I. Background on China
II. Expanding Chinese Economy
III. Security implications of China’s rise
IV. Taiwan
V. Chinese Foreign Policy and Nuclear Nonproliferation
VI. Democracy and Human Rights in China
VII. Suggested Readings
Footnotes

During the Bush administration, U.S.-China relations have been largely harmonious and cooperative. The September 11th attacks provided an opportunity for Washington to cooperate with China in the "war on terror." For a time, the Bush administration set aside concerns about the rise of Chinese military power to attain the benefits of a strategic partnership with Beijing in the war on terror. In President Bush's second term, however, U.S. policy towards China made a decisive shift towards perceiving the rise of China as potential threat to American economic and security interests.

One growing concern in the relationship is trade and currency valuation. U.S. Congressional leaders have charged that Beijing has deliberately undervalued its currency and manipulated markets to promote the growth of its exports. Consequently, The Bush Administration has called on China to strengthen its currency, thereby redressing China's growing annual trade surplus with the United States, which currently stands at $250 billion.¹

The Department of Defense's 2006 Quadrennial Defense Review (QDR) concluded that, "China has the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional U.S. military advantages."² At present, China is in the process of modernizing its military forces. The pace and scope of military modernization has increased in recent years, driven by continued high rates of investment in its domestic defense, science, and technology industries, acquisition of advanced weapons from foreign sources, and comprehensive reforms of the armed forces. At least in the near term, China seeks increased military capabilities to maximize its autonomy around its boarder, particularly competition for resources near its coast, and to prepare for military contingencies in the Taiwan Strait. Chinese strategic and military writings also suggest that Beijing seeks additional military capabilities in order to pursue its interests and increase its influence in the region. The Bush administration worries that the increased projection of Chinese military power in Asia could pose a threat to U.S. regional interests. In an effort to maintain harmonious relations, the U.S. aims to integrate China's growing economy and military power into the existing liberal international order.

I. Background on China
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A. Map of China

Click to enlarge Source: http://www.lib.utexas.edu/maps/cia06/china_sm_2006.gif

B. Facts on China

Table 1: Facts on the China compared with the US

Table 1: Facts on China compared with the US

Source: Central Intelligence Agency (CIA), The 2008 World Fact Book (Washington, DC: CIA, 2007).

II. Expanding Chinese Economy
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1. Chinese Economic Growth (GDP)

Source: Wayne M. Morrison, China's Economic Conditions (Washington, DC: Congressional Research Service, October 11, 2007), available at http://www.fas.org/sgp/crs/row/RL33534.pdf.

B. Size of the Chinese Economy-Measurement Issues

Table 1: Comparison of Chinese and U.S. GDP and Per Capita GDP in Nominal U.S. Dollars and PPP, 2007

Table 1: Comparison of Chinese and US GDP and Per Capita GDP in Nominal US Dollars and PPP,* 2007

*GDP is gross domestic product; PPP is purchasing power parity

Source: Central Intelligence Agency (CIA), The 2008 World Fact Book (Washington, DC: CIA, 2007).

• The size of China's economy is a subject of debate among economists. If measured in U.S. dollars at nominal exchange rates, China's GDP in 2007 was about $2.879 trillion, which is significantly smaller than that of the U.S. Many economists, however, contend that using nominal exchange rates to convert China's GDP into U.S. dollars substantially underestimates the size of China's economy because the prices for goods and services in China are significantly lower than those in America. These economists prefer an alternative measure of GDP in purchasing power parity (PPP), which converts Chinese currency into U.S. dollars according to the actual purchasing power of the yuan. The PPP exchange rate, based on the prices of various goods and services in China and the U.S., is then used to convert Chinese economic data into U.S. dollars. Because the prices for many goods and services are significantly lower in China than in the U.S., the PPP exchange rate increases the size of the Chinese economy almost threefold from $2.879 trillion (nominal dollars) to $7.043 trillion (PPP dollars). If measured in PPP, China is the second-largest economy in the world after the U.S., but the living standards (as measured in per capita GDP) remain far below those of the U.S., with an estimated 150 million Chinese falling below international poverty lines.

Source: Central Intelligence Agency (CIA), The 2008 World Fact Book (Washington, DC: CIA, 2007).

C. U.S.-Chinese Trade

• The PRC is now the third-largest U.S. trading partner, with total U.S.-China trade in 2005 estimated at $343 billion. Source: http://www.uschina.org/statistics/tradetable.html.
• U.S.-China Trade Balance

US-China Trade Statistics and China's World Trade Statistics

Source: http://www.uschina.org/statistics/tradetable.html.

Source: http://www.uschina.org/statistics/tradetable.html

Source: http://www.uschina.org/statistics/tradetable.html

D. U.S.-China Trade Issues

1. Currency Valuation. On July 21, 2005, China announced that the exchange rate of its currency, the yuan, would become "adjustable, based on market supply and debate with reference to exchange rate movements of currencies in a basket," which include the U.S. dollar, the Japanese yen, the euro and South Korean won. The exchange rate of the yuan to U.S. dollar was immediately adjusted from 8.28 to 8.11, for an appreciation of approximately 2.1 percent. Both the Bush administration and members of Congress have expressed concern that Beijing continues to unfairly manipulate its currency, artificially undervaluing the yuan, in order to keep Chinese exports artificially cheap and making it harder for U.S. producers to compete. Washington received Beijing's decision to shift to a more flexible exchange system largely as a political gesture, with calls for China to further appreciate the yuan.

In a November 28, 2005, report to Congress on exchange rate policies, the Treasury Department determined that China had failed to fully implement its commitment to make its new exchange rate mechanism more flexible. The report concluded that China's new currency appears to strongly resemble the previous mechanism of pegging the yuan to the dollar. The Treasury decided not to cite China as a currency manipulator because of assurances from Beijing that it was committed to "enhanced, market-determined currency flexibility." The Bush administration and many Members of Congress have expressed disappointment with China's July 2005 reforms. On April 17, 2006, Deputy U.S. Secretary of State Robert Zoellick complained that China was moving "agonizingly slow" in achieving currency flexibility. On May 15, 2006, China further appreciated the yuan to 7.9982 per U.S. dollar. Since 2005, China has steadily, but slowly appreciated the yuan. The modest increase in the value of the yuan to date has done little to ease US concerns about the value of the yuan and the size of the US trade deficit with China.³

2. Intellectual Property Rights. China's lack of legal protections for intellectual property rights (IPR) is one of the most important and contentious issues for U.S.-China trade relations. Since the late 1980s, the U.S. has called on China to strengthen its IPR laws. While the United States Trade Representative (USTR) has praised China for passing several new IPR laws, closing or fining several assembly operations involved in illegal production, and curtailing exports of pirated products, the USTR acknowledges that additional measures are needed to improve China's protection of IPR. American business groups continue to complain about significant IPR violations in China, especially of illegal reproduction of software, retail piracy, and trademark counterfeiting. It is estimated that counterfeits constitute between 15 and 20 percent of all products made in China and totals and accounts for about 8 percent of China's GDP. U.S. industry analysts estimate that IPR piracy in China costs U.S. firms $2.3 billion in lost sales in 2005. On October 26, 2005, the United States initiated a special process under WTO rules to obtain detailed information on China's IPR enforcement efforts. China responded by challenging the legal basis for such a request in the WTO. American officials have stated, that failure by China to provide the requested information could lead the United States to bring a trade dispute resolution case against China in the WTO over its lack if IPR protection. On April 11, 2006, China pledged to improve IPR protection by requiring computers manufactured in China to contain licensed software.

3. Market Access. According to the USTR, "China has not yet fully embraced the key WTO principles of market access, non-discrimination and national treatment, nor has China fully institutionalized market mechanisms and made its trade regime predictable and transparent." U.S.-China trade relations lack a "balance in opportunity" as well as equity and durability. In short, China has focused on export growth and the development of domestic industries without a comparable effort to fulfill market opening commitments or protecting intellectual property rights. China continues to rely on industrial policy tools to promote or protect favored sectors and industries, which often contravene China's WTO obligations. These policies include the issuance of regulations on auto parts tariffs that serve to prolong prohibited local content requirements for motor vehicles, the telecommunications regulator's interference in commercial negotiations over royalty payments to intellectual property rights holders in the area of 3G standards, the pursuit of unique national standards in many areas of high technology that could lead to the extraction of technology or intellectual property from foreign rights-holders, draft government procurement regulations mandating purchases of Chinese-produced software, a new steel industrial policy that calls for the state's management of nearly every major aspect of China's steel industry, continuing export restrictions on coke, and excessive government subsidization of a range of domestic industries in China. The administration has relied on high-level engagement, expert-to-expert discussions and WTO mechanisms in an effort to address these problems.

III. Security implications of China's rise
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A. The Department of Defense submits to Congress an annual report on the "Military Power of the People's Republic of China." The 2007 report concludes that China is a rapidly expanding military power. Similarly, the 2006 QDR concluded "China has the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional U.S. military advantages." In the near term, however, China's military build-up appears focused on planning for Taiwan Strait contingencies, including the possibility of US intervention. The analysis also warns that China is acquiring capabilities that could apply to other regional contingencies, such as conflicts over resources or territory.

B. Chinese Military Spending

Click to enlarge Source: Department of Defense, Annual Report to Congress: Military Power of the People's Republic of China, 2006, available at http://www.pentagon.mil/pubs/pdfs/China%20Report%202007.pdf.

C. China's Global Military Reach

Click to enlarge Medium and Intercontinental Range Ballistic Missiles. China currently is capable of targeting its nuclear forces throughout the region and most of the world, including the continental United States. Newer systems, such as the DF-31, DF-31A, and JL-2, will give China a more survivable nuclear force. Source: Department of Defense, Annual Report to Congress: Military Power of the People's Republic of China, 2007, available at http://www.pentagon.mil/pubs/pdfs/China%20Report%202007.pdf.

IV. Taiwan
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A. Taiwanese Independence as a Threat to Chinese Sovereignty

Taiwan remains the most sensitive and complex issue in Sino-U.S. relations and the one most likely to lead to military conflict between Beijing and Washington. Beijing continues to lay sovereign claim to Taiwan and, as such, aims to reunify Taiwan with China whether peacefully or by force. Beijing has long maintained that it reserves the right to use force should Taiwan declare independence from China. On March 14, 2005, the PRC's National People's Congress officially adopted an "anti-secession law," which provides a legal basis for possible PRC military intervention in Taiwan. U.S. officials consider the initiative counterproductive. Beijing, however, regards the Taiwanese independent movement as the single greatest to sovereignty of China and to regional peace, and it therefore promises to prevent Taiwanese independence at all costs.

To this end, Beijing has deployed more than 700 missiles opposite Taiwan's coast and continues with a program of military modernization and training that many defense specialists believe is based on a "Taiwan scenario." In the last year, Taiwan's president, Chen Shuibian, a member of the Democratic Progressive Party, has strained cross-strait relations, after positive developments in Taiwan-China contacts since December 2004. On February 27, 2006, President Chen announced that Taiwan's National Unification Council (NUC) would "cease operations" and the Guidelines on National Reunification (GNR) would "cease to apply." The NUC and GNR were primarily important for their symbolic embrace of the previous government's commitment to eventual unification with China.

President Chen first announced his intention to dissolve NUC/GNR on January 29, 2006.

U.S. officials, who were evidently surprised by Chen's announcement, responded publicly by reiterating the U.S. "one-China policy," secretly sending a special envoy to Taiwan to express concerns, and reportedly privately criticizing the decision to Taiwanese officials. The more moderate formulation of the language in Chen's February 27, 2006 decision was a compromise to strong U.S. concern over the cross-strait implications of "abolishing" both bodies. In the aftermath of NUC/GNR controversy and the PRC's anti-secession law, Beijing appears to have decided that a Taiwan policy of greater nuance and finesse may better serve the PRC's interests. The electoral victory of the Kuomintang, or Nationalist Party, over the ruling, independence-leaning Democratic Progressive Party (DPT) in January 2008 could ease tensions between China and Taiwan.

For an assessment of the military balance in the Taiwan Strait, see http://www.brookings.edu/views/articles/ohanlon/2000fall_IS.htm

Map of China and Taiwan

Click to enlarge Source: http://www.lib.utexas.edu/maps/middle_east_and_asia/taiwan_strait_98.jpg

C. U.S. Taiwan Policy

• U.S. foreign policy aims to preserve the status quo between in the Taiwan Strait, with the US remaining deliberately ambiguous about its reaction if mainland Chinese forces attacked Taiwan. The Bush Administration, however, has been decidedly more supportive of Taiwan than previous administrations. The Bush administration approved a large arms sales to Taiwan of Kiddclass destroyers, diesel submarines, and P-3C Orion aircraft While the US has no defense alliance with Taiwan, the Administration has increased military contacts between the two countries, including exchanges between high-level officers, cooperation on command, control and communications and training assistance. Since President Chen's more provocative pro-independence statements, the Bush administration has been more measured in its support of Taiwan. On December 9, 2003, President Bush, with the visiting PRC Premier Wen Jiabao at his side, issued a blunt warning to Taiwan, saying "The comments and actions made by the leader of Taiwan indicate he may be willing to make decisions unilaterally that change the status quo, which we oppose." In addition to criticizing President Chen Shui-bian's February 27, 2006 National Unification Council decision, U.S. officials have expressed increasing frustration that Taiwan's domestic political divide has delayed purchase of much of the arms Bush approved for sale in 2001. The Administration has increasingly questioned Taiwan's commitment to self-defense.

• Taiwan's Defense Budget

?Source: Shirley A. Kan, Taiwan: Major U.S. Arms Sales Since 1990 (Washington, DC: Congressional Research Service, 8 January 2008), http://www.fas.org/sgp/crs/weapons/RL30957.pdf

• US Arms Sales to Taiwan:??

Source: Shirley A. Kan, Taiwan: Major U.S. Arms Sales Since 1990 (Washington, DC: Congressional Research Service, 8 January 2008), http://www.fas.org/sgp/crs/weapons/RL30957.pdf

V. Chinese Foreign Policy and Nuclear Nonproliferation
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With rapid economic growth has come increasing expanding political influence and increase international engagement, including trade agreements, scientific and technological cooperation, and multilateral security arrangements with both nations on its periphery and around the world. China has emerged as a key player in international diplomacy, including international efforts at nuclear nonproliferation. For many years, the US has been concerned about China's weapons sales, technology transfers, and nuclear energy assistance to certain countries in the Middle East and South Asia, particularly to Iran and Pakistan. China has taken some steps to allay U.S. concerns about its role in weapons proliferation. Beijing has also given its support for a non-nuclear Korean peninsula, advocating a bilateral U.S.-North Korean dialogue. However, Beijing continues to support the North Korean regime with supplies of food and fuel. China is also a key player in the ongoing Iranian nuclear dispute with the West. Beijing has called on Tehran to demonstrate flexibility on its nuclear program in diplomatic talks, and advocates a negotiated settlement over sanctions in resolving the Iranian nuclear issue. See the Nuclear Weapons section of the Foreign Policy Index.

VI. Democracy and Human Rights in China
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A. The Bush administration has applied selective pressure on Beijing to improve human rights. At times, Beijing has responded to pressure from Washington by granting early release from prison for political dissidents. During President Bush's April 2006 meeting with Chinese President Hu Jintao, Bush advanced the issue of human rights, including universal freedom, religious freedom and democratization, to the top of the U.S. foreign policy agenda. A concern for human rights has become more prominent in U.S. foreign policy towards China, but with little result.

B. According to the U.S. Department of State, the following human rights violations have been reported:

• denial of the right to change the government
• physical abuse resulting in deaths in custody
• torture and coerced confessions of prisoners
• harassment, detention, and imprisonment of those perceived as threatening to party and government authority
• arbitrary arrest and detention, including nonjudicial administrative detention, reeducation-through-labor, psychiatric detention, and extended or incommunicado pretrial detention
• a politically controlled judiciary and a lack of due process in certain cases, especially those involving dissidents
• detention of political prisoners, including those convicted of disclosing state secrets and subversion, those convicted under the now-abolished crime of counterrevolution, and those jailed in connection with the 1989 Tiananmen demonstrations
• house arrest and other nonjudicially approved surveillance and detention of dissidents
• monitoring of citizens' mail, telephone and electronic communications
• use of a coercive birth limitation policy, in some cases resulting in forced abortion and sterilization
• increased restrictions on freedom of speech and the press; closure of newspapers and journals; banning of politically sensitive books, periodicals, and films; and jamming of some broadcast signals
• restrictions on the freedom of assembly, including detention and abuse of demonstrators and petitioners
• restrictions on religious freedom, control of religious groups, and harassment and detention of unregistered religious groups
• restrictions on the freedom of travel, especially for politically sensitive and underground religious figures
• forcible repatriation of North Koreans and inadequate protection of many refugees
• severe government corruption
• increased scrutiny, harassment and restrictions on independent domestic and foreign nongovernmental organization (NGO) operations
• trafficking in women and children
• societal discrimination against women, minorities, and persons with disabilities
• cultural and religious repression of minorities in Tibetan areas and Muslim areas of Xinjiang
• restriction of labor rights, including freedom of association, the right to organize and bargain collectively, and worker health and safety
• forced labor, including prison labor

Source: http://www.state.gov/g/drl/rls/hrrpt/2006/78771.htm.

VII. Suggested Reading
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Richard K. Betts and Thomas J. Christensen, "China: Getting the Questions Right," The National Interest (Winter 2000), pp.17-29.

Kerry Dumbaugh, "China-US Relations: Current Issues and Implications for US Policy" (Washington, DC: Congressional Research Service, 8 June 2006). http://fpc.state.gov/documents/organization/68819.pdf.

Department of Defense, Annual Report to Congress: Military Power of the People's Republic of China, 2005, available at http://www.pentagon.mil/pubs/pdfs/China%20Report%202006.pdf.

M. Taylor Fravel, "Regime Insecurity and International Cooperation: Explaining China's Compromises in Territorial Disputes," International Security, Vol. 30, No. 2 (2005): 46-83.

Bates Gill, Rising Star: China's New Security Diplomacy (Washington: Brookings, 2007).

Michael Glosny, "Strangulation from the sea? A PRC submarine blockade of Taiwan," International Security, Vol. 28, No. 4 (2004): 125-160.

Shirley A. Kan, "Taiwan: Major U.S. Arms Sales Since 1990" (Washington, DC: Congressional Research Service, 5 July 2005), http://fpc.state.gov/documents/organization/50162.pdf#search='taiwan%20bush%20us%20arms%20sales.

Evan S. Medeiros and M. Taylor Fravel, "China's New Diplomacy," Foreign Affairs, Vol. 82, No. 6 (2003): 22-35.

Wayne M. Morrison, "China's Economic Conditions" (Washington, DC: Congressional Research Service, May 15, 2006), available at http://fpc.state.gov/documents/organization/67148.pdf.

Wayne M. Morrison, "China-US Trade Issues" (Washington, DC: Congressional Research Service, May 16, 2006), http://italy.usembassy.gov/pdf/other/IB91121.pdf.

Susan L. Shirk, China: Fragile Superpower: How China's Internal Politics Could Derail Its Peaceful Rise (New York: Oxford University Press, 2007)

Footnotes
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1. Wayne M. Morrison, China's Economic Conditions (Washington, DC: Congressional Research Service, May 15, 2006), available at http://fpc.state.gov/documents/organization/67148.pdf.

2. Ibid.

3. Doug Palmer, "China yuan reforms 'agonizingly slow': Zoellick," Reuters, April 17, 2006.

4. Wayne M. Morrison, "China-US Trade Issues" (Washington, DC: Congressional Research Service, May 16, 2006), http://italy.usembassy.gov/pdf/other/IB91121.pdf.

5. Ibid.

6. International Intellectual Property Alliance (IIPA), Special 301 Report: People's Republic of China, February 2006, available at http://www.iipa.com/rbc/2004/2004SPEC301CHINA.pdf.

7'http://www.ustr.gov/Document_Library/Press_Releases/2005/October/USTR_Pursues_WTO_Process_to_Probe_IPR_Enforcement_in_China.html.

8. USTR, "2005 Report to Congress on China's WTO Compliance," available at http://www.ustr.gov/assets/Document_Library/Reports_Publications/2005/asset_upload_file293_8580.pdf#search='ustr%20china%20wto%20compliance'.

9.http://usinfo.state.gov/xarchives/display.html?p=washfile-english&y=2006&m=April&x=20060404170718ajesrom0.3415033&t=livefeeds/wf-latest.html.

10. USTR, "2005 Report to Congress on China's WTO Compliance," available at http://www.ustr.gov/assets/Document_Library/Reports_Publications/2005/asset_upload_file293_8580.pdf#search='ustr%20china%20wto%20compliance'.

11. Department of Defense, Annual Report to Congress: Military Power of the People's Republic of China, 2005, available at http://www.pentagon.mil/pubs/pdfs/China%20Report%202006.pdf.

12. See China's fifth white paper on national security, entitled "China's National Defense in 2004," available from the Information Office of the State Council of the PRC at at http://english.people.com.cn/whitepaper/defense2004/defense2004.html.

13. An English text of the law is available in China Daily at http://english.people.com.cn/200503/14/eng20050314_176746.html.

14. Kerry Dumbaugh, China-US Relations: Current Issues and Implications for US Policy (Washington, DC: Congressional Research Service, 8 June 2006). http://fpc.state.gov/documents/organization/68819.pdf.

15. Shirley A. Kan, Taiwan: Major U.S. Arms Sales Since 1990 (Washington, DC: Congressional Research Service, 5 July 2005), http://fpc.state.gov/documents/organization/50162.pdf#search='taiwan%20bush%20us%20arms%20sales.

16. Kerry Dumbaugh, "China-US Relations: Current Issues and Implications for US Policy" (Washington, DC: Congressional Research Service, 8 June 2006). http://fpc.state.gov/documents/organization/68819.pdf.

17. "Blunt Bush Message for Taiwan," December 9, 2003, CNN, http://edition.cnn.com/2003/ALLPOLITICS/12/09/bush.china.taiwan/index.html.