2013
REPORT TO CONGRESS
of the
U.S.-CHINA ECONOMIC AND
SECURITY REVIEW COMMISSION
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
NOVEMBER 2013
Printed for the use of the
U.S.-China Economic and Security Review Commission
Available via the World Wide Web: http://www.uscc.gov
Page
TRANSMITTAL LETTER TO THE CONGRESS ............................................................... iii
COMMISSIONERS APPROVING THE REPORT .............................................................. v
EXECUTIVE SUMMARY ............................................................................................... 1
KEY RECOMMENDATIONS ................................................................................... 27
INTRODUCTION .......................................................................................................... 31
2013 REPORT TO CONGRESS OF THE
U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
Chapter 1: The U.S.-China Trade and Economic Relationship ............... 35
Section 1: Trade and Economics Year in Review .............................................. 35
Section 2: Trends in Chinese Investment in the United States ....................... 91
Section 3: Governance and Accountability in China’s Financial System ........ 113
Section 4: China’s Agriculture Policy, Food Regulation, and the U.S.-China
Agriculture Trade ............................................................................................. 153
Recommendations .................................................................................................. 203
Chapter 2: China’s Impact on U.S. Security Interests .............................. 207
Section 1: Military and Security Year in Review .............................................. 207
Section 2: China’s Cyber Activities ..................................................................... 243
Section 3: China’s Maritime Disputes ................................................................ 266
Recommendations .................................................................................................. 293
Chapter 3: China and the World ..................................................................... 295
Section 1: China and the Middle East and North Africa .................................. 295
Section 2: Taiwan ................................................................................................. 325
Section 3: Macau and Hong Kong ....................................................................... 354
Recommendations .................................................................................................. 395
Comprehensive List of the Commission’s Recommendations .................. 397
Additional Views of Commissioners ................................................................ 403
Appendices:
Appendix I: U.S.-China Economic and Security Review Commission
Charter .................................................................................................................. 415
Appendix II: Background of Commissioners ..................................................... 425
Appendix III: Public Hearings of the Commission During 2013 ...................... 435
Appendix IIIA: List of Witnesses Testifying Before the Commission
During 2013 .......................................................................................................... 439
Appendix IV: List of Interlocutors During Commission Fact-Finding Trips
to Asia During 2013 ............................................................................................. 443
Appendix V: List of Research Material ............................................................ 445
Appendix VI: Acronyms and Abbreviations ....................................................... 449
2013 Commission Staff and Acknowledgements .......................................... 453
Chapter 2: China’s Impact on U.S. Security Interests
Military and Security Year in Review
China’s late 2012 leadership transition brought the largest turnover
to the Central Military Commission (CMC) in a decade. Xi
Jinping assumed the position of both CMC chairman and Chinese
Communist Party (CCP) general secretary at the CCP’s 18th Party
Congress on November 15, 2012. President Xi then completed his
accession as China’s senior leader by becoming the People’s Republic
of China (PRC) president on March 14, 2013. Although President
Xi was widely expected to eventually assume all three of China’s
top leadership posts, many observers were surprised by the
speed of his elevation to CMC chairman. Mr. Hu broke with the
pattern established by his two predecessors, who retained the CMC
chairmanship for two years after finishing their terms as CCP general
secretary.
Since becoming CMC chairman, President Xi has used public
speeches and visits to People’s Liberation Army (PLA) units to reaffirm
China’s long-term military modernization goals; emphasize the
importance of a strong military to the fulfillment of the ‘‘China
Dream,’’ his new political slogan and party campaign; and signal
his intent to focus on increasing combat readiness and reducing
corruption in the PLA.
In November 2012, President Xi introduced the ‘‘China Dream’’
concept, which envisions the ‘‘great renewal of the Chinese nation’’
and the advancement of an international system in which China’s
successful rise provides an attractive alternate political model to
Western ones. Achieving the dream means building a ‘‘moderately
prosperous society’’ by 2021 and a ‘‘modern socialist society that is
strong, democratic, cultured, and harmonious’’ by 2049. Although
President Xi emphasizes that ‘‘peaceful development’’ and a stable
regional environment are essential to create the conditions
for this vision, he linked its fulfillment to a strong military in a
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December 2012 speech while aboard a PLA Navy destroyer. In
June 2013, official PLA media explained, ‘‘To the armed forces,
the China dream is the strong-army dream, the China dream leads
the strong-army dream, and the strong-army dream supports the
China dream.’’
During his first reported visit to a PLA base as CMC chairman
in December 2012, President Xi called for the PLA to increase
‘‘combat readiness’’ through ‘‘realistic training.’’ Combat readiness
has been a central theme of subsequent speeches to the military by
President Xi and now features prominently in official PLA statements
and documents. For example, official PLA media in January
2013 said the military needs to prevent and overcome the ‘‘harmful’’
practice of training ‘‘for show.’’ Furthermore, describing the
PLA’s 2013 training priorities, a PLA official said: ‘‘The ‘scent of
gunpowder’ in the ‘fighting’ will be stronger. The entire military
will make ‘training like real war’ . . . the main theme of the entire
year’s training, powerfully strengthening training of mission topics,
ensuring that as soon as there is a situation, the military will be
able to go forward and fight to victory.’’
In a meeting shortly after becoming the CMC chairman, President
Xi urged senior PLA officers ‘‘to take a firm stand against corruption’’
and to maintain a ‘‘strict work style’’ and ‘‘iron discipline.’’
Since then, reducing corruption and waste in the PLA has been one
of President Xi’s most consistent messages in his public speeches
to the military. In addition to rhetoric, President Xi has announced
stronger anticorruption regulations for the PLA, including restrictions
on military personnel holding banquets, drinking excessive
amounts of alcohol, and using luxury hotels.
In March 2013, China announced its official defense budget for
2013 rose 10.7 percent to 720.168 billion RMB (approximately
$117.39 billion), signaling the new leadership’s support for the
PLA’s ongoing modernization efforts. This figure represents 5.3
percent of total government outlays and approximately 1.3 percent
of estimated GDP. China’s official annual defense budget now has
increased for 22 consecutive years and more than doubled since
2006. The Institute of International Strategic Studies assesses China’s
actual defense spending is 40 to 50 percent higher than the
official figure. The U.S. Department of Defense (DoD) estimated
China’s actual defense spending in 2012 fell between $135 and
$215 billion, which was approximately 20 to 90 percent higher than
China’s announced defense budget.
In April 2013, China released the latest version of its biennial
defense white paper. This is the first defense white paper published
since President Xi became CMC chairman. Although Chinese
military leaders likely began to draft the document before President
Xi assumed the position, official Chinese press suggests it contains
strategic priorities specific to him. Official Chinese media
hailed the 2012 defense white paper as a milestone in transparency,
citing the ‘‘declassification’’ of military information. However,
most of this was widely-known information that Beijing had
never officially acknowledged. Furthermore, as in previous
iterations, the 2012 defense white paper offers no substantive information
on important defense issues.
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Since commissioning its first aircraft carrier, the Liaoning, in
September 2012, the PLA Navy has continued to develop a fixedwing
carrier aviation capability for air defense and offensive strike
missions. China plans to follow the Liaoning with at least two indigenously
built carriers. The first likely will enter service by 2020
and the second by 2025. China’s Julang-2 (JL–2) submarinelaunched
ballistic missile (SLBM) is expected to reach initial operations
capability by late 2013. The JL–2, when mated with the
PLA Navy’s JIN-class nuclear ballistic missile submarine (SSBN),
will give China its first credible sea-based nuclear deterrent. The
SLBN/SSBN weapon system will be able to target the continental
United States from China’s littoral waters.
The PLA Navy continues to steadily increase its inventory of
modern submarines and surface combatants. China is known to be
building seven classes of ships simultaneously but may be constructing
additional classes. China also recently began developing
its first sea-based land attack capability. Modern submarines and
surface combatants equipped with land attack cruise missiles
(LACMs) will enhance Beijing’s flexibility for attacking land targets
throughout the Western Pacific, including U.S. facilities in Guam.
China also continues to pursue new space and counterspace capabilities.
In May 2013, China fired a missile into nearly geosynchronous
Earth orbit, marking the highest known suborbital
launch since the U.S. Gravity Probe A in 1976 and China’s highest
known suborbital launch to date. Although Beijing claims the
launch was part of a high-altitude scientific experiment, available
data suggest it was intended to test at least the launch vehicle
component of a new high-altitude antisatellite (ASAT) capability. If
the launch is part of China’s ASAT program, Beijing’s attempt to
disguise it as a scientific experiment would demonstrate a lack of
transparency about its objectives and activities in space. Furthermore,
such a test would signal China’s intent to develop an ASAT
capability to target satellites in an altitude range that includes
U.S. Global Positioning System (GPS) and many U.S. military and
intelligence satellites. Throughout 2013, China also made significant
advances in its manned space and regional satellite navigation
programs. The PLA’s extensive role in China’s civilian space programs
suggests these activities support the development of PLA
space, counterspace, and conventional capabilities in addition to
serving China’s overall development strategy.
In late January 2013, China conducted the first test flight of its
indigenously developed cargo transport aircraft, the Yun-20 (Y–20).
China previously was unable to build heavy transports, so it has
relied on a handful of Russian aircraft for strategic airlift since the
1990s. Once large-scale deliveries of the new plane begin, the Y–
20 aircraft will be able to support a variety of domestic and international
military operations. The Y–20 will enhance the PLA’s ability
to respond to internal security crises and border contingencies,
support international peacekeeping and humanitarian assistance
operations, and project power in a regional conflict.
In June 2013, the PLA Air Force began to receive new Hongzha-
6K (H–6K) bomber aircraft. The H–6K has an extended range and
can carry China’s new long-range LACM. The bomber/LACM weapon
system provides the PLA Air Force with the ability to conduct
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conventional strikes against regional targets throughout the Western
Pacific, including U.S. facilities in Guam. Although the H–6K
airframe could be modified to carry a nuclear-tipped air-launched
LACM, and China’s LACMs likely have the ability to carry a nuclear
warhead, there is no evidence to confirm China is deploying
nuclear warheads on any of its air-launched LACMs.
In July 2013, the PLA began to deploy peacekeepers to the
United Nations (UN) Multidimensional Integrated Stabilization
Mission in Mali (MINUSMA). The PLA contingent includes what
Beijing calls a ‘‘security force’’ from a PLA group army. This marks
the first time Beijing has deployed infantry to support a peacekeeping
operation since it began participating in UN missions in
1990. China previously had limited the PLA’s participation in
peacekeeping operations to noncombat troops.
