming ahead with China's enormous trade surplus and concern is expressed on how it will choose to use its accumulation of foreign currency—$1.4 trillion—the largest in the world. The report also raises alarm regarding the erosion of the U.S. defense industrial base.

Meanwhile, no progress is forthcoming in reforming the political process and allowing the freedom to practice one's religion. The report finds that China has in place "one of the most effective information control regimes in the world."

"China's media and information controls have actually grown more rigid as the Communist Party seeks to maintain its monopoly of power through its sophisticated technology to monitor … the Internet," said Carolyn Bartholomew, Chairman of the Commission. She added that these controls impact the U.S. because it suppresses information regarding dangerous products.


OPPOSING CHINA'S SUBSIDIZED INDUSTRIES: Carolyn Bartholomew spoke on Capitol Hill, Nov 15, of China's backsliding on market reforms. Ms. Bartholomew is Chairman of the U.S.-China Economic and Security Review Commission (USCC) for its fifth annual report. Photo was taken last year (Nov 16, 2006) at the release of the USCC's fourth annual report when Ms. Bartholomew was Vice Chair. (NTDTV)The Commission is composed of 12 members, appointed by each party's leadership. It is tasked by the U.S. Congress to review the bilateral economic and security relationships between China and the United States.

The Commission held seven public hearings, which were conducted in Washington except for a field hearing held in Chapel Hill, North Carolina. It took testimony of over 100 witnesses from the Congress, executive branch, industry, academia, and policy groups. The Commission also traveled to China, Hong Kong, Taiwan, and India, and met with U.S. diplomats, host government officials, foreign business representatives, and local experts.

The Commission conducted two days of classified and unclassified briefings at Wright-Patterson Air Force Base, Ohio arranged by the Department of Defense on China's research, technology and military objectives in relationship to the U.S. A classified report will be sent to the Congress.


China's Military Modernizations Marches Rapidly Forward
A major area of the Commission's concerns lies in China's recent military progress, which has sometimes taken our defense intelligence by surprise, and raised serious doubts about the quality of our assessments. An example is the launching of the Jin class submarine by the navy of the People's Liberation Army.

"New generations of warships, fighter aircraft, space craft, submarines, missiles, and other sophisticated weapon platforms are coming off production lines at an impressive pace and … quality," says the report.

China has saved much time and research money in developing new technology by the extensive use of industrial espionage.

"Chinese espionage in the United States, which now comprises the single greatest threat to U.S. technology, is straining the U.S. counterintelligence establishment," says the report. In order to stem the flow of protected U.S. technology and manufacturing expertise, the Commission recommends that Congress take a hard look at U.S. export control enforcement and counter-intelligence efforts.

The report raises the alarm about the erosion of the U.S. defense industrial base and China's role here. The report analyzes in some detail how the lengthening of the supply chains of U.S. weapons and defense equipment has meant that critical foreign-made components are being moved out of the United States. China has become an increasingly attractive outsource for American companies engaged in R&D. Unfortunately, there are substantial security risks relying on the use of foreign-made parts and components in weapon systems important to the U.S. defense, says the report.

The report concluded that no one in the U.S. government is monitoring the parts and components which are obtained from China and are being used in weapon systems or equipment critical to our national defense. The Commission hired a contractor to document the parts supply chain of the Air Force's F/A-22 Raptor fighter/attack aircraft, the Army's UH-60 Blackhawk utility helicopter, and the Navy's DDG-100 Destroyer. The contractor's research was not ready in time for the Commission's report, but "initial work suggests that information beyond the secondary or tertiary levels is sparse or nonexistent," says the report.


The Chinese Regime's Increasing Control of Its Economy
The Commission concluded that the Chinese communist regime is orchestrating an export-driven economy, resulting in a trade surplus with the United States that is growing dramatically. Its trade relationship with the United States "is severely out of balance," says the report. In 2006, China's exports to the United States ($287.8 billion) exceed imports ($55.2) by more than five to one.

This imbalance is largely the outcome of the Chinese regime's financial and economic policies that promote exports and discourage imports, such as subsidies, tax advantages, and currency manipulation. Even without the state interventions, China has a natural advantage in the extreme wage differentials between the two countries that lower Chinese manufacturers' production costs. Using 2004 for comparison, the average hourly wage rate of all workers in China was 67 cents; in the U.S., production wage was $15.65 (not including fringe benefits), says the report.

A new charge by the Commission is to regard China's manipulation of its currency, the renminbi, as a subsidy for Chinese exporters, which makes imports artificially expensive for importers and Chinese consumers. The Commission cites a report from the U.S. Treasury that the renminbi is 20 to 50 percent below where it would be relative to the dollar if it were traded freely on international currency markets.

The Commission recommends that Congress designate the Chinese regime's currency manipulation as an "illegal export subsidy," and as such, it should be taken into account with other prohibited subsidies when determining penalty tariffs.

And the Commission is concerned about what China might do with its $1.43 trillion foreign currency reserves of which an estimated 70% or $1 trillion is invested in mostly U.S. government and corporate bonds.

China's progress towards economic reform comes only with great reluctance and prodding from other nations and the World Trade Organization. "China is unwilling to embrace market-oriented mechanisms, such as freely traded currency, because it maintains a preference for authoritarian controls over its economy."

The regime violates free-market principles and WTO rules with its extensive government subsidies, often illegal, to favored industries. In December 2006, the Chinese regime announced a new policy and identified seven strategic industries—armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, civil aviation, and shipping, which will be under the regime's control.

The nearly complete lack of intellectual property protection is another indication of the Communist regime's indifference to WTO rules. To be sure, China has passed many regulations to comply with copyright, patents and trademark protections, but the enforcement is lacking.

The Congressional Research Service estimated that counterfeits constitute 15 to 20% of all products made in China, says the report. Nine out of 10 DVDs sold within China are counterfeit, and the industry lost $6.1 billion to piracy worldwide, due in part to Chinese exports of their DVDs, according to Dan Glickman, president and CEO of the Motion Picture Association of America.

Some examples are given in the report of China's refusal to enforce the law. Their media may show bulldozers running over pirated DVDs and CDs, but next door, a counterfeit factory is allowed to dismantle its counterfeit equipment and move to another facility where the counterfeiting starts anew, says the report.

With three decades of record economic growth, the regime has plowed back little of the accrued wealth into programs for education, pensions and health. There is still little in the way of consumer credit and affordable insurance. "As a result, Chinese workers save much of their income to enable them to contend with life's vicissitudes and they purchase few imported goods," says the report.

Workers in Communist China—the "Worker's Paradise"—lack basic rights. Independent unions are not permitted. "Labor [in China] is not cheap. It is deeply disenfranchised and disempowered, which leads to horrible abuses of workers' individual liberties, but also to dangerous and unsafe working conditions, unpaid wages, and abuse of prison labor," testified Thea Mei Lee, the AFL-CIO's policy director before the Commission.

and Backslides on Market Reforms
By Gary Feuerberg
Epoch Times Washington, D.C. Staff Nov 26, 2007


CONCERNED OVER CHINA'S MILITARY BUILD-UP: Daniel A. Blumenthal spoke on Capitol Hill, Nov 15, of China's continual build-up of military capacity with the intent to challenge the U.S. Mr. Blumenthal is Vice Chairman of the U.S.-China Economic and Security Review Commission for its 2007 annual report. He is a Resident Fellow in Asian Studies at the American Enterprise Institute, and a defense policy expert on China and Taiwan. (Gary Feuerberg / Epoch Times)
WASHINGTON, D.C.—The Chinese communist leadership appears to be back-tracking on implementing market-based reforms that the U.S. and other market economies regard as necessary for good trade relations. The Chinese regime's new policy retains state-control of a number of industries, including telecommunications, civil aviation, and information technology, as well as 155 of China's largest corporations, and nearly all the nation's largest banks.

China's retrenchment on economic reform is one of the key findings of the U.S. Economic and Security Review Commission (USCC), which released its weighty, 333-page annual report, November 15, on Capitol Hill.

According to the Commission, China is "developing its military in ways that enhance its capacity to confront the United States," especially with its focus on cyber warfare and anti-satellite weapons. The report is critical of China's increased use of military and industrial espionage.

Potential threats to the U.S. economy are seen looming ahead with China's enormous trade surplus and concern is expressed on how it will choose to use its accumulation of foreign currency—$1.4 trillion—the largest in the world. The report also raises alarm regarding the erosion of the U.S. defense industrial base.

Meanwhile, no progress is forthcoming in reforming the political process and allowing the freedom to practice one's religion. The report finds that China has in place "one of the most effective information control regimes in the world."

"China's media and information controls have actually grown more rigid as the Communist Party seeks to maintain its monopoly of power through its sophisticated technology to monitor … the Internet," said Carolyn Bartholomew, Chairman of the Commission. She added that these controls impact the U.S. because it suppresses information regarding dangerous products.


OPPOSING CHINA'S SUBSIDIZED INDUSTRIES: Carolyn Bartholomew spoke on Capitol Hill, Nov 15, of China's backsliding on market reforms. Ms. Bartholomew is Chairman of the U.S.-China Economic and Security Review Commission (USCC) for its fifth annual report. Photo was taken last year (Nov 16, 2006) at the release of the USCC's fourth annual report when Ms. Bartholomew was Vice Chair. (NTDTV)The Commission is composed of 12 members, appointed by each party's leadership. It is tasked by the U.S. Congress to review the bilateral economic and security relationships between China and the United States.

The Commission held seven public hearings, which were conducted in Washington except for a field hearing held in Chapel Hill, North Carolina. It took testimony of over 100 witnesses from the Congress, executive branch, industry, academia, and policy groups. The Commission also traveled to China, Hong Kong, Taiwan, and India, and met with U.S. diplomats, host government officials, foreign business representatives, and local experts.

The Commission conducted two days of classified and unclassified briefings at Wright-Patterson Air Force Base, Ohio arranged by the Department of Defense on China's research, technology and military objectives in relationship to the U.S. A classified report will be sent to the Congress.


China's Military Modernizations Marches Rapidly Forward
A major area of the Commission's concerns lies in China's recent military progress, which has sometimes taken our defense intelligence by surprise, and raised serious doubts about the quality of our assessments. An example is the launching of the Jin class submarine by the navy of the People's Liberation Army.

"New generations of warships, fighter aircraft, space craft, submarines, missiles, and other sophisticated weapon platforms are coming off production lines at an impressive pace and … quality," says the report.

China has saved much time and research money in developing new technology by the extensive use of industrial espionage.

"Chinese espionage in the United States, which now comprises the single greatest threat to U.S. technology, is straining the U.S. counterintelligence establishment," says the report. In order to stem the flow of protected U.S. technology and manufacturing expertise, the Commission recommends that Congress take a hard look at U.S. export control enforcement and counter-intelligence efforts.

The report raises the alarm about the erosion of the U.S. defense industrial base and China's role here. The report analyzes in some detail how the lengthening of the supply chains of U.S. weapons and defense equipment has meant that critical foreign-made components are being moved out of the United States. China has become an increasingly attractive outsource for American companies engaged in R&D. Unfortunately, there are substantial security risks relying on the use of foreign-made parts and components in weapon systems important to the U.S. defense, says the report.

The report concluded that no one in the U.S. government is monitoring the parts and components which are obtained from China and are being used in weapon systems or equipment critical to our national defense. The Commission hired a contractor to document the parts supply chain of the Air Force's F/A-22 Raptor fighter/attack aircraft, the Army's UH-60 Blackhawk utility helicopter, and the Navy's DDG-100 Destroyer. The contractor's research was not ready in time for the Commission's report, but "initial work suggests that information beyond the secondary or tertiary levels is sparse or nonexistent," says the report.


The Chinese Regime's Increasing Control of Its Economy
The Commission concluded that the Chinese communist regime is orchestrating an export-driven economy, resulting in a trade surplus with the United States that is growing dramatically. Its trade relationship with the United States "is severely out of balance," says the report. In 2006, China's exports to the United States ($287.8 billion) exceed imports ($55.2) by more than five to one.

This imbalance is largely the outcome of the Chinese regime's financial and economic policies that promote exports and discourage imports, such as subsidies, tax advantages, and currency manipulation. Even without the state interventions, China has a natural advantage in the extreme wage differentials between the two countries that lower Chinese manufacturers' production costs. Using 2004 for comparison, the average hourly wage rate of all workers in China was 67 cents; in the U.S., production wage was $15.65 (not including fringe benefits), says the report.

A new charge by the Commission is to regard China's manipulation of its currency, the renminbi, as a subsidy for Chinese exporters, which makes imports artificially expensive for importers and Chinese consumers. The Commission cites a report from the U.S. Treasury that the renminbi is 20 to 50 percent below where it would be relative to the dollar if it were traded freely on international currency markets.

The Commission recommends that Congress designate the Chinese regime's currency manipulation as an "illegal export subsidy," and as such, it should be taken into account with other prohibited subsidies when determining penalty tariffs.

And the Commission is concerned about what China might do with its $1.43 trillion foreign currency reserves of which an estimated 70% or $1 trillion is invested in mostly U.S. government and corporate bonds.

China's progress towards economic reform comes only with great reluctance and prodding from other nations and the World Trade Organization. "China is unwilling to embrace market-oriented mechanisms, such as freely traded currency, because it maintains a preference for authoritarian controls over its economy."

The regime violates free-market principles and WTO rules with its extensive government subsidies, often illegal, to favored industries. In December 2006, the Chinese regime announced a new policy and identified seven strategic industries—armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, civil aviation, and shipping, which will be under the regime's control.

The nearly complete lack of intellectual property protection is another indication of the Communist regime's indifference to WTO rules. To be sure, China has passed many regulations to comply with copyright, patents and trademark protections, but the enforcement is lacking.

The Congressional Research Service estimated that counterfeits constitute 15 to 20% of all products made in China, says the report. Nine out of 10 DVDs sold within China are counterfeit, and the industry lost $6.1 billion to piracy worldwide, due in part to Chinese exports of their DVDs, according to Dan Glickman, president and CEO of the Motion Picture Association of America.

Some examples are given in the report of China's refusal to enforce the law. Their media may show bulldozers running over pirated DVDs and CDs, but next door, a counterfeit factory is allowed to dismantle its counterfeit equipment and move to another facility where the counterfeiting starts anew, says the report.

With three decades of record economic growth, the regime has plowed back little of the accrued wealth into programs for education, pensions and health. There is still little in the way of consumer credit and affordable insurance. "As a result, Chinese workers save much of their income to enable them to contend with life's vicissitudes and they purchase few imported goods," says the report.

Workers in Communist China—the "Worker's Paradise"—lack basic rights. Independent unions are not permitted. "Labor [in China] is not cheap. It is deeply disenfranchised and disempowered, which leads to horrible abuses of workers' individual liberties, but also to dangerous and unsafe working conditions, unpaid wages, and abuse of prison labor," testified Thea Mei Lee, the AFL-CIO's policy director before the Commission.