WASHINGTON—China played a key role in bringing on the global financial crisis and its response to the crisis has only aggravated the situation, concludes the U.S.-China Economic and Security Review Commission (USCC)’s 2009 annual report. The 12-member bipartisan Commission unanimously adopted the report.
The Congress is urged to take steps to address China’s unfair or predatory trade activities, currency manipulation, subsidies, provocative maritime policies, “malicious” cyber activity and the monitoring and harassment of U.S. citizens and legal permanent residents.
“Every year there is sufficient information out there to put together 3 to 4 hundred pages of documentation of troubling things that are going on,” said Carolyn Bartholomew, this year’s Chairman of USCC, Nov 19, on Capitol Hill.
The 367 page report makes 42 recommendations to the U.S. Congress. As a policy, the Commission does not repeat its recommendations from year to year.
This year’s report is the seventh major report since the Commission was established in 2000. The report is based on eight hearings held this year, and findings from meetings with Chinese officials and others in China as well as a trip to Hong Kong and a field hearing in upper state New York.
China Blamed for Conditions that Led to World Recession
The report faults China for pursuing policies that promote Chinese exports: increasing savings, restraining consumption, keeping the RMB undervalued, using export incentives and subsidies. These policies brought about an imbalance in trade between the U.S. and China, with China accumulating $2.27 trillion foreign exchange reserves by the end of September, much of which is invested in U.S. Treasury bonds.
The imbalance in trade generated a huge flow of liquidity (money) for China to loan out, which in turn encouraged banks to make risky loans to U.S. households, says the report. The U.S. has to take some responsibility here too for its financial practices and for not reducing its high demand for imports from China, says the report.
After the recession spread, China made matters worse by raising rebates to exporters and using several other measures that amount to giving subsidies of various kinds to induce foreign investment in manufacturing in China. These direct and indirect subsidies plus outlawing collective bargaining and labor unions “has created a low-cost haven for foreign manufacturers.” All of the above leads to more overcapacity and more exports, aggravating the situation, says the report. China has done little to increase domestic consumption, which would begin to bring down the huge imbalances in trade.
“The Commission notes a disturbing trend away from the development of a free market system and instead sees moves to greater government control of the economy…As our report points out, many of China’s economic reforms over the past 30 years are, in reality, a government-directed industrial policy that seeks to promote export growth,” said Bartholomew.
Bartholomew also complained that China’s subsidies, control of the value of its currency, and “massive loans from its state-owned banks to industries already producing over capacity,” disadvantages U.S. companies trying to export to China.
While the Commission sets forth 42 recommendations the U.S. Congress needs to implement to rein in the Chinese, many now are saying we shouldn’t stand up to this regime for fear they will retaliate.
“I’ve been working on U.S.-China policy issues for 20 years, and for 20 years we’ve heard how we cannot do anything to upset the Chinese government because we need their co-operation on blank—you fill-in the blank. For many years, it was their cooperation on North Korea….,” said Bartholomew.
“But there is always a reason why we cannot use any leverage. What I would call sort of a myth right now: ‘We can’t do anything to upset the Chinese government, can’t use any leverage because they will stop buying our debt.’ We went through some pains to address that issue. The fact is the Chinese government can’t afford not to stop buying our debt, because they need to maintain the value of the holdings that they have,” added Bartholomew.
Apparently a bit frustrated upon hearing again why we can’t upset the Chinese, Bartholomew offered: “To me, if we can’t do anything because ‘they are basically bankrolling us,’ [it] is another example—an excuse frankly—to not put some pressure on the Chinese government to address some of these issues.”
China’s Human and Cyber Espionage Target the U.S.
The Commission prepared a classified report on military and security issues intended to be seen only by persons with the requisite security clearances, but the report does generalize on some troubling new developments. China has been heavily involved in human and cyber espionage against the United States for the purpose of obtaining information and technologies “beneficial to China’s military modernization and economic development.” The report notes an escalation in this year of espionage activity:
“…there has been a marked increase in cyber intrusions originating in China and targeting U.S. government and defense-related computer systems. This malicious activity has the potential to destroy critical infrastructure, disrupt commerce and banking systems, and compromise sensitive defense and military data,” says the report.
Attacks on defense contractor information systems in 2007 and 2008 allowed the intruders to steal massive amounts of data pertaining to the design and electronics systems of the F35 Lightning II, one of the United States most advanced fighter planes. There is virtually no doubt that Chinese regime is the culprit, according to the report.
The report shows a chart of Department of Defense reported incidents of malicious cyber activity from 2000 to 2008, with a projection to 2009. The numbers show an exponential rise. For instance, in 2005 it was 23,031 incidents; in 2007, the number was 43,880. In 2009, it is on course to be over 87,000.
One section in the report that is particularly disturbing to U.S. citizens and foreign residents deals with how the communist regime “monitors, harasses, and disrupts” the activities of Chinese dissident groups operating abroad. The report cites Chen Yonglin, who was People’s Republic of China (PRC) first secretary and consul in Sydney, Australia, and then defected in 2005.
Chen produced an internal PRC document that referred to “Five Poisonous Groups”: Falun Gong, Tibetans, Uyghurs, Taiwanese and prodemocracy activists. The instructions in the document were to list the activists, monitor them, use propaganda against them on local Chinese language media and pressure local government officials. Embassy and consular officials were instructed to mobilize the local ethnic Chinese to act on behalf of the PRC’s interests.
The report says that Falun Gong members and two expert witnesses asserted that PRC consular officials acted in a similar way as those described by Chen. The examples given of the interference by the PRC included the assaults in 2008 against Falun Gong demonstrators in Flushing, NY. Also, the report described the worldwide Olympic torch relays in the spring 2008 when pro-Tibetan, pro-human rights were met with counter demonstrators secretly mobilized by the PRC.
The conclusion of the Commission is that the pro-China demonstrations were not the spontaneous gatherings of overseas Chinese supporting the PRC, as they were intended to appear, but as Chen said: the behind-the-scenes work of the PRC mobilizing local ethnic Chinese business and community groups for their propaganda value.