[Joint House and Senate Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
COMMERCIAL RULE OF LAW
=======================================================================
EXCERPTED
from the
2011 ANNUAL REPORT
of the
CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
OCTOBER 10, 2011
__________
Printed for the use of the Congressional-Executive Commission on China
Available via the World Wide Web: http://www.cecc.gov
_____
U.S. GOVERNMENT PRINTING OFFICE
71-427 PDF WASHINGTON : 2011
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CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
LEGISLATIVE BRANCH COMMISSIONERS
House
Senate
CHRISTOPHER H. SMITH, New Jersey, SHERROD BROWN, Ohio, Cochairman
Chairman MAX BAUCUS, Montana
CARL LEVIN, Michigan
DIANNE FEINSTEIN, California
JEFF MERKLEY, Oregon
SUSAN COLLINS, Maine
JAMES RISCH, Idaho
EXECUTIVE BRANCH COMMISSIONERS
SETH D. HARRIS, Department of Labor
MARIA OTERO, Department of State
FRANCISCO J. SANCHEZ, Department of Commerce
KURT M. CAMPBELL, Department of State
NISHA DESAI BISWAL, U.S. Agency for International Development
Paul B. Protic, Staff Director
Lawrence T. Liu, Deputy Staff Director
(ii)
Commercial Rule of Law
Findings
Industrial policy continues to play an
important role in the Chinese economy, guiding
important sectors such as automotive, software, and
``cultural industry.'' These industrial policies are
comprehensive frameworks for development in key sectors
of the Chinese economy, providing for subsidies and
other benefits, plans for restructuring the state-owned
companies in the relevant sector, and export goals. The
use of industrial policies, especially in key sectors,
was supplemented by China's 12th Five-Year Plan, which
sets out certain ``strategic emerging industries'' for
support, including energy conservation, new-generation
information technology (IT), biotechnology, high-end
equipment manufacturing, new energies, new materials,
and new-energy vehicles. Further, the Ministry of
Industry and Information Technology and other
government departments have issued sector-specific
plans.
China's state-owned sector enjoys preferential
treatment, crowding out private companies in certain
key sectors. This can act as a barrier to legal
development and the rule of law, as the state controls
the companies, the courts, the legislatures, and
administrative departments. China's industrial policies
encourage the transfer of technology to the state-owned
enterprises (SOEs), and their consolidation into
``domestic champions.'' SOEs also enjoy various direct
and indirect subsidies.
Chinese legislation is vague as to whether
information concerning the SOEs falls under China's
rules on commercial secrets or the PRC State Secrets
Law. This was highlighted in the case of Xue Feng, a
U.S. citizen who was arrested in China for helping his
U.S.-based employer purchase a commercial database in
China. The database was not classified as a state
secret at the time of the transaction. Xue was
sentenced to eight years' imprisonment in China for
violating China's state secrets law, and his sentence
was upheld on appeal in February 2011.
China has been a party to several World Trade
Organization (WTO) cases since acceding to the WTO in
December 2001, and there were six active disputes
against China in 2010. The WTO found against China in a
case it brought challenging the United States'
imposition of tariffs on certain auto and truck tires
under the transitional product-specific safeguard
provision in China's Protocol of Accession. The United
States brought a case against China concerning its
provision of subsidies to the domestic wind energy
industry, which is pending. China appealed a WTO
decision that China's restraints of exports of bauxite,
coke, fluorspar, magnesium, manganese, silicon carbide,
silicon metal, yellow phosphorus, and zinc are not
consistent with China's obligations under the WTO.
The value of the Chinese yuan continues to be
a subject of concern to policymakers inside and outside
China.
Chinese government departments closely
regulate foreign investment in China and use the
approval process to ensure that foreign investment is
in keeping with government policy. During the
Commission's 2011 reporting year, Chinese authorities
issued a revised draft of the Foreign Investment
Guidance Catalogue, which lists industries in which
foreign investment is encouraged, restricted, or
forbidden. The revised catalogue includes provisions
listing as ``encouraged'' the strategic emerging
industries covered in the 12th Five-Year Plan.
Chinese outbound investment has grown, with
much of the growth concentrated in investments in
energy and minerals needed for Chinese manufacturing.
Outbound investment is regulated by the Ministry of
Commerce (MOFCOM) and the National Development and
Reform Commission (NDRC). The State-Owned Assets
Supervision and Administration Commission issued new
measures regulating offshore financial activities by
the state-owned enterprises (SOEs). Outbound
investments are financed by loans from China's state-
owned banks, outbound investment funds, and use of
renminbi reserves.
Two of the three Chinese government
departments in charge of implementing the PRC
Antimonopoly Law (AML) issued new AML regulations
during the 2011 reporting year. The State
Administration for Industry and Commerce passed three
sets of regulations on monopoly agreements, abuse of
dominance, and abuse of administrative power, and the
NDRC issued two sets of regulations on price monopoly.
The five sets of regulations became effective on
February 1, 2011.
MOFCOM, which handles AML merger reviews, has
held up approval of mergers of non-Chinese entities
outside China during this reporting year, including
Nokia's purchase of certain of Motorola's network
assets, and the merger of two Russian potash companies.
There have been no reports of MOFCOM not approving, or
giving only conditional approval to, mergers between
Chinese companies; however, the State-Owned Assets
Supervision and Administration Commission has been
encouraging the consolidation of the SOEs in China, a
process which some industrial policies, such as that
for the auto industry, mandate.
Recommendations
Members of the U.S. Congress and Administration officials
are encouraged to:
Develop and support a project surveying the role
of China's industrial policies in the Chinese economy
from the perspective of WTO requirements, including how
the development of these policies, and the role they
play in directing China's economy, impact the
development of transparency, rule of law, and China's
compliance with its international legal commitments.
Request through the Open Government Information
office at the Ministry of Commerce, or through
bilateral dialogues between the U.S. Department of
Justice and the Federal Trade Commission and their
Chinese counterparts, details on merger applications
reviewed since the PRC Antimonopoly Law came into
effect, including the number of applications involving
non-Chinese companies, the number of applications
involving state-owned enterprises, and the results of
each of the merger reviews.
Through bilateral dialogues between (1) the U.S.
Trade Representative and U.S. Department of Commerce
and (2) China's Ministry of Commerce, National
Development and Reform Commission, and State-Owned
Assets Supervision and Administration Commission,
obtain details on the amount of Chinese investment
(other than in financial instruments) in the United
States, the criteria Chinese authorities use in making
approval decisions concerning such investment, and how
such investment is financed.
Arrange for Chinese authorities to clarify the
approval procedure applicable to foreign investment in
China, including how the security review procedure
relates to the regular review procedure applicable to
all foreign investment in China under the auspices of
legal exchanges such as the U.S. Legal Exchange under
the Joint Commission on Commerce and Trade.
Introduction
As a member of the World Trade Organization (WTO), China is
bound by commitments outlined in both the WTO agreements and
China's accession documents.\1\ China must abide by obligations
that prohibit it from discriminating among WTO members or from
discriminating between foreign and Chinese goods, services, and
intellectual property rights. China must adhere to WTO
obligations to publish promptly all laws, regulations, judicial
decisions, and administrative rulings related to trade in
goods, services, trade-related intellectual property rights, or
control of foreign exchange. While China has taken many steps
to open its economy and reform its legal system since acceding
to the WTO in December 2001, it has not fully met its
commitments.\2\ According to the United States Trade
Representative (USTR), ``in some areas, it appears that China
has yet to fully implement important commitments, and in other
areas, significant questions have arisen regarding China's
adherence to ongoing WTO obligations, including core WTO
principles.'' \3\ For example, China has failed to adhere to
the WTO's transparency principle, and this in itself has made
it difficult for other WTO members, including the United
States, to monitor China's overall WTO compliance.\4\ China
agreed when it acceded to the WTO to begin negotiations to join
the Government Procurement Agreement (GPA) ``as soon as
possible.'' \5\ It has not yet done so. USTR notes that China
is moving slowly toward joining the GPA, while ``maintaining
and adopting government procurement measures that give domestic
preferences.'' \6\
The USTR has indicated that problems in China's WTO
compliance can be traced to China's use of industrial policies
and ``government intervention intended to promote or protect
China's domestic industries and state-owned enterprises.'' \7\
The Chinese government's use of industrial policies to direct
economic growth, rather than relying on market-based
principles, both hinders development of the rule of law \8\ and
limits the access of non-Chinese companies, including those
from other WTO members, to the Chinese market,\9\ thereby
violating the core WTO principle of national treatment.\10\
Chinese government departments' use of industrial policies
has been accompanied by, and in some cases provides for, the
growth of the state sector in the Chinese economy,\11\ a trend
called ``the state advances, the private sector retreats.''
\12\ It is not clear that a large state-owned sector is
compatible with rule of law. The state, as the main
shareholder, controls the courts, the police, and the
legislature, which renders equal treatment before the law and
an independent judiciary impossible.\13\
Transparency
In its Protocol of Accession to the WTO, China committed to
publish all laws, regulations, or other measures affecting
trade (with certain exceptions), to allow a reasonable comment
period before implementation, and to establish or designate an
official journal for this purpose.\14\ USTR notes in its 2010
report on China's WTO compliance that China's implementation of
its WTO transparency obligations has been uneven.\15\ In its
April 2011 PRC Transparency Tracking report, the US-China
Business Council reported that regulatory transparency remains
one of the top concerns of the council's member companies.\16\
This was raised at the May 2011 meeting of the U.S.-China
Strategic and Economic Dialogue (S&ED), and China agreed to
issue a measure in 2011 requiring publication in most cases of
all proposed measures related to trade and economics on the Web
site of the State Council Legislative Affairs Office for a 30-
day comment period.\17\ At the S&ED, China and the United
States broadened discussions of transparency to encompass
provision of export credits and arrangements for export
financing.\18\ China has two official export credit agencies
(ECAs), China Eximbank and Sinosure, and the state-owned policy
bank, China Development Bank, performs a function similar to
that of an ECA.\19\ As China is not a member of the
Organisation for Economic Co-operation and Development (OECD),
China's ECAs are not required to adhere to the standards set
out in the OECD Arrangement on Export Credits, which includes
provisions for consultation and exchange of information on
export credit offers.\20\ (Eximbank's Export Seller Credit
program typically supports ``exports of `national champion'
companies that are oftentimes State Owned Enterprises (SOEs) as
well.'') \21\ At the S&ED, China also committed to ``steadily
increase its solicitation of public opinions on regulatory
documents with a direct influence on the rights and obligations
of citizens, legal persons, or other organizations.'' \22\
State-Owned Enterprises and the Communist Party
China's state-owned sector continues to enjoy preferential
treatment, crowding out private companies in certain key
sectors.\23\ State-owned enterprises (SOEs) enjoy a number of
direct and indirect subsidies, some of which violate China's
WTO commitments. [For a discussion of the WTO case against
China concerning its subsidies in the wind energy industry, see
China and the World Trade Organization in this section.]
According to an American economist, ``SOEs operate within
markets but they operate primarily within state-controlled
markets. This regulatory protection is the most powerful
subsidy many SOEs receive.'' \24\ Further, the government plays
a key role in allocating inputs to production, such as land,
financing, resources, and corporate management.\25\ Through
ownership of land \26\ and the SOEs, the state held 76 percent
of productive wealth in China at the end of 2006.\27\ According
to a Yale University expert, this is a ``[b]arrier to legal
development and the rule of law.'' \28\
soes and commercial secrets/state secrets
One area in which SOEs may receive extra protection is the
application of state secrets rules. Chinese legislation on
state secrets is vague as to whether information concerning the
SOEs falls under China's rules on commercial secrets \29\ or
the PRC State Secrets Law.\30\ This creates potential risks for
individuals and companies competing or contracting with the
SOEs or trying to obtain information on sectors controlled by
the SOEs.\31\ Under Chinese law, a commercial secret can be
elevated to a state secret when the information is not publicly
available and if ``state interests are involved.'' \32\
Further, the use of such legislation to protect secrets in a
way to benefit the SOEs may raise trade issues.\33\
The importance of this lack of clarity was highlighted in
the 2010 case of Xue Feng, a U.S. citizen who was charged with
violating the State Secrets Law when he helped his U.S.-based
employer purchase a commercial database in China. The database
was not classified as a state secret at the time of the
transaction.\34\ In February 2011, a Chinese court upheld Xue's
sentence of eight years' imprisonment.\35\ The New York Times
noted, ``Some analysts have viewed Xue's prosecution as a
reflection of China's sensitivity to matters regarding natural
resources.'' \36\
soes and the party
As government-owned entities, SOEs are closely linked to
the Communist Party. State Council regulations provide for
building primary Party organizations in the SOEs pursuant to
the Party constitution.\37\ Further, the Party is active in
management of the SOEs, including through appointment of senior
management by the Party's Central Organization Department,
which appoints personnel for all important jobs in China.\38\
There are also reports of Party organizations in the overseas
operations of SOEs.\39\ According to one Chinese article, ``Any
major Party activity happening in the mainland shall be
executed simultaneously overseas.'' \40\
Industrial Policy
Industrial policy continues to play an important role in
the Chinese economy, guiding important sectors such as the
automotive, software, and ``cultural'' industries.\41\ China's
industrial policies encourage the transfer of technology to,
and consolidation of, the SOEs, and creation of ``domestic
champions.'' \42\ In March 2011, the National People's Congress
passed the PRC Outline of the 12th Five-Year Plan on National
Economic and Social Development (12th Five-Year Plan), which
supplements current industrial policies by prioritizing seven
``strategic emerging industries'' for development over the
coming five years. These industries--energy conservation, new
generation information technology (IT), biotechnology, high-end
equipment manufacturing, new energies, new materials, and new
energy vehicles--will enjoy preferential tax and financial
policies.\43\ Since issuance of the 12th Five-Year Plan, the
Ministry of Industry and Information Technology and other
government departments have issued sector-specific plans.\44\
To promote the development of the information technology
(IT) industry, in January 2011, the State Council issued a
circular on encouraging the development of the software and
integrated circuit (IC) industries, providing for various
incentives to improve the environment for these industries.\45\
The circular is a supplement to a document the State Council
passed in 2000,\46\ which subsequently was revised to settle a
WTO dispute the United States brought against China.\47\ ICs
and software are included as ``encouraged investments'' in both
the 2007 and the draft 2011 Foreign Investment Guidance
Catalogue,\48\ with an additional entry in the 2011 draft for
next-generation Internet.\49\
Intellectual Property Rights
Chinese authorities' enforcement of intellectual property
rights (IPR) continues to be poor, notwithstanding government
campaigns, crackdowns, and commitments.\50\ Poor enforcement is
combined with government policies to compel foreign companies
to transfer technology to entities in China in exchange for
market access. Further, U.S. businesses have continued to
express concerns that Chinese authorities are using technical
standards \51\ and the PRC Antimonopoly Law as tools to acquire
foreign technology and other forms of intellectual
property.\52\
During the 2011 reporting year, the Chinese government took
some actions to improve enforcement of IPR. The State Council
launched a six-month campaign starting in October 2010 to
combat the manufacture and sale of counterfeit and shoddy
goods.\53\ In March 2011, the government extended the campaign
an additional three months.\54\ In December 2010, nine central-
level government departments issued a notice on stopping the
sale of such goods online.\55\ In March 2011, the Chinese
search engine Baidu announced plans to address copyright
infringement through its Web site.\56\ There have been reports
of greater IPR protection in certain industries subject to
industrial policy, including a campaign to enforce IPR in
Shanghai's cultural markets \57\ and protection of IPR in
software and integrated circuits under the policies for
development of the software and integrated circuit industries.
[See Industrial Policy in this section.] \58\ However,
infringement of IPR continues to be a major challenge for
Chinese consumers \59\ and for U.S. companies operating in
China.\60\
The Office of the U.S. Trade Representative kept China on
the Priority Watch List in its 2011 Special 301 Report because
of ``ongoing concerns about the prevalence of piracy and
counterfeiting in China, and China's implementation of
`indigenous innovation' and other industrial policies that
discriminate against or otherwise disadvantage U.S. exports and
U.S. investors.'' \61\ During the 2010 meeting of the Joint
Commission on Commerce and Trade (JCCT), China agreed to carry
out special campaigns on IPR enforcement and to ``actively work
to advance software legalization,'' and to address certain
other issues in IPR protection.\62\ President Hu Jintao made
additional commitments on IPR protection during his visit to
Washington in January 2011, including an agreement for funding
and auditing the use of licensed software by the Chinese
government and for promoting the use of licensed software by
private companies and state-owned enterprises.\63\ In February,
according to Chinese press and government reports, the Chinese
government agreed that by the end of May 2011, all central
government departments would use legitimate software, and local
governments would implement the same plan by the end of
October.\64\
indigenous innovation
During this reporting year, foreign investors continued to
raise concerns that China's indigenous innovation policy \65\
for Chinese domestic development and ownership of technology is
a means to force foreign companies to transfer their technology
to China and a trade barrier, disadvantaging certain types of
companies seeking to access some of China's markets,
particularly China's large government procurement market,
including through discriminatory use of technical
standards.\66\ The U.S. Government raised these concerns at the
December 2010 meeting of the JCCT, at which China made
commitments concerning IPR and non-discrimination in its
indigenous innovation policies.\67\ At a meeting in January
2011 between U.S. President Barack Obama and Chinese President
Hu Jintao, President Hu agreed that China would eliminate
certain discriminatory innovation policies,\68\ and at the
third meeting of the U.S.-China Strategic and Economic Dialogue
in May 2011, China committed to ``eliminate all of its
government procurement indigenous innovation products
catalogues . . . .'' \69\ The Ministry of Finance announced
revocation of three discriminatory measures on government
procurement effective July 1, 2011.\70\ One commentator noted
that the change does not ``by its terms extend to sub-central
agencies.'' \71\ Several provincial and municipal authorities,
however, posted the Ministry of Finance announcement on their
Web sites, or posted notices revoking related legislation.\72\
Indigenous innovation has continued to play an important
role in China's economic planning. In October 2010, the State
Council issued the Decision on Accelerating Cultivation and
Development of Strategic Emerging Industries,\73\ presaging the
strategic industries outlined in the 12th Five-Year Plan. The
decision calls for cooperation with foreign companies and
research centers, including encouraging them to set up research
centers in China.\74\ The American Chamber of Commerce in the
People's Republic of China considers the decision as ``an
extension of the indigenous innovation drive and a complement
to the 2006 [Medium- and Long-Range Plan for Development of
Science and Technology].'' \75\ Further, Chapter 27 of the 12th
Five-Year Plan, titled ``Increase Science and Technical
Innovation Capabilities,'' calls for continuation of indigenous
innovation.\76\ Article 3 of the chapter discusses
``surrounding the enhancement of the capabilities of original
innovation, integrated innovation, and of absorbing and re-
innovating imported technologies . . . .'' \77\
China and the World Trade Organization
China is an active member of the World Trade Organization
(WTO). In the period since becoming a member in December 2001
through July 2011, China has been a respondent in 21 cases,
complainant in 8, and a third-party participant in 78.\78\
According to the 2010 U.S. Trade Representative (USTR) Report
to Congress on China's WTO Compliance, there were six active
disputes against China in 2010.\79\
In September 2010, the United Steelworkers filed a Section
301 petition with USTR concerning China's support for its
domestic wind energy industry, citing five areas.\80\ In
January 2011, the U.S. requested consultations with China at
the WTO concerning China's provision of subsidies to Chinese
wind turbine manufacturers through a ``Special Fund for
Industrialization of Wind Power Equipment.'' \81\ This was much
narrower than the areas covered in the United Steelworkers'
petition. In March, USTR indicated its preference to settle the
dispute, and in June, USTR announced that China had ended the
challenged subsidies.\82\ USTR noted difficulties uncovering
subsidies given China's lack of transparency.\83\ China is
required to notify the WTO of subsidies on a regular basis,
which it has failed to do.\84\ Further, while USTR depends on
companies to gather the information necessary for a trade case,
companies often hesitate to do so, ``fearing Chinese officials'
reputation for retaliating against joint ventures in the
country and potentially denying market access to any company
that takes sides against China.'' \85\ [See Investment
Regulation--Foreign Investment in China in this section,
concerning China's discretionary foreign investment approval
procedures and annual inspection requirements.]
In September 2009, the United States imposed tariffs on
certain passenger vehicle and truck tires from China in
accordance with Article 16 of China's Protocol of Accession,
which provides for a transitional product-specific safeguard
mechanism to give temporary relief from ``market disruption''
to a domestic industry caused by a surge in imports from
China.\86\ Within days, China initiated proceedings at the WTO
against the U.S. action, and in December 2010, the WTO panel
decided against China.\87\ China appealed the panel's decision,
and in September 2011 the WTO Appellate Body upheld the panel's
decision, once again finding against China.\88\ The provision
for the transitional product-specific safeguard mechanism will
terminate 12 years after the date of China's WTO accession, in
December 2013.\89\
In a case concerning market access for certain publications
and audiovisual products, including films for theatrical
release, audiovisual home entertainment products, sound
recordings, and publications, and foreign service providers
that distribute publications and certain audiovisual home
entertainment products, the WTO Appellate Body decided against
China. China had until March 2011 to comply with the WTO
decision, but failed to do so.\90\ A USTR spokesman stated that
the U.S. Government had ``communicated its concerns to China,
and is working to ensure that China promptly brings its
measures into full compliance.'' \91\ In an August 2011 status
report to the WTO, China noted that it had ``made tremendous
efforts'' to implement the rulings, listing completed
amendments to legislation and a draft amendment to the foreign
investment guidance catalogue.\92\ [Concerning the amendment to
the catalogue, see Investment Regulation--Foreign Investment in
China, in this section.] The decision is complicated for China
to implement, because it conflicts directly with China's
restrictions on media. As one U.S. lawyer in China noted,
``China's current policy is to strengthen control over domestic
media and further restrict foreign access. Thus the WTO ruling
is 180 degrees contrary to very strong current movements in
Chinese policy.'' \93\ [See Section II--Freedom of Expression
for more information on Chinese government restrictions on
media.]
In its report of October 2010, a WTO dispute panel rejected
China's claims against the United States in a case China
brought in 2008 concerning the United States' imposition of
both anti-dumping and countervailing duties on four products
from China (circular welded carbon quality steel pipe, certain
new pneumatic off-the-road tires, light-walled rectangular pipe
and tube, and laminated woven sacks) and certain other
issues.\94\ China appealed, contesting several of the panel's
findings, including those concerning the concurrent application
of both duties (i.e., ``double remedy'') and its standard as to
when state-owned enterprises are ``public bodies'' for purposes
of determining whether the government is providing
subsidies.\95\ In March 2011, the Appellate Body reversed in
part the panel's decision, including its findings on double
remedy, its standard for when SOEs are ``public bodies,'' and
certain other issues.\96\ The U.S. Trade Representative, Ron
Kirk, said that he was ``deeply troubled'' by the reversal,
which, he said, ``appears to be a clear case of overreaching by
the Appellate Body,'' \97\ and the United States raised these
concerns at the March 2011 meeting of the WTO Dispute
Settlement Body.\98\
In July 2011, the WTO decided against China in a case the
United States initiated in 2009 concerning China's restraints
on the export of various forms of bauxite, coke, fluorspar,
magnesium, manganese, silicon carbide, silicon metal, yellow
phosphorus, and zinc.\99\ The export restraints at issue
included ``export quotas, export licensing requirements, and
minimum export price requirements.'' \100\ The WTO panel
rejected China's defense that various restraints were permitted
if needed to address a critical shortage, to conserve natural
resources, and for environmental protection.\101\ China's
central news agency, Xinhua, called the ruling ``regrettable,''
\102\ and in August 2011, China notified the WTO of its
decision to appeal the ruling.\103\
rare earths
The WTO case decided in July 2011 on China's export
restraints did not cover exports of rare earths, minerals
essential in a range of important industries, such as
``advanced technology, renewable energy, electronics, and
defense.'' \104\ China has a number of measures in place to
restrict exports of rare earths, under the rationale that
restrictions are necessary for environmental reasons and to
protect exhaustible resources.\105\ The WTO panel rejected this
argument in July's decision in the export restraints case \106\
and, according to a spokesperson for the Office of the U.S.
Trade Representative (USTR), USTR is ``deeply troubled by
China's use of market distorting export restrictions on raw
materials including rare earths,'' especially in light of the
WTO decision.\107\ Within days of the WTO decision, China's
Ministry of Commerce announced rare earth export quotas that
restore 2011 levels to those of the 2010 quotas, but
incorporate a new category, thereby effectively tightening the
quota.\108\
A five-year plan for the sector, announced in February
2011, includes ``increased state oversight, raising
environmental standards, a crackdown on smuggling, the closure
of illegal mines and consolidation of rare earth producers.''
\109\ Furthermore, Chinese authorities are instituting greater
control by consolidating rare earth assets under state-owned
companies.\110\
Currency
The value of the Chinese yuan continues to be of concern to
policymakers inside and outside China. Since 2005, China has
maintained an exchange rate system under which the value of the
yuan is tied to a basket of currencies.\111\ Under this system,
China's regulators allow the yuan to float against the U.S.
dollar within a narrow band.\112\ Chinese authorities control
the value of the yuan in part because a revalued yuan would
increase the cost of Chinese exports.\113\ This arguably raises
trade issues. Article XV(4) of the General Agreement on Tariffs
and Trade (GATT) provides that WTO members ``shall not, by
exchange action, frustrate the intent of the provisions of [the
GATT], nor, by trade action, the intent of the provisions of
the Articles of Agreement of the International Monetary Fund.''
\114\ The Articles of Agreement of the International Monetary
Fund (IMF) state that ``each member shall . . . avoid
manipulating exchange rates or the international monetary
system in order to prevent effective balance of payments
adjustment or to gain an unfair competitive advantage over
other members[.]'' \115\
One U.S. economist notes several reasons it is in China's
interests to revalue the yuan: Revaluation would help China
manage its rising inflation rate and help ease an asset bubble
in real estate; \116\ revaluation would be in keeping with
China's goal to shift from reliance on exports to reliance on
consumption, as outlined in the 12th Five-Year Plan; \117\ and
revaluation would benefit China's trading partners.\118\
Furthermore, in order to artificially keep the value of the
yuan low, China must accumulate large reserves of foreign
currency, which leads to market distortions.\119\
Against the backdrop of discussions concerning revaluation,
some Chinese government departments have been urging
liberalization of the exchange rate mechanism, including
allowing wider use of the yuan internationally, or
``internationalization.'' \120\ An article in the Communist
Party School newspaper, Study Times, in April 2011 called for
making the yuan a reserve currency,\121\ suggesting five
actions: Accelerating China's outbound investments, entering
into currency exchange agreements, encouraging the use of yuan
in trade, issuing yuan-based bonds, and making better use of
finance centers such as Hong Kong.\122\ However, as China takes
these steps to internationalize the yuan, analysts note the
contradiction between internationalizing the yuan and not
making it fully convertible.\123\ Nonetheless, during this
reporting year, Chinese authorities have made several moves on
the internationalization of the yuan.\124\
Investment Regulation
foreign investment in china
Foreign investment in China is highly regulated, and the
Chinese government uses the approval process to ensure that
foreign investment in China is in keeping with government
policy. The two government departments with primary
responsibility are the National Development and Reform
Commission (NDRC), which formulates industrial policy and
economic strategy, and the Ministry of Commerce (MOFCOM), which
is responsible for approval of foreign investment in China.
NDRC and MOFCOM in certain cases delegate authority to their
counterparts at lower levels of government.\125\ Approval is
discretionary on the part of the approving authority. Most
foreign investment in China must undergo a government approval
process, with larger investments, or investments in certain
sectors, requiring approval at a higher level of
government.\126\ In February 2011, MOFCOM issued a Circular on
Issues in the Administration of Foreign Investment, delegating
some approvals to provincial-level departments and eliminating
or simplifying other administrative requirements.\127\ The
Foreign Investment Guidance Catalogue, which is updated
periodically, lists industries in which foreign investment is
encouraged, restricted, or forbidden, including, in some cases,
provisions concerning the structure, shareholding, or
management of the investment.\128\ (In addition to the foreign
investment approval process, enterprises in China must undergo
a governmental annual review process to maintain their business
licenses.) \129\
In April 2010, the State Council issued opinions that
called for revising the catalogue to encourage foreign
investment in ``high-end manufacturing, `high-tech' industries,
modern services, new energy sources, and energy conservation
and environmental protection sectors.'' \130\ The opinions'
introduction notes, ``Utilizing foreign investment has always
been an important part of China's basic state policy of opening
up,'' and underscores the important role of foreign investment
in scientific and technological innovation.\131\ The State
Council issued a draft revision to the current 2007 catalogue
in April 2011 which includes provisions adding the strategic
industries listed in the 12th Five-Year Plan to the
``encouraged'' category.\132\
In February 2011, the State Council issued the Circular on
Establishing a Security Review System for Acquisitions of
Domestic Enterprises by Foreign Investors, with the goal of
guiding such acquisitions and protecting national
security.\133\ The security review applies to transactions
involving foreign investors and domestic military industries,
or military industry parts, or important enterprises near
military facilities; or acquisitions through which foreign
investors may acquire a controlling share in other entities
relevant to national security, as well as entities providing
important agricultural products, energy and natural resources,
infrastructure, transportation services, key technologies, and
major equipment manufacturers.\134\ The security review will
evaluate the effects of an acquisition on national security,
the national economy, and society, and the research and design
capabilities of important domestic technologies relevant to
national security.\135\ A panel to carry out security reviews
will be established under the State Council, with the National
Development and Reform Commission (NDRC) and MOFCOM in the
lead.\136\ Under the review procedure, a foreign investor must
file an application with MOFCOM.\137\ If MOFCOM finds that the
acquisition should be subject to security review, MOFCOM will
file a request with the panel.\138\ Even if a foreign investor
does not file for a review, the relevant Chinese industry
association or government department can file for a
review.\139\ In March 2011, MOFCOM issued provisions, effective
from March 5, 2011 to August 31, 2011, which provide procedural
rules for a security review.\140\
china's outbound investment
Like foreign investment into China, China's outbound
investment is subject to a government approval process, with
approval authority under MOFCOM and the NDRC. MOFCOM measures
issued in 2009 set out the approval process for outbound
investment,\141\ generally requiring approval at higher
government levels for larger investments. Relatively larger
investments in the energy or mineral sectors can be approved at
the provincial level, which expedites these transactions.\142\
In addition, certain large investments require the approval of
the NDRC.\143\ Outbound investments by central-level state-
owned enterprises must make a filing with the NDRC.\144\
As China encourages its companies to ``go global'' under
the 12th Five-Year Plan,\145\ Chinese government departments
are revising regulation of outbound investments. MOFCOM and
other departments are preparing draft regulations on outbound
investment and foreign labor service cooperation, and there are
discussions concerning regulations on foreign contracted
projects.\146\ In February, the National People's Congress
amended the Criminal Law to criminalize the giving of items of
value to foreign governments or international organizations for
purposes of obtaining improper commercial benefits.\147\ The
State-Owned Assets Supervision and Administration Commission
issued two sets of interim measures on monitoring and
supervising financial activities of the central-level state-
owned enterprises (SOEs) offshore.\148\
There are a number of avenues for SOEs to obtain financing
for outbound investment, including loans by China's state-owned
banks, outbound investment funds, and use of yuan. According to
a report in People's Daily, the head of the China Nonferrous
Metals Industry Association indicated that the government will
certify enterprises that meet standards for mine exploration
and development, which will be given priority when applying for
loans.\149\ According to a 2011 report by the Heritage
Foundation, most funding for outbound investment has gone into
energy and power, and at the end of 2010, there was a ``rush of
energy acquisition and plant construction deals. Metals draw
the second-most investment, followed by finance and real
estate.'' \150\ Though there have been allegations of subsidies
for overseas investments, a MOFCOM official called the
allegations ``entirely groundless.'' \151\ [For information on
China's liberalization of the yuan in outbound investment, see
Currency in this section.]
Antimonopoly Law
In December 2010, two of the three Chinese government
departments charged with enforcing the PRC Antimonopoly Law
(AML) issued new regulations.\152\ The State Administration for
Industry and Commerce (SAIC), which is responsible for
regulating monopoly agreements and abuse of dominance not
involving pricing, issued provisions prohibiting monopoly
agreements,\153\ provisions on abuse of dominance,\154\ and
provisions covering abuse of administrative power to restrict
competition.\155\ The NDRC, which covers monopoly agreements
and abuse of dominance involving pricing, issued provisions on
monopolies involving pricing \156\ and enforcement
procedures.\157\ While four of these measures address business
conduct, the SAIC provisions on abuse of administrative power
could, if fully implemented, constrain abuse by local officials
and allow freer movement of goods within China, both of which
would benefit Chinese consumers.\158\ These regulations all
took effect on February 1, 2011.
After issuing the new regulations, but before the effective
date, SAIC imposed its first fine for a violation of the AML,
in a case concerning a concrete cartel in Jiangsu
province.\159\ The cartel was organized by a trade association
and resulted in concrete producers dividing the market.\160\ In
another case, Hudong, an online encyclopedia in China, filed a
complaint with SAIC against Chinese search engine Baidu,
alleging that Baidu abused its dominant position by ranking
Hudong's Web site lower on search results. According to a
report in China Daily, however, there have been at least three
complaints against Baidu that Chinese regulators declined to
pursue.\161\
In January 2011, the NDRC announced that the Zhejiang
Provincial Price Bureau fined the Zhejiang Fuyang Paper
Industry Association for price fixing.\162\ According to the
announcement, the case was to be used as an example to educate
other industry associations.\163\ In one of the first
administrative monopoly cases, in June 2011 the Guangdong
provincial government found that the Heyuan Municipal People's
Government violated the AML's provisions on administrative
monopoly by restricting the promotion and sale of global
positioning systems.\164\ The administrative monopoly
provisions of the AML forbid conduct by administrative
departments to restrict competition or protect local
businesses.\165\
The U.S. business community in China has expressed concern
that the AML may be used in ways that do not support consumer
interests and market efficiency but may be ``selectively or
discriminatorily enforced to promote industrial policy and
other ends.'' \166\ This is of greatest concern in the context
of merger reviews, which MOFCOM, the third government
department charged with responsibility under the AML, handles.
MOFCOM held up approval of an offshore transaction for the sale
of Motorola's network assets to Nokia. Antitrust authorities in
other jurisdictions, including the United States and European
Union, had approved the deal.\167\ One management consultant
noted that the Chinese government may have been using the
approval process as leverage because of controversy over
Chinese telecommunications equipment suppliers that were not
allowed access to the U.S. market.\168\ In June, MOFCOM gave
only a conditional approval to the merger of two Russian potash
producers in a decision that made clear that MOFCOM would
evaluate the effect of the merger on national economic
development.\169\
There have been no reports of MOFCOM not approving, or
giving conditional approval to, mergers between Chinese
companies. The State-Owned Assets Supervision and
Administration Commission (SASAC) has encouraged the
consolidation of state-owned enterprises (SOEs) in China (a
process some industrial policies mandate, such as that for
automobiles). For example, SASAC is consolidating China's two
largest train manufacturers so that they do not compete with
each other, especially in international markets.\170\ SASAC is
also consolidating the crucial rare earth industry so that
there will be three companies with 80 percent of the rare earth
market in southern China.\171\ Furthermore, the NDRC has
formulated a plan to adjust nine major industries in China to
improve their efficiency.\172\
Food Safety
During the 2011 reporting year, food safety problems
persisted in China, with incidents ranging from exploding
watermelons to toxic bean sprouts ``soaked in banned
additives'' and poisonous pepper in Chongqing hotpots.\173\ To
address reporting of these incidents, the Ministry of Health
(MOH) will create a media platform to provide public
notifications of food safety issues.\174\ In addition, however,
MOH also said they will ``blacklist'' reporters who ``mislead
the public,'' according to a Chinese media report.\175\ The
Chinese government has continued to develop its food safety
system, as established under the 2009 PRC Food Safety Law, and
the 12th Five-Year Plan on National Economic and Social
Development devotes a section to food and drug safety,
including the need for a tracing system, risk monitoring, and
supervision.\176\ In September 2010, the MOH passed the
National Food Safety Standards, which took effect in
December,\177\ and in November, six government departments
issued measures on disclosure of food safety information.\178\
The central government is investing in improvements to local-
level food inspection.\179\ The State Council issued a
comprehensive document on food safety work for 2011, which
addresses cracking down on illegal behavior, improving
supervision of food safety, and strengthening education.\180\
In June, MOH banned the use of bisphenol-A (BPA) in infants'
milk bottles.\181\
Endnotes
\1\ A complete and up-to-date compilation of information on China's
participation in the World Trade Organization (WTO), including
principal accession documents (Working Party Report, Protocol of
Accession, General Counsel decision), schedules, trade policy reviews,
and dispute case documents can be found on the WTO Web site.
\2\ Office of the U.S. Trade Representative, ``2010 Report to
Congress on China's WTO Compliance,'' December 2010, 2.
\3\ Ibid.
\4\ Office of the U.S. Trade Representative, ``China Ends Wind
Power Equipment Subsidies Challenged by the United States in WTO
Dispute,'' 7 June 11. The World Trade Organization (WTO) Glossary
defines transparency as the ``[d]egree to which trade policies and
practices, and the process by which they are established, are open and
transparent. For a discussion of the principles of the WTO, including
transparency, see World Trade Organization, ``What Is the World Trade
Organization,'' on the WTO Web site.
\5\ World Trade Organization, Report of the Working Party on the
Accession of China WT/ACC/CHN/49, 1 October 01, paras. 337-41.
\6\ Office of the U.S. Trade Representative, ``2010 Report to
Congress on China's WTO Compliance,'' December 2010, 63. For a
discussion of the process of China's accession to the Government
Procurement Agreement, and of China's government procurement regime,
see p. 63-67 of the report.
\7\ Office of the U.S. Trade Representative, ``2010 Report to
Congress on China's WTO Compliance,'' December 2010, 2.
\8\ Chen Zhiwu, Presentation on ``Difficulty in Finding
Compatibility Between State Ownership and Constitutionalism''
[Guoyouzhi yu xianzheng fazhi nanyi jianrong], China University of
Politics and Law, 22 May 09, reprinted in the Chenzhiwu blog, on Sohu,
5 June 09. For discussions of industrial policies in China, see
Alexandra Harney, ``Where's the Chinese Toyota? '' Foreign Policy, 8
December 09; China's Industrial Policy and Its Impact on U.S.
Companies, Workers, and the American Economy, Hearing of the U.S.-China
Economic and Security Review Commission, 24 March 09, Testimony of Alan
Wm. Wolff, Partner, Dewey & LeBoeuf, Washington, DC.
\9\ American Chamber of Commerce in the People's Republic of China,
``DC Outreach 2011: Market Access Challenges,'' 28 April 11.
\10\ World Trade Organization, ``Understanding the WTO: Principles
of the Trade System,'' last visited 15 July 11. See also World Trade
Organization, ``Glossary,'' last visited 12 September 11, which defines
``national treatment'' as follows: ``The principle of giving others the
same treatment as one's own nationals. GATT Article 3 requires that
imports be treated no less favorably than the same or similar
domestically-produced goods once they have passed customs. GATS Article
17 and TRIPS Article 3 also deal with national treatment for services
and intellectual property protection.''
\11\ Office of the U.S. Trade Representative, ``2010 Report to
Congress on China's WTO Compliance,'' December 2010, 7.
\12\ The term in Chinese is guo jin min tui. See ``Wen Jiabao:
Currently, the Problem of the So-Called `the State Advances, the
Private [Sector] Retreats' Does Not Exist in China'' [Wen jiabao:
muqian zhongguo bu cunzai suowei ``guo jin min tui'' wenti], China News
Service, 14 March 11, which reports on Wen Jiabao refuting the belief
that the state-owned sector is growing and squeezing out the private
sector in China. See also Wang Xiaotian, ``New Regulations To Encourage
Private Sector,'' China Daily, 15 March 11.
\13\ For more information, see Chen Zhiwu, Presentation on
``Difficulty in Finding Compatibility Between State Ownership and
Constitutionalism'' [Guoyou zhi yu xianzheng fazhi nanyi jianrong],
China University of Politics and Law, 22 May 09, reprinted in the
Chenzhiwu blog, on Sohu, 5 June 09.
\14\ World Trade Organization, Protocol on the Accession of the
People's Republic of China, WT/L/432, 10 November 01, Part I, 2(C).
\15\ Office of the U.S. Trade Representative, ``2010 Report to
Congress on China's WTO Compliance,'' December 2010, 8-9, 58-59.
\16\ US-China Business Council, ``PRC Transparency Tracking,''
updated April 2011, 1.
\17\ U.S. Department of Treasury, ``The 2011 U.S.-China Strategic
and Economic Dialogue U.S. Fact Sheet--Economic Track,'' 10 May 11.
\18\ Ibid.
\19\ Export-Import Bank of the United States, ``Report to the U.S.
Congress on Export Credit Competition and The Export-Import Bank of the
United States,'' June 2011, 108.
\20\ OECD, Trade and Agriculture Directorate, Arrangement on Export
Credits, last visited on 27 September 11. According to p. 108 of the
Export-Import Bank of the United States' June 2011 ``Report to the U.S.
Congress on Export Credit Competition and The Export-Import Bank of the
United States'': ``as China is not a member of any part of the OECD,
none of China's ECAs are under any obligation to follow the OECD
Arrangement on Export Credits, which sets the guidelines for official
export credits.'' For a discussion of the operations of China's ECAs,
see p. 108-13 of the report.
\21\ Export-Import Bank of the United States, ``Report to the U.S.
Congress on Export Credit Competition and The Export-Import Bank of the
United States,'' June 2011, 109.
\22\ U.S. Department of Treasury, ``Third Meeting of the U.S.-China
Strategic & Economic Dialogue Joint U.S.-China Economic Track Fact
Sheet,'' 10 May 11.
\23\ Office of the U.S. Trade Representative, ``2010 Report to
Congress On China's WTO Compliance,'' December 10, 59-60.
\24\ Chinese State-Owned Enterprises and U.S.-China Bilateral
Investment, Hearing of the U.S.-China Economic and Security Review
Commission, 30 March 11, Testimony of Derek Scissors, Research Fellow,
Heritage Foundation.
\25\ Ibid.
\26\ Article 10 of the PRC Constitution provides that land in the
cities is owned by the state, and land in the rural and suburban areas
is owned by the collectives, except for those portions which belong to
the state. PRC Constitution, adopted 4 December 82, amended 12 April
88, 29 March 93, 15 March 99, 14 March 04, art. 10.
\27\ Zhiwu Chen, Presentation on ``Economic Consequences of State
Capitalism,'' Brookings Institution, 1 March 11.
\28\ Ibid.
\29\ State-Owned Assets Supervision and Administration Commission,
Provisional Regulations on Protection of Commercial Secrets of Central-
Level State-Owned Enterprises [Zhongyang qiye shangye mimi baohu
zanxing guiding], issued and effective 26 April 10.
\30\ PRC Law on the Protection of State Secrets [Zhonghua renmin
gongheguo baoshou guojia mimi fa], issued 5 September 88, revised 29
April 10, effective 1 October 10.
\31\ For a discussion on state secrets and commercial secrets, see
Baker & McKenzie, ``Client Alert: Latest Developments on China's State
Secrets and Trade Secrets Regime,'' August 2010. For additional
information on China's commercial secrets regulations, see ``SASAC
Issues New Commercial Secrets Regulations,'' CECC China Human Rights
and Rule of Law Update, No. 8, 9 November 10, 2. For information on
state secrets legislation, see ``National People's Congress Standing
Committee Issues Revised State Secrets Law,'' CECC China Human Rights
and Rule of Law Update, No. 5, 4 June 10, 2.
\32\ Baker & McKenzie, ``Client Alert: Latest Developments on
China's State Secrets and Trade Secrets Regime,'' August 2010; ``SASAC
Issues New Commercial Secrets Regulations,'' CECC China Human Rights
and Rule of Law Update, No. 8, 9 November 10, 2. Article 11 of the
Interim Provisions on the Protection of Commercial Secrets of Central
Enterprises provides that commercial secrets should be changed to state
secrets when the scope of state secrets has been adjusted. State-Owned
Assets Supervision and Administration Commission, Interim Provisions on
the Protection of Commercial Secrets of Central Enterprises, issued and
effective 26 April 10, art. 11.
\33\ Sigrid Ursula Jernudd, ``China, State Secrets, and the Case of
Xue Feng: the Implication for International Trade,'' Chicago Journal of
International Law, Vol. 12, No. 1 (2011), 309-39.
\34\ ``Beijing Court Sentences American Geologist to Eight Years
for State Secrets,'' CECC China Human Rights and Rule of Law Update,
No. 7, 19 August 10, 2.
\35\ Andrew Jacobs, ``China Upholds Conviction of American
Geologist,'' New York Times, 18 February 11. See also ``Beijing Court
Upholds Eight-Year Sentence for American Geologist Xue Feng,''
Congressional-Executive Commission on China, 23 February 11.
\36\ Andrew Jacobs, ``China Upholds Conviction of American
Geologist,'' New York Times, 18 February 11. According to Article 9 of
the PRC Constitution, mineral resources and other natural resources are
owned by the state. PRC Constitution, issued and effective 4 December
82, amended 12 April 88, 29 March 93, 15 March 99, 14 March 04, art. 9.
\37\ State Council, Interim Regulations on Supervision and
Management of State-Owned Assets of Enterprises, issued and effective
27 May 03, art. 43.
\38\ A 2007 study by Chinascope found that the SOEs are held by a
three-tier ownership structure, with the Communist Party appointing
senior management at each tier. ``Piercing the Corporate Veil,''
Chinascope, 29 December 07. For information on the role of the
Communist Party Central Organization Department in appointing
management of China's state-owned enterprises, see Richard McGregor,
``The Party Organiser,'' Financial Times, 30 September 09. According to
McGregor, an equivalent imaginary department in the United States
``would oversee the appointments of U.S. state governors and their
deputies; the mayors of big cities; heads of federal regulatory
agencies; the chief executives of General Electric, ExxonMobil, Walmart
and 50-odd of the remaining largest companies; justices on the Supreme
Court; the editors of The New York Times, The Wall Street Journal and
The Washington Post, the bosses of the television networks and cable
stations, the presidents of Yale and Harvard and other big universities
and the heads of think-tanks such as the Brookings Institution and the
Heritage Foundation.'' The role of the Party in decisionmaking in the
state-owned enterprises was delineated in the Chinese Communist Party
Central Committee General Office and State Council General Office
Opinions Concerning Promoting Further Implementation of the ``Three
Major One Large'' Decisionmaking System in the State-Owned Enterprises
[Guanyu jinyibu tuijin guoyou qiye guancheluoshi ``sanchong yi da''
juece zhidu de yijian], 15 July 10. The opinions provide procedures
that must be followed in making important decisions, important
appointments, and usage of large amounts of government funds.
\39\ For examples, see ``China Civil Engineering Corporation's
Practice and Exploring Party Building Overseas'' [Zhongtu jituan haiwai
dangjian de shijian yu tansuo], Fujian Net, 28 December 10; ``Study
Times: Overseas Expansion of the Party,'' Study Times, summarized by
Chinascope, 27 December 10; ``Research Group for the (Group) Company's
Party Building Efforts in Overseas Programs'' [Jituan gongsi haiwai
gongcheng xiangmu dang jian gongzuo diaoyanzu dao gongsi diaoyan],
CR17BG [China Railway 17 Group] No. 3 Engineering Co., Ltd. [Zhong tie
shiqi ju jituan di san gongcheng youxian gongsi], 13 May 11. Commission
staff have found references to a Party document entitled ``Leading
Opinion on Strengthening Work on Party Building in Overseas
Organizations [Guanyu jiaqiang haiwai jigou dangjian gongzuo de zhidao
yijian], but have not found the original document. See, e.g., ``China
Water Resources Construction Group: Forging a 'Go Outward'
Hydroelectric Power Leading Enterprise'' [Zhongguo shuidian: dazao
``zou chuqu'' de shuidian ling jun qiye], People's Daily, reprinted in
Ministry of Commerce, Outward Investment and Economic Cooperation, 22
October 09.
\40\ ``Shandong International Economic and Technical Cooperation
Company: Strengthening the Work of Party-Building in Projects
Overseas'' [Zhongguo shandong guoji jingji jishu hezuo gongsi jiaqiang
haiwai xiangmu dangjian gongzuo], State-Owned Assets Supervision and
Administration Commission, 29 September 10.
\41\ State Council, Relevant Policies for Further Encouraging
Development of the Software Industry and Integrated Circuit Industry
[Jinyibu guli ruanjian chanye he jicheng dianlu chanye fazhan ruogan
zhengce de tongzhi], issued 28 January 11; National Development and
Reform Commission, Automotive Industry Development Policy [Qiche chanye
fazhan zhengce], issued 21 May 04, revised 15 August 09, effective 1
September 09. ``Cultural industry'' covers a range of sectors, from
filmmaking to printing. For the range of covered sectors, see Central
People's Government, ``Plan To Invigorate the Cultural Industry''
[Wenhua chanye zhenxing guihua], issued 26 September 09, art. 3, para.
1.
\42\ See, e.g., National Development and Reform Commission,
Automotive Industry Development Policy [Qiche chanye fazhan zhengce],
issued 21 May 04, revised 15 August 09, effective 1 September 09, art.
7. Article 7 states in part, ``The principle of combining imported
technology and independent research and development shall be pursued.
[The industry] shall follow and study advanced international
technologies, actively engage in international cooperation, and develop
appropriate and advanced technologies that shall be eligible for
intellectual property rights. Products using imported technologies
shall be competitive internationally and meet the compulsive
requirements of international automotive technical standards.'' Article
4 provides in part for the formation by 2010 of a few large auto
manufacturers, which would rank among the top 500 companies. See also
American Chamber of Commerce in the People's Republic of China,
Business in China 2011 White Paper, (2011), 64; Under Secretary Robert
D. Hormats, U.S. Department of State, Remarks at Amcham-China's Annual
DC Dialogue, Washington, DC, 3 May 11.
\43\ National People's Congress, PRC Outline of the 12th Five-Year
Plan on National Economic and Social Development [Zhonghua renmin
gongheguo guomin jingji he shehui fazhan di shier ge wunian guihua
gangyao], passed 14 March 11, issued 16 March 11, chap. 10, secs. 1, 3.
\44\ See, e.g., ``MIIT Drafts 12th Five-Year Plan for New Chemical
Materials'' [Gongxin bu zhiding huagong xin cailiao ``shier wu''
guihua], Caijing, 22 April 11; ``12th Five-Year Plan for Civil Aviation
Development Released,'' Shanghai Securities News, 12 April 11.
\45\ State Council, Relevant Policies for Further Encouraging
Development of the Software Industry and Integrated Circuit Industry
[Jinyibu guli ruanjian chanye he jicheng dianlu chanye fazhan ruogan
zhengce de tongzhi], issued 28 January 11. For a discussion of the
policies and their background, see DLA Piper, ``China Offers New
Incentives To Further Boost Software and Semiconductor Industries,''
International Tax Newsletter, 22 March 11.
\46\ State Council, Relevant Policies for Further Encouraging
Development of the Software Industry and Integrated Circuit Industry
[Jinyibu guli ruanjian chanye he jichengdianlu chanye fazhan ruogan
zhengce], issued 28 January 11, preamble.
\47\ See CECC, 2004 Annual Report, 5 October 04, 86; World Trade
Organization, DS309, China-Value-Added Tax on Integrated Circuits,
Notification of Mutually Agreed Solution, Doc. No. 05-4494, 6 October
05.
\48\ National Development and Reform Commission and Ministry of
Commerce, Foreign Investment Industry Guidance Catalogue (Revised 2007)
[Waishang touzi chanye zhidao mulu (2007 nian xiuding)], issued 31
October 07, effective 1 December 07, Catalogue of Industries in Which
Foreign Investment Is Encouraged, arts. 3(21)(vi) and 3(21)(xiv); State
Council Legislative Affairs Office, Circular Concerning Publicly
Soliciting Opinions on Foreign Investment Industry Guidance Catalogue
(Revised Draft for Comments)'' [Guanyu ``waishang touzi chanye zhidao
mulu (xiuding zhengqiu yijian gao)'' gongkai zhengqiu yijian de
tongzhi], 1 April 11, Catalogue of Industries in Which Foreign
Investment Is Encouraged, arts. 3(21)(iv), 3(21)(xi).
\49\ State Council Legislative Affairs Office, Circular Concerning
Publicly Soliciting Opinions on ``Foreign Investment Industry Guidance
Catalogue (Revised Draft for Comments)'' [Guanyu ``waishang touzi
chanye zhidao mulu (xiuding zhengqiu yijian gao)'' gongkai zhengqiu
yijian de tongzhi], issued 1 April 11, Catalogue of Industries in Which
Foreign Investment Is Encouraged, art. 3(21)(xxviii).
\50\ American Chamber of Commerce in the People's Republic of
China, American Business in China 2011 White Paper, (2011), 72-82.
\51\ See, e.g., Chapter 27 of the 12th Five-Year Plan, which states
in Article 4 that, ``There will be encouragement for the adoption and
promotion of technological standards with indigenous innovation
intellectual property right.'' National People's Congress, PRC Outline
of the 12th Five-Year Plan on National Economic and Social Development
[Zhonghua renmin gongheguo guomin jingji he shehui fazhan di shier ge
wu nian guihua gangyao], passed 14 March 11, issued 16 March 11, chap.
27.
\52\ On intellectual property (IP) issues in standards setting, and
on IP issues in the Antimonopoly Law, see American Chamber of Commerce
in the People's Republic of China, American Business in China 2011
White Paper, (2011), 86-88, and 48-50, respectively.
\53\ State Council General Office Circular Concerning the Program
for Special Campaign on Combating Intellectual Property Rights
Infringement and Manufacture and Sales of Counterfeiting and Shoddy
Commodities [Guowuyuan bangongting guanyu daji qinfan zhishi chanquan
he zhishou jiamaoweilie shangpin zhuanxiang xingdong fang'an de
tongzhi], issued 27 October 10; ``China Cracks Down on Online Copyright
Infringements and Counterfeits,'' People's Daily, 7 April 11.
\54\ State Council General Office Circular Concerning Adjusting the
Ending Date of the Special Campaign on Combating Intellectual Property
Rights Infringement and Manufacture and Sales of Counterfeit and Shoddy
Commodities [Guowuyuan bangongting guanyu tiaozheng daji qinfan zhishi
chanquan he zhishou jiamaoweilie shangpin zhuanxiang xingdong jieshu
shijian de tongzhi], issued 10 March 11.
\55\ Ministry of Commerce, ``Nine Government Departments Together
Attack Illegal Acts of Intellectual Property Rights Infringement and
Shoddy Goods Online'' [Jiu bumen lianshou daji wangluo gouwu lingyu
qinfan zhishi chanquan he jiamaoweilie shangpin weifa fanzui xingwei],
31 December 10.
\56\ ``Baidu To Introduce Anti-Piracy Technology for Books
Product,'' Reuters, 24 March 11. See also Office of the U.S. Trade
Representative, ``2011 Special 301 Report,'' April 2011, 20-21.
Concerning Baidu and copyright infringement, see ``Baidu Accused Over
Copyright Infringement,'' CNTV, reprinted in China Internet Information
Center, 28 March 11; ``Shame on Baidu,'' Han Han Digest, 25 March 11.
\57\ Intellectual Property Protection in China, ``Shanghai Focused
on Combating Intellectual Property Infringement in Cultural Markets,''
18 March 11. For information on China's support of its cultural
industry in general, see CECC, 2010 Annual Report, 10 October 10, 179-
80.
\58\ Intellectual Property Protection in China, ``The State Council
To Encourage the Development of Software Industry and Stress IPR
Protection,'' 15 February 11.
\59\ State Council, General Office Circular Concerning the Program
for Special Campaign on Combating Intellectual Property Rights
Infringement and Manufacture and Sales of Counterfeiting and Shoddy
Commodities [Guowuyuan bangongting guanyu daji qinfan zhishi chanquan
he zhishou jiamaoweilie shangping zhuanxiang xingdong fang'an de
tongzhi], issued 27 October 10; ``New Rules To Fight Online Pirates,''
China Daily, reprinted in Intellectual Property Protection in China, 17
March 11.
\60\ American Chamber of Commerce in the People's Republic of
China, American Business in China 2011 White Paper, (2011), 5. The
white paper reports that in the 2011 Amcham-China Business Climate
Survey, infringement of intellectual property rights was reported as
one of the top five business challenges by 24 percent of respondents.
\61\ Office of the U.S. Trade Representative, ``USTR Releases
Annual Special 301 Report on Intellectual Property Rights,'' May 2011.
For a detailed discussion of intellectual property enforcement
campaigns and of legislative developments in China, see Office of the
U.S. Trade Representative, ``2011 Special 301 Report,'' April 2011, 19-
23.
\62\ ``Key Excerpt From Vice Premier Wang Qishan's Dec. 15
Statement at Conclusion of 21st JCCT,'' China Trade Extra, 15 December
10. For additional details, see Ministry of Commerce, ``21st JCCT
Successfully Held in Washington'' [Di ershiyi jie zhong mei shang mao
lian wei hui zai meiguo huashengdun chenggong juxing], 16 December 10;
U.S. Department of Commerce, ``21st U.S.-China Joint Commission on
Commerce and Trade Fact Sheet,'' 20 December 10.
\63\ Office of the Press Secretary, White House, ``Fact Sheet:
U.S.-China Economic Issues,'' 19 January 11.
\64\ ``Central-Level Departments Already Spent 1.3 Billion Yuan To
Buy Genuine Software'' [Zhongyang guojia jiguan yi huafei yue 13 yi
yuan yongyu goumai zhengban ruanjian], Global Times, 22 February 11;
``Govt Ban on Illegal Software Gains Pace,'' China Daily, reprinted in
Intellectual Property Protection in China, 18 January 11. For a
discussion of a pilot program on software legalization, see the China
Daily article.
\65\ For a discussion of China's indigenous innovation policy, see
CECC, 2010 Annual Report, 10 October 10, 182-83.
\66\ American Chamber of Commerce in the People's Republic of
China, American Business in China 2011 White Paper, (2011), 64-70. See
also chapter 27, article 4 of the 12th Five-Year Plan, which provides,
``There will be encouragement for the adoption and promotion of
technological standards with indigenous innovation intellectual
property right.'' National People's Congress, PRC Outline of the 12th
Five-Year Plan on National Economic and Social Development [Zhonghua
renmin gongheguo guomin jingji he shehui fazhan di shier ge wunian
guihua gangyao], passed 14 March 11, issued 16 March 11. In his January
2011 visit to the United States, President Hu Jintao committed that
China would not ``link its innovation policies to the provision of
government procurement preferences.'' Office of the U.S. Trade
Representative, ``2011 Special 301 Report,'' April 2011, 24.
\67\ U.S. Department of Commerce, ``21st U.S.-China Joint
Commission on Commerce and Trade Fact Sheet,'' 15 December 10.
\68\ Office of the Press Secretary, White House, ``Fact Sheet:
U.S.-China Economic Issues,'' 19 January 11.
\69\ U.S. Department of Treasury, ``Third Meeting of the U.S.-China
Strategic & Economic Dialogue Joint U.S.-China Economic Track Fact
Sheet,'' 10 May 11.
\70\ Ministry of Finance, Circular on Ceasing Implementation of
Three Documents, Including ``Measures on Handling the Budget for
Government Procurement of Indigenous Innovation Products'' [Guanyu
tingzhi zhixing ``zizhu chuangxin chanpin zhengfu caigou yusuan guanli
banfa'' deng san ge wenjian de tongzhi], announced 23 June 11,
effective 1 July 11. For a discussion of the three documents, see
``China Announces Revocation of Three Measures Favoring the Procurement
of `Indigenous Innovation' Products,'' Mayer Brown Legal Update, 6 July
11.
\71\ Stanley Lubman, ``Changes to China's `Indigenous Innovation'
Policy: Don't Get Too Excited,'' Wall Street Journal, 22 July 11.
\72\ For provinces or localities that posted the Ministry of
Finance circular on their Web sites, see, e.g., Fujian Provincial
Department of Finance Transmission of Ministry of Finance Circular on
Ceasing Implementation of Three Documents, Including ``Measures on
Handling the Budget for Government Procurement of Indigenous Innovation
Products'' [Fujian sheng caizheng ting zhuanfa caizheng bu guanyu
tingzhi zhixing ``zizhu chuangxin chanpin zhengfu caigou yusuan guanli
banfa'' deng san ge wenjian de tongzhi], issued 6 July 11; Shenzhen
Municipal Department of Finance, Circular on Ceasing Implementation of
Three Documents, Including ``Measures on Handling the Budget for
Government Procurement of Indigenous Innovation Products [Guanyu
tingzhi zhixing ``zizhu chuangxin chanpin zhengfu caigou yusuan guanli
banfa'' deng san ge wenjian de tongzhi], issued 15 July 11; Liaoning
Provincial People's Government, Circular on Ceasing Implementation of
Three Documents, Including ``Measures on Handling the Budget for
Government Procurement of Indigenous Innovation Products'' [Guanyu
tingzhi zhixing ``zizhu chuangxin chanpin zhengfu caigou yusuan guanli
banfa'' deng san ge wenjian de tongzhi], issued 30 June 11; Zhejiang
Provincial Government Procurement Office, Circular on Ceasing
Implementation of Three Documents, Including ``Measures on Handling the
Budget for Government Procurement of Indigenous Innovation Products''
[Guanyu tingzhi zhixing ``zizhu chuangxin chanpin zhengfu caigou yusuan
guanli banfa'' deng san ge wenjian de tongzhi], issued 23 June 11;
Jiangxi Provincial Department of Finance Regarding Transmission of the
``Ministry of Finance Circular on Ceasing Implementation of Three
Documents, Including `Measures on Handling the Budget for Government
Procurement of Indigenous Innovation Products' '' [Jiangxi sheng
caizheng ting guanyu zhuanfa ``caizheng bu guanyu tingzhi zhixing
`zizhu chuangxin chanpin zhengfu caigou yusuan guanli banfa' deng san
ge wenjian de tongzhi''], issued 4 July 11. For provinces or
municipalities that posted circulars revoking related legislation, see,
e.g., Shanghai Municipal Finance Bureau, Circular on Ceasing
Implementation of the ``Shanghai Municipality 2009 Catalogue for
Government Procurement of Indigenous Innovation Products'' [Guanyu
tingzhi zhixing ``shanghai shi 2009 nian zhengfu caigou zizhu chuangxin
chanpin mulu'' de tongzhi], issued 1 July 11; Chongqing Municipal
Finance Bureau Circular Regarding Transmission of the ``Ministry of
Finance Circular on Ceasing Implementation of the Three Documents,
Including `Measures on Handling the Budget for Government Procurement
of Indigenous Innovation Products' '' [Chongqing shi caizheng ju guanyu
zhuanfu ``caizheng bu guanyu tingzhi zhixing `zizhu chuangxin chanpin
zhengfu caigou yusuan guanli banfa' deng san ge wenjian de tongzhi'' de
tongzhi], 14 July 11, which both reprints the Ministry of Finance
notice and revokes a related Chongqing circular.
\73\ State Council Decision on Accelerating the Cultivation and
Development of Strategic Emerging Industries [Guowuyuan guanyu jiakuai
peiyu he fazhan zhanluexing xinxing chanye de jueding], issued 10
October 10.
\74\ Ibid., art. 6(1).
\75\ American Chamber of Commerce in the People's Republic of
China, American Business in China 2011 White Paper, (2011), 66. For
additional information on indigenous innovation, see CECC, 2010 Annual
Report, 10 October 10, 182-183.
\76\ National People's Congress, PRC Outline of the 12th Five-Year
Plan on National Economic and Social Development [Zhonghua renmin
gongheguo guomin jingji he shehui fazhan di shier ge wunian guihua
gangyao], passed 14 March 11, issued 16 March 11, chap. 27, preamble.
\77\ Ibid., chap. 27, art. 3.
\78\ World Trade Organization, Disputes by Country/Territory, last
visited 12 July 11.
\79\ Office of the U.S. Trade Representative, ``2010 Report to
Congress On China's WTO Compliance,'' December 2010, 21. For
information on the cases concerning antidumping and countervailing
duties imposed on grain-oriented flat-rolled steel imported from the
United States, see U.S. Trade Representative, ``USTR Requests WTO
Dispute Settlement Panels in Two Cases Against China,'' February 11.
\80\ Office of the U.S. Trade Representative, ``United States
Launches Section 301 Investigation Into China's Policies Affecting
Trade and Investment in Green Technologies,'' 15 October 10. The
petition addressed ``restrictions on access to critical materials . . .
performance requirements for investors . . . discrimination against
foreign firms and goods . . . prohibited export subsidies and
prohibited domestic content subsidies . . . and trade distorting
domestic subsidies.'' United Steelworkers, ``Steelworkers Applaud Obama
Administration Acceptance of Trade Case,'' 15 October 10.
\81\ World Trade Organization, DS 419, China--Measures Concerning
Wind Power Equipment, Request for Consultations by the United States,
Doc. No. 11-0019, 6 January 11.
\82\ ``USTR Signals Clear Preference for Settling China Wind
Subsidies Case,'' China Trade Extra, 1 April 11; Office of the U.S.
Trade Representative, ``China Ends Wind Power Equipment Subsidies
Challenged by the United States in WTO Dispute,'' 8 June 11.
\83\ Office of the U.S. Trade Representative, ``China Ends Wind
Power Equipment Subsidies Challenged by the United States in WTO
Dispute,'' 8 June 11.
\84\ Ibid. Article 25 of the World Trade Organization's Agreement
on Subsidies and Countervailing Measures requires WTO members to notify
their subsidies by 30 June of each year. World Trade Organization,
Agreement on Subsidies and Countervailing Measures, date of signature
15 April 94, entry into force 1 January 95, art. 25.
\85\ Keith Bradsher, ``Union Accuses China of Illegal Clean Energy
Subsidies,'' New York Times, 9 September 10.
\86\ Office of the U.S. Trade Representative, ``Information
Regarding Application of Transitional Product-Specific Safeguard
Measure to Chinese Tyres,'' 11 September 09; World Trade Organization,
Protocol on the Accession of the People's Republic of China, WT/L/432,
10 November 01, Part I, 16; World Trade Organization, DS 399, United
States-Measures Affecting Imports of Certain Passenger Vehicle and
Light Truck Tyres From China, Request for Consultations by China, Doc.
No. 09-4361, 16 September 09; World Trade Organization, Request for the
Establishment of a Panel by China, Doc. No. 09-6454, 11 December 09.
For a discussion of the case, see Terence Poon et al., ``China Seeks
Talks at WTO Over Tire-Import Tariff,'' Wall Street Journal, 15
September 09; CECC, 2009 Annual Report, 10 October 09, 228-29.
\87\ World Trade Organization, DS 399, United States--Measures
Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres
From China, Request for Consultations by China, Doc. No. 09-4361, 16
September 09; World Trade Organization, Report of the Panel, Doc. No.
10-6582, 13 December 10.
\88\ World Trade Organization, DS 399, United States--Measures
Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres
From China, Communication From the Appellate Body, Doc. No. 11-3821, 27
July 11; World Trade Organization, Report of the Appellate Body, Doc.
11-4323, 5 September 11.
\89\ World Trade Organization, Protocol on the Accession of the
People's Republic of China, WT/L/432, 10 November 01, Part I, 16(9).
\90\ World Trade Organization, DS 363, China--Measures Affecting
Trading Rights and Distribution Services for Certain Publications and
Audiovisual Entertainment Products, Request for Consultations, Doc. No.
07-1499, 16 April 07; World Trade Organization, Panel Report, Doc. No.
09-3798, 12 August 09; World Trade Organization, Appellate Body Report,
Doc. No. 09-6642, 21 December 09; Agreement under Article 21.3(b) of
the DSU, Doc. No. 10-3817, 13 July 10; World Trade Organization, Status
Report by China, Doc. No. 11-2444, 13 May 11; World Trade Organization,
Status Report by China, Doc. No. 11-4466, 16 September 11. For a
discussion of the case, see ``WTO Rules Against Chinese Trade
Restrictions on Books, DVDs, Music, and Films,'' CECC China Human
Rights and Rule of Law Update, No. 2, 5 February 10.
\91\ David Pierson, ``China Still Restricting Foreign Media, U.S.
Complains,'' Los Angeles Times, 22 March 11.
\92\ World Trade Organization, DS 363, China--Measures Affecting
Trading Rights and Distribution Services for Certain Publications and
Audiovisual Entertainment Products, Status Report by China, Doc. 11-
4187, 23 August 11.
\93\ David Pierson, ``China Still Restricting Foreign Media, U.S.
Complains,'' Los Angeles Times, 22 March 11.
\94\ World Trade Organization, DS 379, United States--Definitive
Anti-Dumping and Countervailing Duties on Certain Products from China,
Request for Consultations by China, Doc. No. 08-4427, 22 September 08;
World Trade Organization, Report of the Panel, Doc. No. 10-5262, 22
October 10.
\95\ World Trade Organization, DS 379, United States--Definitive
Anti-Dumping and Countervailing Duties on Certain Products from China,
Notification of an Appeal by China, Doc. No. 10-6557, 6 December 10.
\96\ World Trade Organization, DS 379, United States--Definitive
Anti-Dumping and Countervailing Duties on Certain Products from China,
Report of the Appellate Body, Doc. No. 11-1239, 11 March 11. See also
``U.S. Hints WTO Decision Could Hamper Ability To Apply CVDs To
China,'' China Trade Extra, 29 March 11.
\97\ Office of the U.S. Trade Representative, ``USTR Statement
Regarding WTO Appellate Body Report in Countervailing Duty Dispute With
China,'' 11 March 11.
\98\ World Trade Organization, WT/DSB/M/294, Dispute Settlement
Body, Minutes of Meeting, Doc. No. 11-2851, 25 March 11, paras. 92-102.
\99\ For the panel's decision, see World Trade Organization, DS
394, China--Measures Related to the Exportation of Various Raw
Materials, Report of the Panel, Doc. No. 11-3179, 5 July 11. The ``Key
Facts'' of the case list Argentina, Brazil, Canada, Chile, Columbia,
Ecuador, European Union, India, Japan, Republic of Korea, Mexico,
Norway, Chinese Taipei, Turkey, and the Kingdom of Saudi Arabia as
third parties.
\100\ Office of the U.S. Trade Representative, ``WTO Panel Finds
Against China's Export Restraints on Raw Materials,'' 5 July 11.
\101\ Ibid.
\102\ ``A Regrettable Ruling'' [Lingren yihan de caiding], Xinhua,
6 July 11; ``China's Measures on Raw Material Export in Line With WTO
Objective: Statement,'' Xinhua, 5 July 11.
\103\ World Trade Organization, ``China Appeals Raw Material
Dispute Panel Reports,'' 31 August 11.
\104\ Terence P. Stewart, ``China Intensifies Dominance of Global
Rare Earths as Industry and Policymakers Debate Course of Action,''
China Trade Extra, 9 June 11.
\105\ Central People's Government, ``Ministry of Commerce Discusses
Questions on Bringing Rare Earth Ferroalloys Into Rare Earth Export
Quotas'' [Shangwubu tan xitu tiehejin naru, xitu chukou pei e guanli
wenti], 20 May 11; ``China Will Continue To Improve Regulation of Rare
Earth Exports,'' Xinhua, 6 July 11; Liu Linlin, ``WTO Rules Against
China,'' Global Times, 7 July 11; ``China's Measures on Raw Material
Export in Line With WTO Objective: Statement,'' Xinhua, 6 July 11.
\106\ ``Paper Says China Has Legal, Moral Right To Curb Rare
Earth,'' Reuters, 6 July 11.
\107\ ``U.S., EU Denounce New China Rare Earths Export Quota as Too
Restrictive,'' China Trade Extra, 14 July 11. See also ``China's Fresh
Rare Earths Export Quotas Restore Cuts,'' Reuters, reprinted in New
York Times, 14 July 11.
\108\ ``U.S., EU Denounce New China Rare Earths Export Quota as Too
Restrictive,'' China Trade Extra, 14 July 11.
\109\ Leslie Hook, ``Chinese Rare Earth Metals Prices Soar,''
Financial Times, 26 May 11; State Council Opinion on Speeding Up the
Healthy Development of the Rare Earth Sector [Guowuyuan guanyu cujin
xitu hangye chixu jiankang fazhan de ruogan yijian], issued 10 May 11.
\110\ Zhou Yu, ``MIIT: Speed Up Rare Earth Sector Consolidation''
[Gongxinbu: jiakuai zujian daxing xitu jituan], Securities Times,
reprinted in Xinhua, 14 June 11; ``China Plans To Consolidate State-
Owned Rare Earth Assets,'' 21st Century Business Herald, 4 January 11;
Yin Mingzhe, ``Top 3 Rare Earth Firms To Be Named,'' China Daily, 13
June 11; ``China Minmetals Head Backs Beijing Rare Earths Plan,'' Wall
Street Journal, 6 March 11.
\111\ Hu Xiaolian, People's Bank of China, ``A Managed Exchange
Rate Is an Established Policy,'' 15 July 10. For a detailed discussion
of the exchange rate mechanism, see Jeffrey A. Frankel and Shang-Jin
Wei, ``Assessing China's Exchange Rate Regime,'' Harvard University, 1
March 07.
\112\ Laura D'Andrea Tyson, ``The Outlook for China's Currency,''
New York Times, 6 May 11.
\113\ Jason Dean and Tom Orlik, ``China Signals Yuan May Be
Inflation Tool,'' Wall Street Journal, 22 April 11.
\114\ General Agreement on Tariffs and Trade, 30 October 47, 61
Stat. A-11, T.I.A.S. 1700, 55 U.N.T.S. 194, art. XV(4).
\115\ International Monetary Fund, Articles of Agreement of the
International Monetary Fund, 22 July 44, entry into force 27 December
45, art. IV--Obligations Regarding Exchange Arrangements, Section 1--
General Obligations of Members, subsection (111).
\116\ See Laura D'Andrea Tyson, ``The Outlook for China's
Currency,'' New York Times, 6 May 11.
\117\ National People's Congress, PRC Outline of 12th Five-Year
Plan on National Economic and Social Development [Zhonghua renmin
gongheguo guomin jingji he shehui fazhan di shier ge wunian guihua
gangyao], passed 14 March 11, issued 16 March 11.
\118\ Laura D'Andrea Tyson, ``The Outlook for China's Currency,''
New York Times, 6 May 11.
\119\ David Barboza, ``In China, Tentative Steps Toward Global
Currency,'' New York Times, 10 February 11.
\120\ Charles W. Freeman III and Wen Jin Yuan, Center for Strategic
& International Studies, ``China's Exchange Rate Politics: Decoding the
Cleavage Between the Chinese Ministry of Commerce and the People's Bank
of China,'' June 2011.
\121\ Chinascope, ``Study Times: Strategic Thinking on RMB
Internationalization,'' 20 April 11.
\122\ Ibid.
\123\ Aaron Back, ``Yuan's Role in China Trade Grows Quickly,''
Wall Street Journal, 19 April 11; David Barboza, ``In China, Tentative
Steps Toward Global Currency,'' New York Times, 10 February 11.
According to European Central Bank president, Jean-Claude Trichet, as
quoted by the South China Morning Post, the yuan must be free-floating
and fully convertible in order to enter the International Monetary
Fund's Special Drawing Rights (SDR), though a deputy governor of the
People's Bank of China reportedly indicated that ``there was no link
between yuan convertibility and its inclusion in the basket that forms
SDRs.'' Will Clem, ``G20 Finance Chiefs Want Yuan in IMF's Basket of
Top Currencies,'' South China Morning Post, 1 April 11.
\124\ These moves have included the following: (1) A pilot program
on renminbi settlement of foreign direct investment, People's Bank of
China, Interim Administrative Measures on Renminbi Settlement of Direct
Outbound Investment [Jingwai zhijie touzi renminbi jiesuan shidian
guanli banfa], issued and effective 6 January 11; ``Central Bank:
Cross-Border Renminbi Settlement Project To Expand This Year''
[Zhonghang: kuajing maoyi renminbi jiesuan shidian jinnian niannei
kuoda zhi quanguo], China Securities Journal, reprinted in Sohu, 27
April 11; (2) Allowing renminbi-denominated IPOs in Hong Kong.
``Renminbi Initial Public Offering To Be Launched in Hong Kong''
[Renminbi IPO xianggang shibu], Caijing, 4 April 11; (3) Allowing
exporters to deposit proceeds offshore, rather than having to remit
them to China, State Administration for Foreign Exchange Circular on
Administration of Income From the Export of Goods, Deposited Outside
China [Guojia waihui guanliju guanyu shishi huowu maoyi chukou shouru
cunfang jingwai guanli youguan wenti de tongzhi], issued 31 December
10; (4) Allowing the use of yuan in foreign currency options trading.
Li Dandan, ``Renminbi Foreign Exchange Options Trading Launched''
[Renminbi dui waihui qi quan jiaoyi zhengshi tuichu], Yifeng, 17
February 11; O'Melveny & Myers, ``Notice of the State Administration of
Foreign Exchange on Issues Relating to RMB-Foreign Exchange Options
Trading,'' China Law & Policy, Edition 4 (2011); (5) Adding Singapore
as a second yuan-trading hub (after Hong Kong), Li Dandan, ``Renminbi
Foreign Exchange Options Trading Launched'' [Renminbi dui waihui qi
quan jiaoyi zhengshi tuichu], Yifeng, 17 February 11; O'Melveny &
Myers, ``Notice of the State Administration of Foreign Exchange on
Issues Relating to RMB-Foreign Exchange Options Trading,'' China Law &
Policy, Edition 4 (2011).
\125\ See Ministry of Commerce, ``Mission,'' 7 December 10;
National Development and Reform Commission, ``Main Functions of the
NDRC,'' last visited 9 September 11.
\126\ For a discussion of foreign investment and the approval
process, see James M. Zimmerman, China Law Deskbook (Chicago: American
Bar Association, 2010), Vol. I, chap. 4.
\127\ Ministry of Commerce, Circular on Issues in the
Administration of Foreign Investment [Shangwubu guanyu waishang touzi
guanli gongzuo youguan wenti de tongzhi], issued 25 February 11.
\128\ National Development and Reform Commission and Ministry of
Commerce, Foreign Investment Industry Guidance Catalogue (Revised 2007)
[Waishang touzi chanye zhidao mulu (2007 nian xiuding)], issued 31
October 07, effective 1 December 07. For a discussion of the catalogue,
and of foreign investment in general, see Lester Ross, ``Choosing a
China Investment Vehicle,'' China Business Review, September-October
2010.
\129\ State Administration for Industry and Commerce, Enterprise
Annual Inspection Measures [Qiye niandu jianyan banfa], issued 24
February 06, effective 1 March 06. For a discussion of the annual
inspection process, see James M. Zimmerman, China Law Deskbook
(Chicago: American Bar Association, 2010), Vol. I, 525-527.
\130\ Several Opinions of the State Council on Further Improving
the Work of Using Foreign Investment [Guowuyuan guanyu jinyibu zuohao
liyong waizi gongzuo de ruogan yijian], issued 6 April 10, art. 1(1).
\131\ Ibid., preamble.
\132\ National People's Congress, PRC Outline of the 12th Five-Year
Plan on National Economic and Social Development [Zhonghua renmin
gongheguo guomin jingji he shehui fazhan di shier ge wunian guihua
gangyao], passed 14 March 11, issued 16 March 11, chap. 10; Zhang
Muxia, ``China Formulates Strategy for Encouraging Foreign Investment
in Strategic Emerging Industries'' [Zhongguo guli waishang touzi
zhanlue xinxing chanye xiangmu niding], Shanghai Negotiable Securities
Paper, reprinted in Xinhua, 7 April 11; Ding Qingfen, ``China `Opening
Wider' for Foreign Investment,'' China Daily, 8 April 11.
\133\ State Council General Office Circular on Establishing a
Security Review System for Acquisitions of Domestic Enterprises by
Foreign Investors [Guowuyuan bangongting guanyu jianli waiguo touzizhe
bing gou jingnei qiye anquan shencha zhidu de tongzhi], 3 February 11,
preamble.
\134\ Ibid., art. 1(1).
\135\ Ibid., art. 2.
\136\ Ibid., art. 3(2).
\137\ Ibid., art. 4(1).
\138\ Ibid.
\139\ Ibid., art. 4(2).
\140\ Ministry of Commerce Interim Provisions on Matters Relating
to the Security Review System for Acquisitions of Domestic Enterprises
by Foreign Investors [Shangwubu shishi waiguo touzizhe bing gou jingnei
qiye anquan shencha zhidu youguan shixiang de zanxing guiding], issued
4 March 11, effective from 5 March 11 to 31 August 11.
\141\ Ministry of Commerce Measures on Management of Outbound
Investment [Zhonghua renmin gongheguo shangwubu jingwai touzi guanli
banfa], issued 16 March 09.
\142\ Charles Comey and Zhu Zhu, ``MOFCOM Streamlines Regulatory
Approvals for Outbound Investments,'' Morrison Foerster Client Alert,
23 April 09.
\143\ According to a February 2011 National Development and Reform
Commission (NDRC) circular, outbound investment in resource development
projects with a value over US$300 million and other investments with a
value over US$100 million require NDRC approval, and such investments
under these amounts must be approved by provincial-level authorities
under NDRC. National Development and Reform Commission Circular on
Delegating Approval Rights for Overseas Investment Projects to Lower
Level Authorities [Guojia fazhan gaige wei guanyu zuohao jingwai touzi
xiangmu xiafang hezhun quanxian gongzuo de tongzhi], issued 14 February
11.
\144\ National Development and Reform Commission Circular on
Delegating Approval Rights for Overseas Investment Projects to Lower
Level Authorities [Guojia fazhan gaige wei guanyu zuohao jingwai touzi
xiangmu xiafang hezhun quanxian gongzuo de tongzhi], issued 14 February
11.
\145\ National People's Congress, PRC Outline of the 12th Five-Year
Plan on National Economic and Social Development [Zhonghua renmin
gongheguo guomin jingji he shehui fazhan di shier ge wunian guihua
gangyao], passed 14 March 11, issued 16 March 11, chap. 52.
\146\ ``Ministries Prepare Improvements to Overseas Investment
Policy'' [Duo buwei yunniang wanshan haiwai touzi zhengce], 21st
Century Business Herald, 5 January 11.
\147\ National People's Congress, PRC Criminal Law Amendment (8)
[Zhonghua renmin gongheguo xingfa xiuzhengan (8)], issued 25 February
11, effective 1 May 11, art. 29; ``China Amends Criminal Law To Cover
Foreign Bribery, Bribery of Non-PRC Government Officials
Criminalized,'' E-Alert from Covington & Burling LLP, 1 March 11.
\148\ State-Owned Assets Supervision and Administration Commission,
Provisional Measures on Monitoring the Overseas Assets of Central-Level
Enterprises [Zhongyang qiye jingwai guoyou zichan jiandu guanli zanxing
banfa], issued 14 June 11, effective 1 July 11; State-Owned Assets
Supervision and Administration Commission, Provisional Measures on
Administering Overseas State-Owned Assets of Central-Level Enterprises
[Zhongyang qiye jingwai guoyou chanquan guanli zanxing banfa], issued
14 June 11, effective 1 July 11. See also ``Central-Level State-Owned
Enterprises Lost 4 Trillion Yuan Worth of Overseas Assets, the State-
Owned Assets Supervision and Administration Commission Increases
Supervision'' [Yang qi siwanyi haiwai zichan pinfan xian ju kui
guoziwei huoxian du lou], Sohu, 8 December 10. In December 2010, there
was a report that at of the end of 2009, central SOEs have lost 4
trillion yuan worth of state assets in outbound investments.
\149\ ``China To Raise Standard for Companies' Overseas Resources
M&A,'' People's Daily, 8 December 10.
\150\ Derek Scissors, Heritage Foundation, ``China's Investment
Overseas in 2010,'' 3 February 11.
\151\ Wang Yanlin, ``SOEs Get No Special Treatment, Says
Official,'' Shanghai Daily, 2 November 10.
\152\ For details on the Antimonopoly Law, and the Chinese
government departments charged with implementation, see Nathan Bush and
Zhaofeng Zhou, ``Chinese Antitrust--Act II, Scene 1,'' The Antitrust
Source, October 2008, 1-11.
\153\ State Administration for Industry and Commerce Provisions on
Prohibiting Monopoly Agreements [Gongshang xingzheng guanli jiguan
jinzhi longduan xieyi xingwei de guiding], issued 31 December 10,
effective 1 February 11.
\154\ State Administration for Industry and Commerce Provisions on
Prohibiting Abuse of Market Dominance [Gongshang xingzheng guanli
jiguan jinzhi lanyong shichang zhipei diwei xingwei de guiding], issued
31 December 10, effective 1 February 11.
\155\ State Administration for Industry and Commerce Provisions on
Prohibiting the Misuse of Administrative Power To Exclude or Restrict
Competition [Gongshang xingzheng guanli jiguan zhizhi lanyong xingzheng
quanli paichu, xianzhi jingzheng xingwei de guiding], issued 31
December 10, effective 1 February 11.
\156\ National Development and Reform Commission, Provisions on
Anti-Price Monopoly [Fan jiage longduan guiding], issued 29 December
10, effective 1 February 11.
\157\ National Development and Reform Commission, Administrative
Enforcement Procedures on Antimonopoly Provisions [Fan jiage longduan
xingzheng zhifa chengxu guiding], issued 29 December 10, effective 1
February 11.
\158\ For a discussion of these regulations, see Adrian Emch, ``The
Antitrust Enforcers' New Year Resolutions,'' China Law & Practice,
February 2011. For a discussion on the State Administration for
Industry and Commerce provisions, see State Administration for Industry
and Commerce, ``Responsible Official of the SAIC General Office
Competition Law Enforcement Bureau Responds to Questions on Three New
Supporting Regulations on the `Antimonopoly Law' '' [Guojia gongshang
zongju jingzheng zhifa ju fuzeren jiu ``fan longduan fa'' sange peitao
guizhang chutai da jizhe wen], 7 January 11.
\159\ ``First Cartel Fines in China Following New Regulations,''
Caixin Net, 26 February 11.
\160\ Adrian Emch, ``The Antitrust Enforcers' New Year
Resolutions,'' China Law & Practice, February 2011.
\161\ Wang Xing, ``Baidu Accused of Abusing Dominant Position,''
China Daily, 23 February 11.
\162\ National Development and Reform Commission, ``Zhejiang Fuyang
Paper Industry Association Receives Severe Punishment for Price
Monopoly Behavior'' [Zhejiang sheng fuyang shi zaozhi hangye xiehui
zuzhi shishi jiage longduan xingwei shoudao yanli chufa], 1 September
11.
\163\ Ibid.
\164\ ``Chinese Municipal Government Held in Breach of Anti-
Monopoly Law,'' Mayer Brown JSM Legal Update, 23 August 11.
\165\ PRC Antimonopoly Law [Zhonghua renmin gongheguo fan longduan
fa], issued 30 August 07, effective 1 August 08, chap. V.
\166\ American Chamber of Commerce People's Republic of China,
American Business in China 2011 White Paper, (2011), 40.
\167\ Nick Wood, ``Huawei-Motorola Settlement Paves Way for Closure
of Nokia-Siemens Deal,'' Total Telecom, 13 April 11.
\168\ Diana ben-Aaron, ``Nokia Siemens Postpones $1.2 Billion
Motorola Deal Again,'' Bloomberg, 9 March 11.
\169\ Ministry of Commerce, Announcement Concerning the Conditional
Approval in the Antimonopoly Investigation of the Merger of Ulralkali
and Silvinet [Guanyu futiaojian pizhun wula'er kaifangxing gufen gongsi
xishou hebing xie'erweinite kaifangxing gufen gongsi fanlongduan
shencha jueding de gonggao], issued 2 June 11. In Article 27(5) of the
2008 Antimonopoly Law, the impact of the concentration on national
economic development is listed as an element that the Ministry of
Commerce should consider in reviewing a proposed merger. PRC
Antimonopoly Law [Zhonghua renmin gongheguo fan longduan fa], issued 30
April 07, effective 1 August 08. For a discussion of the case, see
Jones Day, ``China Approves Merger Between Russian Potash Producers but
Requires They Continue To Supply the Chinese Market,'' Antitrust Alert,
13 June 11.
\170\ Zhang Qi, ``Train Merger Stays on Track,'' China Daily, 6
January 11.
\171\ ``Ministry of Industry and Information Technology: Speed Up
Organization of Large-Size Rare Earth Group'' [Gongxinbu: jiakuai
zujian daxing xitu jituan], Securities Times, reprinted in Xinhua, 14
June 11; Yin Mingzhe, ``Top 3 Rare Earth Firms To Be Named,'' China
Daily, 13 June 11. For a discussion of reorganization of the rare earth
sector in China, see ``Gradual Reorganization of the Rare Earth
[Sector], Mining Rights To Be Returned to the State-Owned Enterprises''
[Xitu zhengdun da mu jianci kaiqi caikuang quan keneng gui guoqi], 21st
Century Economic Times, reprinted in State-Owned Assets Supervision and
Administration Commission of the State Council, 3 June 10.
\172\ Zhang Qi, ``Train Merger Stays on Track,'' China Daily, 6
January 11.
\173\ He Dan, ``Food Safety a Work in Progress,'' China Daily, 7
May 11; Joshua Fellman, ``Chinese Watermelons `Explode,' Maybe From
Chemical, Xinhua Says,'' Bloomberg, reprinted in Washington Post, 18
May 11; ``Chongqing Seizes Over 10,000 Jin Poisonous Pepper: A Portion
Is Already in the Hotpots'' [Chongqing chahuo shangwan jin du huajiao
bufen yi zhicheng huoguodi liao], Sina, 25 March 11. See also, ``Two
Years After the Issuance of the Food Safety Law It Is Still Difficult
To Constrain Food Safety Incidents'' [Shipin anquan fa banbu liang nian
reng nan ezhi shipin anquan shijian], Global Times, 28 February 11.
\174\ ``Ministry of Health Official: Will Establish a Blacklist of
Reporters Who Mislead the Public About Food Safety Issues'' [Weishengbu
guanyuan: jiang dui shipin anquan baodao wudao gongzhong de jizhe jian
heimingdan], Caijing, 14 June 11.
\175\ Ibid.
\176\ National People's Congress, PRC Outline of the 12th Five-Year
Plan on National Economic and Social Development [Zhonghua renmin
gongheguo guomin jingji he shehui fazhan di shi'er ge wu nian guihua
gang yao], passed 14 March 11, issued 16 March 11, chap. 41, sec. 1.
\177\ Ministry of Health, Management of National Food Safety
Standards [Shipin anquan guojia biaozhun guanli banfa], issued 20
October 10, effective 1 December 10.
\178\ Administrative Measures on Food Safety Information Disclosure
[Shipin anquan xinxi gongbu guanli banfa], issued 3 November 10.
\179\ Qiu Bo, ``County Focus To Ensure Food Safety,'' China Daily,
3 January 11.
\180\ ``State Council Arranges Key Works on Food Safety in 2011''
[Guowuyuan anpai 2011 nian shipin anquan zhongdian gongzuo], Caijing,
25 March 11.
\181\ Ministry of Health, Ministry of Industry and Information
Technology, Ministry of Commerce, State Administration for Industry and
Commerce, General Administration of Quality Supervision and Quarantine,
State Food and Drug Administration, Announcement of Six Agencies
Including the Ministry of Health Concerning Banning the Use of
Bisphenol A in Infant Milk Bottles [Weishengbu deng 6 bumen guanyu
jinzhi shuangfen A yongyu ying you'er naiping de gonggao], issued 23
May 11, effective for manufacturing 1 June 11, effective for import and
sale 1 September 11. See also ``Ministry of Health Issues Draft Ban on
the Use of BPA in Infant Food Containers (Update)'' Congressional-
Executive Commission on China, 24 May 11, updated 9 June 11.