[Congressional Record Volume 150, Number 103 (Thursday, July 22, 2004)]
[Senate]
[Pages S8660-S8661]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION REPORT

   Mr. SARBANES. Mr. President, I rise to call to the attention of my 
colleagues the release on June 15 of the 2004 Report to Congress of the 
United States-China Economic and Security Review Commission.
  The Commission was created by Congress on October 30, 2000, as part 
of the National Defense Authorization Act for 2001. Its principal 
sponsor in the Senate was Senator Byrd. The charter of the Commission 
provides that it be composed of 12 Commissioners, 3 of whom are 
appointed by each of the Congressional leaders in both the House and 
Senate. The Commission is thus bipartisan, and reflective of the 
leadership of both the House and the Senate.
   The purpose of the Commission, according to its charter, is to 
``monitor, investigate and report to Congress on the national security 
implications of the bilateral trade and economic relationship between 
the United States and the People's Republic of China.'' The Commission 
is required by its charter to submit an annual report to Congress, 
which must include a full analysis, along with conclusions and 
recommendations for legislative actions, if any, of the national 
security implications for the United States of trade and current 
account balances, financial transactions, and technology transfers with 
the People's Republic of China.
  In preparation for its 2004 annual report, the Commission held 11 
public hearings, including field hearings in Columbia, SC, and San 
Diego, CA. Through these hearings the Commission heard the perspectives 
of members of Congress, current and former senior government officials, 
representatives of industry, labor and finance, academics, journalists, 
and citizens. The Commission took testimony from more than 130 
witnesses.
  The Commission's fact-finding and examination process also included 
funding statistical analyses of China's role in world trade and 
investment, and its compliance record with its WTO commitments. 
Moreover the Commission contracted for the translation of articles from 
influential publications within China discussing Beijing's economic and 
security strategies and its perceptions of the United States.
  During the course of its deliberations, the Commission developed a 
broad bipartisan agreement on the issues it was charged by Congress to

[[Page S8661]]

examine, and adopted its 2004 report by a unanimous vote.
  Among the key findings of the report are that in 2003 the United 
States ran a global goods trade deficit of $545.5 billion, of which 
$124 billion was attributable to U.S. trade with China. The U.S. trade 
deficit with China constituted over 23 percent of the total U.S. goods 
deficit. Further, with U.S. exports to China of $28 million and imports 
from China of $152 billion, U.S. trade with China constitutes our most 
lopsided trading relationship. The report notes that over the past 10 
years, the U.S. trade deficit with China has grown at an average rate 
of 18.5 percent, and if it continues growing at this rate, it will 
double to $248 billion within 5 years. The report further notes that 
since 1998, the United States has moved from a global trade surplus in 
advanced technology products, ATP, of $29.9 billion to a deficit of $27 
billion in 2003, of which $21 billion is attributed to our trade with 
China.
  The Commission report unanimously finds that, ``The magnitude of the 
goods trade deficit threatens the nation's manufacturing sector, a 
sector that is vital for our national and economic security.'' It 
further notes that China has a ``coordinated sustainable vision for 
science and technology development'' and urges our country to develop a 
``comprehensive national policy to meet China's challenge to our 
scientific and technological leadership.''
   The report finds that China is systematically intervening in the 
foreign exchange market to keep its currency undervalued, and that this 
has contributed to the size of the U.S. trade deficit with China and 
has hurt U.S. manufacturers. The report further notes that China has 
policies in place to attract foreign direct investment ($57 billion in 
2003) and to develop its national productive capacity in ``pillar 
industries''. These policies include tariffs, limitations on access to 
domestic marketing channels, requirements for technology transfer, 
government selection of partners for joint ventures, preferential loans 
from state banks, privileged access to land, and direct support for 
research and development.
  In order to begin to help correct our trading relationship with 
China, the Commission urges that the U.S. immediately seek to have the 
yuan revalued substantially upward against the dollar and then to be 
pegged against a trade weighted basket of currencies. After such an 
immediate revaluation, the Commission recommends that China, as it 
addresses problems in its banking system, move to a market-based 
currency. It further recommends that Congress should charge USTR and 
the Commerce Department to undertake a comprehensive examination of 
China's industrial policies, described in the report, to determine 
which may be illegal under provisions of the WTO, and to lay out 
specific steps the U.S. can take to address these practices through the 
WTO or other means. It urges the U.S. to make more active use of WTO 
dispute settlement if we cannot persuade China by negotiation to carry 
out its WTO commitments.

  The report discusses a number of other aspects of United States-China 
trade and political relations. It makes a number of recommendations to 
help manage the relationship to minimize security risks and to enhance 
prospects of moving China toward a more open, democratic and law-based 
society to the benefit of both countries.
  In my view, this 2004 report of the Commission makes a very valuable 
contribution to our policy deliberations on China. I salute Senator 
Byrd for his wisdom in calling for the creation of the Commission, and 
thank all the Commissioners for their contribution to our knowledge of 
the United States-China economic and political relationship. The 
Baltimore Sun ran an editorial which strongly praised the report and 
found that ``the case for `urgent attention and course corrections' to 
U.S. policies on China is well made.'' I ask that the Baltimore Sun 
editorial be inserted in the Record after my statement.
  I strongly commend the 2004 report of the United States-China 
Economic and Security Review Commission to my colleagues.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From the Baltimore Sun, June 17, 2004]

                          The China Trade-Off

       In the past year, some large foreign investors were for the 
     first time allowed to enter China's domestic stock market to 
     buy shares of Chinese firms. This includes shares of part of 
     Norinco, China North Industries Group--a transnational 
     conglomerate that was founded by the People's Liberation 
     Army, that retains strong military ties, that makes 
     everything from baby shoes to missiles, and that has drawn 
     U.S. sanctions for arming Iran.
       Given the lack of disclosure in China, foreign investors 
     and technology traders with Norinco and other Chinese firms 
     cannot know if their resources will end up serving China's 
     long-term, well-coordinated strategic plan to compete with 
     American economic, military and political power. That 
     potential danger is the basis for the very strong alarms 
     sounded this week by the U.S-China Economic and Security 
     Review Commission, a bipartisan congressional group 
     monitoring U.S.-China relations.
       In its wide-ranging annual report, the commission warns 
     that rapidly increasing trade, investment and technology 
     flows between the two nations are far too lopsided in China's 
     favor--eroding U.S. economic strength, abetting China's 
     military build-up and its development as a high-tech 
     manufacturing platform, and potentially threatening U.S. 
     security interests. Worse, the commission found that the U.S. 
     government often is far too blind to these hazards in 
     arguably its most important long-term relationship.
       The report will be criticized by some for demonizing 
     Beijing just as the West is penetrating Chinese markets and 
     succeeding in dramatically drawing China into the community 
     of nations. But in general, the case for ``urgent attention 
     and course corrections'' to U.S. policies on China is well 
     made.
       For starters, the commission is urging the United States to 
     use the World Trade Organization to more aggressively press 
     China on its undervalued currency and on state subsidies for 
     export manufacturers, both underlying factors in America's 
     $124 billion trade deficit with China last year. It also 
     recommends comprehensive monitoring of: advanced technology 
     transfers to China via U.S. investments, joint ventures and 
     research and development projects; China's U.S. investments; 
     and bilateral exchange and education programs.
       The lengthy commission report paints a picture of China 
     leveraging the short-term financial ambitions of diverse U.S. 
     interests to capture money and technology vital to its highly 
     focused, long-term goal of trumping the United States--and of 
     the U.S. government at best adrift in monitoring and managing 
     its side of this imbalanced and critically important 
     relationship. It's a caution worth the highest attention.

                          ____________________