[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

                                _____

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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.

                                 
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