cybersecurity. The agreement stated that neither country’s government
would conduct or knowingly support cyber-enabled theft of IP, trade secrets,
and related information, with the intent of providing competitive advantages
to companies or commercial sectors. They set up a high-level dialogue mech-
anism to address cybercrime. The first meeting was held in December 2015
in Washington, DC; the second was held in Beijing in June 2016. Both
resulted in signs of progress in a complicated and usually secret area of
international relations. 56
WTO Implementation Issues
An important benchmark in Chinese leaders’ embrace of economic global-
ization and interdependence was the decision to join the WTO under terms
requiring major concessions from China to its international trading partners.
On September 13, 2001, China concluded a WTO bilateral trade agreement
with Mexico, the last of the original thirty-seven WTO members to have
requested such an accord. On September 17, 2001, the WTO Working Party
handling China’s WTO application announced that it had resolved all out-
standing issues regarding China’s WTO accession. China’s WTO member-
ship was formally approved at the WTO Ministerial Conference in Doha,
Qatar, on November 10, 2001. On November 11, 2001, China notified the
Economic and Environmental Issues in Contemporary US-China Relations
201
WTO that it had formally ratified the WTO agreements, which enabled Chi-
na to enter the WTO on December 11, 2001. 57
Under the WTO accession agreement, China set forth various concessions
and actions to accommodate the interests of its major trading partners. It
agreed to:
• Reduce the average tariff for industrial goods to 8.9 percent and for agri-
cultural goods to 15 percent; most tariff cuts were to come by 2004.
• Limit subsidies for agricultural production to 8.5 percent of the value of
farm output and end export subsidies for agricultural exports.
• By 2004, grant full trade and distribution rights to foreign enterprises
(with some exceptions).
• Provide nondiscriminatory treatment to all WTO members; foreign firms
in China were to be treated no less favorably than Chinese firms for trade
purposes; price controls would not be used to provide protection to Chi-
nese firms.
• Implement the WTO’s standards on IPR seen in the organization’s TRIPS
agreement.
• Accept a twelve-year safeguard mechanism, available to other WTO
members in cases where a surge in Chinese exports cause or threaten to
cause market disruption to domestic producers.
• Fully open the Chinese banking system to foreign financial institutions by
2006; joint ventures in insurance and telecommunications would be per-
mitted, with various degrees of foreign ownership allowed. 58
The subsequent record of implementation of the Chinese agreement with
the WTO was a source of considerable criticism from the United States and
some others among China’s major trading partners. These criticisms, in turn,
prompted Chinese government complaints. As a result of burgeoning Chi-
nese exports of a variety of manufactured products, the United States, the
European Union, and others imposed restrictions on Chinese imports of these
products that met with vocal complaints from the Chinese government.
Surges in Chinese exports involving agricultural products were a frequent
source of complaint from some of China’s Asian trading partners, who tried
to restrict the imports in ways that antagonized the Chinese authorities. 59
The US government took the lead among WTO members in reaching the
agreements leading to China’s joining the organization. It viewed the US
market as by far China’s largest export market and had a growing concern
over the unprecedented US trade deficit with China. As a result, it main-
tained a leading role in measuring Chinese compliance with WTO commit-
ments, and its complaints met with dissatisfaction and criticism from the
Chinese government. 60
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The USTR issued annual reports assessing China’s WTO compliance, as
did prominent US nongovernmental organizations such as the US-China
Business Council. These reports tended to give China mixed evaluations. On
the one hand, China was seen making significant progress in meeting such
commitments as formal tariff reductions; on the other hand, the reports raised
a host of concerns involving quotas, standards, lack of transparency, and
protection of IPR, all of which were seen to impact negatively on US trade
interests. As time went on, the US government reports highlighted evidence
of trends toward a more restrictive trade regime. The USTR’s 2015 report on
China’s WTO compliance summarized US concerns over China’s trade re-
gime as follows:
Many of the problems that arise in the US-China trade and investment rela-
tionship can be traced to the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national
champions in China’s economy, which continue to generate significant trade
distortions that inevitably give rise to trade frictions. 61
The specific priority areas of US concern identified in the report dealt
with IPR, Chinese industrial policies disadvantaging US firms, restriction on
services provided by US companies in the China market, restrictions on US
agricultural products sold to China, inadequate transparency in the produc-
tion and announcement of Chinese laws and regulations, and restrictions
working against US firms in licenses and related matters.
The United States has utilized the WTO dispute settlement mechanism on
a number of occasions to address China’s alleged noncompliance with its
WTO commitments. It brought twenty-one dispute settlement cases against
China (or more than half of the total number of cases against China brought
by all WTO members through January 2017). The United States generally
prevailed in these cases; several were resolved before going to a WTO panel.
China in turn has brought more dispute settlement cases against the United
States than any other WTO member: ten (or two-thirds of all cases against
the United States). Several Chinese complaints were against US antidumping
and countervailing duty measures. In December 2016 China initiated a dis-
pute resolution case against the United States for its continued treatment of
China as a nonmarket economy for the purpose of calculating and imposing
antidumping measures. 62
The December 2011 USTR report highlighted the following areas of con-
cern regarding China’s obligations for WTO membership: (1) enforcement of
IPR; (2) industrial policies, including concerns over so-called indigenous
innovation, explained above; (3) lack of transparency in China’s agricultural
market; and (4) government discrimination thwarting US firms seeking to
operate in China’s service sector. 63
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203
US businesses have expressed strong concern about Chin
ese industrial
policies that limit market access for non-Chinese goods and services and
promote Chinese industries that compete with US and other firms in interna-
tional markets. The American concerns have been brought up repeatedly by
senior US officials in various dialogues with China, and some issues have
been addressed by Chinese officials. 64 Nevertheless, US businesses remain concerned that the continued heavy direct and indirect involvement of elements of the Chinese state in the creation and strengthening of government-
supported companies will result in practices that only allow foreign compa-
nies to work in China in restricted ways; the ways often require close cooper-
ation with government-favored Chinese enterprises, including the sharing
and ultimate loss of foreign technological and other advantages to Chinese
competitors. 65
China’s Currency Policy
Criticism in the United States over China’s currency policy emerged against
the background of the massive and growing US trade deficit with China and
complaints from US manufacturing firms and workers over competitive chal-
lenges posed by Chinese imports that benefit from the Chinese currency’s
value relative to the US dollar. Unlike most advanced economies, China does
not maintain a market-based floating exchange rate. Between 1994 and 2005,
China pegged its currency, the renminbi (RMB) or Yuan, to the US dollar at
about 8.28 Yuan to the dollar. In July 2005, China appreciated the RMB to
the dollar by 2.1 percent and moved to what it called a “managed float,”
based on a basket of major foreign currencies, including the US dollar. In
order to maintain a target rate of exchange with the dollar and other curren-
cies, the Chinese government maintained restrictions and controls over capi-
tal transactions and made large-scale purchases of US dollars and dollar
assets. At that time and continuing in following years, many US policy
makers, business leaders, union representatives, and academic specialists
charged that China’s currency policy made the RMB significantly underval-
ued relative to the US dollar. Estimates of undervalue ranged from 15 to 40
percent. The American critics maintained that China’s currency policy made
Chinese exports to the United States cheaper and US exports to China more
expensive than they would have been if exchange rates were determined by
market forces. They complained that this policy particularly hurt several US
manufacturing sectors (such as textiles and apparel, furniture, plastics, ma-
chine tools, and steel), which were forced to compete against low-cost im-
ports from China. The Chinese currency policy was seen by the American
critics to add to the size and growth of the US trade deficit with China.
Responsive to these complaints, representatives in Congress introduced nu-
merous bills in recent years designed to pressure China to either significantly
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appreciate its currency or let it float freely in international markets. As the 2012 Republican presidential candidate, Mitt Romney pledged to take strong
action against Chinese currency “manipulation.” 66
According to the Bank of China, from July 2005 to July 2009, the dollar-
Yuan exchange rate went from 8.27 to 6.84, an appreciation of 21.1 percent.
Because of the impact of the global economic crisis beginning in 2008, the
Chinese government halted appreciation of the Yuan relative to the dollar
from July 2009 to June 2010 in order to limit the impact of the sharp decline
in global demand for Chinese products. 67 Currency appreciation was resumed in June 2010, although at a slower pace than in previous years. From
June 2005 through July 2015, the RMB appreciated by 35.3 percent on a
nominal basis against the dollar. 68
On August 11, 2015, China’s central bank announced new measures re-
garding the market-orientation of its daily central parity rate of the RMB.
Over the next three days, the RMB depreciated against the dollar; it went
from 6.12 Yuan to 6.40 Yuan. From July 2015 to mid-December 2016, the
RMB depreciated by 13.6 percent against the dollar. Possible reasons for this
turn of events included the following: Some viewed the Chinese currency’s
depreciation as a reflection of China’s slowing economy; others judged that
the Chinese economy may have been weaker than acknowledged by the
government, so the depreciating thus might have been a deliberate policy to
boost economic growth at the expense of China’s trading partners. 69
In any event, experts continued to differ strongly on the RMB’s valuation
against the dollar and other currencies. The IMF had criticized the low value
of the Yuan in the past, but it said in May 2015 that the currency was no
longer undervalued.
The US Department of the Treasury said in April 2015 that the RMB
remained “significantly undervalued.” Treasury’s October 2015 report noted
that China had intervened heavily in exchange rate markets from July to
September 2015. It noted that market forces were currently pushing the RMB
downward, but it concluded that the RMB remained “under its appropriate
mid-term valuation.” 70
The first Treasury report on exchange rates under the Trump administra-
tion, issued on April 14, 2017, did not conclude that China (or any country)
had manipulated its currency, noting that the Chinese government over the
past year or so had intervened heavily to prevent rapid RMB depreciation (as
opposed to trying to prevent RMB appreciation, which often occurred in the
past). Adding to such indications that Chinese manipulation of its currency
value for the sake of gaining trade advantage against the United States was
no longer considered—at least for now—an important issue in United States
was the change in President Trump’s view of the issue. During the 2016
presidential election campaign, Donald Trump was outspoken in criticizing
Chinese manipulation of the value of RMB for the sake of trading advantage
Economic and Environmental Issues in Contemporary US-China Relations
205
over the United States, but he told the Wall Street Journal in April 2017 that he had changed his mind and no longer viewed China as such a currency
manipulator. 71
INVESTMENT ISSUES
China’s investments in US assets can be broken down into two categories:
holdings of US securities (e.g., US Treasury securities, US government agen-
cy securities, corporate securities, and stocks) and FDI. China’s holdings of
US public and private securities are significant and constitute the largest
category by far of Chinese investment in the United States. These securities
include US Treasury securities, US government agency (such as Freddie Mac
and Fannie Mae) securities, corporate securities, and equities (such as
stocks). China’s investment in public and private US securities totaled $1.84
trillion as of June 2015, making China the second-largest holder after Japan.
US Treasury securities, which help the federal government finance its budget
deficits, are the largest category of US securities held by China. China’s
holdings of US Treasury securities increased from $118 billion in 2002
to
$1.24 trillion in 2014 but fell to $1.06 trillion in 2016, making China the
second-largest foreign holder of US Treasury securities after Japan. China’s
holdings of US Treasury securities as a share of total foreign holdings rose
from 9.6 percent in 2002 to a historic high of 26.1 percent in 2010, but this
level has since fallen, dropping to 18 percent in 2016. 72 Meanwhile, US
holdings of Chinese securities are comparatively small. The US government
estimated the value of such holdings (mainly equities such as stocks) at $107
billion in 2015. This was comparable to US holdings in Brazil and represent-
ed a very small percentage of total US holdings of foreign securities. 73
Regarding bilateral FDI, China’s FDI in the United States remained small
until China recently and rapidly expanded investment abroad. In part because
much Chinese investment in the United States comes via tax havens, esti-
mates of the size of Chinese investment in the United States vary. The US
government said the amount was $5.8 billion in cumulative investment
through 2010. In 2015 China ranked as the twelfth-largest investor in the
United States, with investment that year amounting to $5 billion and the
stock of cumulative investment valued at $14.8 billion. Private estimates of
Chinese investment are higher. US FDI in China declined during the reces-
sion in 2009 but grew by $9.6 billion in 2010 for a cumulative figure of $60.4
billion. In 2015 the respective figures were $7.3 billion and 74.6 billion.
While the overall value of US investment in China is relatively low, amount-
ing to about 10 percent of US investment in the Asia-Pacific region, the
investment is very important for certain US companies seeking investment
and sales in China. China has the world’s largest mobile phone network and
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hundreds of millions of mobile phone users; it is the largest market for
commercial aircraft outside the United States; it has the largest number of
Internet users in the world; and more recently China became the world’s
largest market for new cars. US firms invest substantially in China as they
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