U.S.-China Relations: An Overview of Policy Issues

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U.S.-China Relations:

An Overview of Policy Issues

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Specialist in Asian Affairs

August 1, 2013

Congressional Research Service

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R41108

CRS Report for Congress

Prepared for Members and Committees of Congress

U.S.-China Relations: An Overview of Policy Issues

Summary

The United States relationship with China touches on an exceptionally broad range of issues,

from security, trade, and broader economic issues, to the environment and human rights.

Congress faces important questions about what sort of relationship the United States should have

with China and how the United States should respond to China’s “rise.” After more than 30 years

of fast-paced economic growth, China’s economy is now the second-largest in the world after that

of the United States. With economic success, China has developed significant global strategic

clout. It is also engaged in an ambitious military modernization drive, including development of

extended-range power projection capabilities. At home, it continues to suppress all perceived

challenges to the Communist Party’s monopoly on power.

In previous eras, the rise of new powers has often produced conflict. China’s new leader Xi

Jinping has pressed hard for a U.S. commitment to a “new model of major country relationship”

with the United States that seeks to avoid such an outcome. The Obama Administration has

repeatedly assured Beijing that the United States “welcomes a strong, prosperous and successful

China that plays a greater role in world affairs,” and that the United States does not seek to

prevent China’s re-emergence as a great power. China, for its part, has pledged to follow “the

path of peaceful development.” Washington has wrestled, however, with how to engage China on

issues affecting stability and security in the Asia-Pacific region. Issues of concern for Washington

include the intentions behind China’s military modernization program, China’s use of its

paramilitary forces and military in disputes with its neighbors over territorial claims in the South

China Sea and East China Sea, and its continuing threat to use force to bring Taiwan under its

control. With U.S.-China military-to-military ties improving but still fragile, Washington has

struggled to convince Beijing that the U.S. policy of rebalancing toward the Asia Pacific is not

intended to contain China. The two countries have cooperated, with mixed results, to address

nuclear proliferation concerns related to Iran and North Korea.

While working with China to revive the global economy, the United States has also wrestled with

how to persuade China to address economic policies the United States sees as denying a level

playing field to U.S. firms trading with and operating in China. High on the U.S. agenda is

commercial cyber espionage that the U.S. government says appears to be directly attributable to

official Chinese actors. Other economic concerns for the United States include China’s apparent

backsliding on its World Trade Organization commitments, its weak protections for intellectual

property rights, and its currency policy. In recent months, the United States has strengthened

cooperation with China on efforts to combat climate change, while continuing to work with China

on the development of clean energy technologies. Human rights remains one of the thorniest

areas of the relationship, with the United States pressing China to ease restrictions on freedom of

speech, internet freedom, religious expression, and ethnic minorities, and China’s leaders

suspicious that the United States’ real goal is to end Communist Party rule.

This report opens with an overview of the U.S.-China relationship, recent developments in the

relationship, Obama Administration policy toward China, and a summary of legislation related to

China in the 113th Congress. The report then reviews major policy issues in the relationship.

Throughout, the report directs the reader to other CRS reports for more detailed information

about individual topics. This report will be updated periodically. A detailed summary of 113th and

112th Congress legislative provisions related to China is provided in appendices.

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U.S.-China Relations: An Overview of Policy Issues

Contents

Overview of U.S.-China Relations .................................................................................................. 1

Recent Developments ...................................................................................................................... 3

June 7-8, 2013: The Presidential Summit in Rancho Mirage, CA ............................................ 3

May 20-June 23, 2013: Reported Leaks Involving Intelligence Collection Programs

and Hong Kong ...................................................................................................................... 3

July 10-11, 2013: The 5th Round of the U.S.-China Strategic and Economic Dialogue ............ 4

July 30-31, 2013: The 18th Session of the U.S.-China Human Rights Dialogue ....................... 5

Obama Administration Policy on China .......................................................................................... 5

The Policy of Strategic Rebalancing to the Asia-Pacific ........................................................... 6

Forging a “New Model of Cooperation” ................................................................................... 7

Bilateral Engagement .............................................................................................................. 10

Multilateral Engagement ......................................................................................................... 11

Public Diplomacy .................................................................................................................... 12

Visa Policy ............................................................................................................................... 13

U.S. Assistance to China ......................................................................................................... 13

Congressional Action Related to China in the 113th Congress ....................................................... 14

Select Policy Issues........................................................................................................................ 14

Security Issues ......................................................................................................................... 14

The U.S.-China Military-to-Military Relationship............................................................ 14

China’s Military Modernization ........................................................................................ 16

Cyber Activities Directed Against U.S. National Defense Programs ................................ 18

China’s Reaction to U.S. Strategic Rebalancing to the Asia-Pacific ................................. 18

Maritime Territorial Disputes ............................................................................................ 20

Exclusive Economic Zone (EEZ) Disputes ....................................................................... 23

Managing North Korea...................................................................................................... 24

Curbing Iran’s Nuclear Program ....................................................................................... 26

Resolving the Crisis in Syria ............................................................................................. 27

Taiwan ..................................................................................................................................... 27

Cross-Strait Relations ........................................................................................................ 30

U.S. Arms Sales to Taiwan ................................................................................................ 31

Economic Issues ...................................................................................................................... 32

Basic Facts About the U.S.-China Economic Relationship............................................... 32

Global Rebalancing and China’s 12th Five-Year Plan ....................................................... 33

Cyber-Enabled Theft of Commercial Information ............................................................ 34

The Bilateral Trade Deficit ................................................................................................ 36

China’s Currency Policy.................................................................................................... 37

China’s Holdings of U.S. Treasuries ................................................................................. 37

China’s Compliance with World Trade Organization (WTO) Commitments ................... 38

China and the WTO Government Procurement Agreement .............................................. 39

Negotiations Over a U.S.-China Bilateral Investment Treaty (BIT) ................................. 39

Chinese Foreign Direct Investment in the United States................................................... 40

China’s Enforcement of Intellectual Property Rights (IPR) .............................................. 41

Climate Change and Energy Cooperation ............................................................................... 41

Democracy Promotion and Human Rights Issues ................................................................... 44

The Annual State Department Human Rights Report on China ........................................ 45

U.S.-China Dialogues on Human Rights........................................................................... 46

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U.S.-China Relations: An Overview of Policy Issues

Xinjiang ............................................................................................................................. 46

Tibet .................................................................................................................................. 47

Tables

Table 1. U.S. Merchandise Trade with China over Time ............................................................... 36

Table A-1. 113th Congress: Laws Enacted Related to China ......................................................... 49

Table A-2. 113th Congress: Simple Resolution Related to China Agreed to in the House............. 50

Table A-3. 113th Congress: Simple Resolution Related to China Agreed to in the Senate ............ 51

Table B-1. 112th Congress: Laws Enacted Related to China ......................................................... 52

Table B-2. 112th Congress: Concurrent Resolution Related to China ............................................ 56

Table B-3. 112th Congress: Simple Resolution Related to China Agreed to in the House............. 56

Table B-4. 112th Congress: Simple Resolutions Related to China Agreed to in the Senate........... 57

Appendixes

Appendix A. Laws and Resolutions Related to China in the 113th Congress ................................ 49

Appendix B. Laws and Resolutions Related to China in the 112th Congress ................................ 52

Appendix C. Select Upcoming Events in the U.S.-China Relationship ........................................ 60

Contacts

Author Contact Information........................................................................................................... 61

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U.S.-China Relations: An Overview of Policy Issues

Overview of U.S.-China Relations

As China’s economic and strategic clout has grown over the last three decades, the United States’

relationship with China has expanded to encompass a broad range of global, regional, and

bilateral issues. With China’s economy now the second largest in the world, Washington seeks

Beijing’s cooperation in rebalancing the global economy and sustaining global growth. It hopes

that China, a fellow permanent member of the United Nations Security Council, will help block

the nuclear ambitions of Iran and North Korea and assist in resolving the crisis in Syria. The

United States also seeks to encourage China to contribute to peace and stability in the AsiaPacific, including in the Taiwan Strait, the South China Sea, and the East China Sea. With the

United States focused on restoring its economic strength, Washington is seeking to achieve a socalled level playing field for U.S. firms that trade with and operate in China; to address cyber

intrusions allegedly originating from China that target commercial and military secrets; and to

stem violations of U.S. intellectual property rights in China. With the United States and China

now the two largest emitters of greenhouse gases, Washington seeks Beijing’s cooperation in

addressing climate change. Finally, while engaging with China’s authoritarian Communist

government, the United States also seeks to promote human rights and the rule of law in China,

including in the ethnic minority regions of Tibet and Xinjiang.

Hanging over the relationship is the larger question of whether, as China grows in economic and

military power, the United States and China can manage their relationship in such a way as to

avoid debilitating rivalry and conflict that have accompanied the rise of new powers in previous

eras. On a visit to the United States in February 2012, Xi Jinping, who became China’s top leader

later in the year, said he had reached a consensus with President Obama and Vice President Biden

that the two countries would establish a “new path of cooperative partnership between major

countries featuring harmonious coexistence, sound interactions and win-win cooperation.”1 Some

principles for this “new model” of U.S.-China relationship are already in place. The Obama

Administration has repeatedly assured China that it “welcomes a strong, prosperous and

successful China that plays a greater role in world affairs,” and China has stated that it “welcomes

the United States as an Asia-Pacific nation that contributes to peace, stability, and prosperity in

the region.”2 But building a relationship that avoids rivalry and conflict remains a work in

progress. Many observers in both Washington and Beijing note deep mistrust on both sides of the

U.S.-China relationship. They note, too, that even as the United States talks of a “new model of

cooperation” with China, it is simultaneously implementing a strategic rebalancing to the AsiaPacific designed, in part, to reassure Asian nations concerned about the strategic implications of

China’s growing power in the region. (See “Forging a “New Model of Cooperation” and “The

Policy of Strategic Rebalancing to the Asia-Pacific” below.)

Xi and his Chinese leadership colleagues assumed their Communist Party posts at the Party’s 18th

Congress in November 2012, and added other posts, in Xi’s case the state presidency, at the

opening session of the 12th National People’s Congress in March 2013. Xi is expected to serve as

president for two five-year terms, until 2023. In their early months in office, Xi and his

colleagues have signaled a strong desire to strengthen the U.S.-China relationship. Xi quickly

The White House, “Remarks by Vice President Biden and Chinese Vice President Xi at the State Department

Luncheon,” press release, February 14, 2012, http://www.whitehouse.gov/photos-and-video/video/2012/02/14/

president-obama-s-bilateral-meeting-vice-president-xi-china#transcript.

Both statements are contained in Joint Statements between the two governments issued in 2009 and 2011.

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accepted President Obama’s invitation to the June 2013 presidential summit, which offered the

opportunity for extended conversation but none of the pomp and circumstance that Chinese

leaders have often demanded for their visits to the United States. China’s new leaders have shown

greater willingness to pressure North Korea over its nuclear program. They have agreed to enter

into a phase of “substantive” negotiations with the United States over a bilateral investment

treaty, dropping some conditions that had stalled negotiations in the past. With the U.S.

government charging that cyber intrusions into U.S. government and private networks are

attributable to official Chinese actors, they agreed to establish a high-level working group on

cybersecurity. They have also committed China’s military to an ambitious schedule of high-level

exchanges and modest operational cooperation with the United States military. China has agreed

to work with the United States to combat global climate change by reducing the consumption and

production of hydrofluorocarbons (HFCs),3 and signed on to a significant joint statement on

climate change.4

Nonetheless, the U.S.-China relationship remains dogged by long-standing mutual mistrust. That

mistrust stems in part from the two countries’ very different political systems. Many in the United

States are uncomfortable with China’s authoritarian system of government and sometimes brutal

suppression of dissent and see continued Communist Party rule in a post-Cold War world as an

anachronism. Some in China believe that when the United States presses China to ease

restrictions on freedom of speech and internet freedom, improve its treatment of religious

practitioners and ethnic minorities, and respect the legal rights of its citizens, the United States’

real goal is to destabilize China and push the Communist Party from power.

Although the U.S. and Chinese economies are heavily interdependent, with two-way trade of

$536 billion in 2012, the two countries’ different economic models have contributed to mistrust.

The state plays a major role in the Chinese economy and state-owned corporations dominate the

ranks of China’s biggest businesses. Unlike the U.S. economy, China’s economy has also in

recent decades depended heavily on exports and investment, rather than consumption, for growth.

Points of contention in the bilateral economic relationship include the United States’ allegations

of Chinese cyberespionage targeting U.S. corporations and government agencies, the related issue

of China’s inability or unwillingness to prevent violations of foreign intellectual property by

Chinese entities, Chinese policies that appear to discriminate against foreign firms, and China’s

currency policy. For their part, PRC officials have criticized the United States for its high levels

of consumption, long-term debt, expansionary monetary policy, and alleged barriers to Chinese

investment in the United States.

Mistrust is particularly pronounced on security matters. The U.S. government sees China’s

military modernization as aimed, in part, at constraining the U.S. military’s freedom of movement

in Asia and deterring U.S. intervention in the event of Chinese use of force against Taiwan. An

immediate concern is that China’s use of coercion in disputes with its neighbors over territory in

the East China Sea and the South China Sea could undermine the stability upon which the

prosperity of the region depends. For their part, some in China’s government have been unnerved

by the late 2011 announcement of a U.S. policy of strategic rebalancing toward Asia, seeing it as

The White House Office of the Press Secretary, “United States and China Agree to Work Together on Phase Down of

HFCs,” press release, June 8, 2013, http://www.whitehouse.gov/the-press-office/2013/06/08/united-states-and-chinaagree-work-together-phase-down-hfcs.

Department of State, “Joint U.S.-China Statement on Climate Change,” press release, April 13, 2013,

http://www.state.gov/r/pa/prs/ps/2013/04/207465.htm.

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emboldening China’s rivals in territorial disputes and seeking to constrain the activities of the

Chinese military. The most long-standing source of grievance for China on the security side of the

bilateral relationship is U.S. policy toward Taiwan, which many in China see as intended to

thwart the PRC’s unification with Taiwan, a cherished PRC goal.

Recent Developments

June 7-8, 2013: The Presidential Summit in Rancho Mirage, CA

As noted above, President Obama and China’s President Xi met June 7-8, 2013, for an unusual

informal-style summit at the Sunnylands Estate in Rancho Mirage, CA. It was their first face-toface meeting since Xi took office as General Secretary of China’s Communist Party in November

2012 and as State President in March 2013. Without the rapidly arranged summit, the two

presidents would not have been scheduled to meet until the G-20 meeting in St. Petersburg,

Russia, in September 2013. The two men held nearly eight hours of discussions over the two

days, a length of time that allowed them to explore a wide range of topics. For the Obama

Administration, one highlight of the meeting was what then-National Security Advisor Tom

Donilon described as “quite a bit of alignment” in the two leaders’ positions on North Korea’s

nuclear program. After the summit, Donilon also reported that China now “acknowledged” U.S.

concerns about what Donilon termed “cyber-enabled economic theft” by entities in China.5 In

addition, the two sides announced at the summit the agreement to work together and with other

countries to reduce their production and consumption of hydrofluorocarbons (HFCs), greenhouse

gases that contribute to climate change.

May 20-June 23, 2013: Reported Leaks Involving Intelligence

Collection Programs and Hong Kong

In an interview with Britain’s Guardian newspaper released on June 8, 2013, Edward Snowden, a

former contractor for the National Security Agency, claimed responsibility for leaks to the paper

of classified information about U.S. government intelligence collection programs. He also

revealed that he was in the Chinese Special Administrative Region (SAR) of Hong Kong, having

flown there from his home in Hawaii on May 20, 2013.6 The United States government

subsequently requested that the Hong Kong government arrest Snowden. According to White

House spokesman Jay Carney, Hong Kong authorities acknowledged receipt of the U.S. request

on June 17, 2013, and then, on June 21, 2013, requested additional information about the U.S.

charges. While the U.S. government was “in the process of responding” to the request for

additional information, and after the United States government had informed Hong Kong that it

The White House Office of the Press Secretary, “Press Briefing by National Security Advisor Tom Donilon,”

transcript, June 8, 2013, http://www.whitehouse.gov/the-press-office/2013/06/09/press-briefing-national-securityadvisor-tom-donilon.

Glenn Greenwald, Ewen MacAskill, and Laura Poitras, “Edward Snowden: The Whistleblower Behind the NSA

Surveillance Revelations,” The Guardian, June 8, 2013, http://www.guardian.co.uk/world/2013/jun/09/edwardsnowden-nsa-whistleblower-surveillance. For additional information, see Office of the Director of National

Intelligence, DNI Statement on Recent Unauthorized Disclosures of Classified Information, June 6, 2013,

http://www.dni.gov/index.php/newsroom/press-releases/191-press-releases-2013/868-dni-statement-on-recentunauthorized-disclosures-of-classified-information.

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had revoked Snowden’s U.S. passport, according to Carney, Hong Kong authorities on June 23,

2013, allowed Snowden to board a commercial flight to Moscow, apparently honoring a

temporary travel pass provided to Snowden by the consul at the Embassy of Ecuador in London.7

Carney indicated that the White House believed the Chinese central government in Beijing was

involved in the decision to allow Snowden to leave Hong Kong. “[W]e are just not buying that

this was a technical decision by a Hong Kong immigration official,” Carney told reporters. “This

was a deliberate choice by the government to release a fugitive despite a valid arrest warrant, and

that decision unquestionably has a negative impact on the U.S.-China relationship.”8 A series of

Administration officials have since professed themselves “disappointed” by China’s handling of

the case.”9 According to Chinese State Councilor Yang Jiechi, “The Hong Kong SAR government

has handled the Snowden case in accordance with law, and its approach is beyond reproach.”10

For more information, see CRS Report R43134, NSA Surveillance Leaks: Background and Issues

for Congress, by Marshall Curtis Erwin and (name redacted).

July 10-11, 2013: The 5th Round of the U.S.-China Strategic and

Economic Dialogue

The fifth round of the two countries’ premier dialogue mechanism, the Strategic and Economic

Dialogue (S&ED), took place in Washington, DC, on July 10 and 11, 2013. It was preceded by

the third meeting of the bilateral Strategic Security Dialogue on July 9, and by the first meeting of

the two countries’ new Cybersecurity Working Group on July 8. This round of the S&ED was

presided over by new co-chairs from each government, reflecting the recent political transitions in

each country. One notable outcome of the dialogue, among many dozens of outcomes reported,

was China’s announced interest in entering into the stage of “substantive” negotiations over a

bilateral investment treaty (BIT) with the United States. Outcomes from the 5th Round of the

S&ED are discussed in multiple sections of this report.

Rory Carroll, “Ecuador Says It Blundered over Snowden Travel Document: Ecuador’s President Reveals the

Whistleblower Was Granted a Temporary Travel Card at 4am ‘Without Authorisation or Validity’,” The Guardian,

July 2, 2013, http://www.guardian.co.uk/world/2013/jul/02/ecuador-rafael-correa-snowden-mistake?

The White House Office of the Press Secretary, “Daily Briefing by Press Secretary Jay Carney, 6/24/2013,”

transcript, June 24, 2013, http://www.whitehouse.gov/the-press-office/2013/06/24/daily-briefing-press-secretary-jaycarney-6242013.

Defense Secretary Chuck Hagel, for example, stated, “We’re very disappointed in the—in the Chinese government in

how they’ve handled this. And it could have been handled a different way.” Department of Defense, “Department of

Defense Press Briefing by Secretary Hagel and Gen. Dempsey from the Pentagon Briefing Room,” press release, June

26, 2013, http://www.defense.gov/transcripts/transcript.aspx?transcriptid=5265. Deputy Secretary of State William J.

Burns stated that the United States was “very disappointed with how the authorities in Beijing and Hong Kong handled

the Snowden case, which undermined our effort to build the trust needed to manage difficult issues.” U.S. Department

of State, “The U.S.-China Closing Statements for U.S-China Strategic and Economic Dialogue,” press release, July 11,

2013, http://www.state.gov/s/d/2013/211850.htm.

U.S. Department of State, “The U.S.-China Closing Statements for U.S-China Strategic and Economic Dialogue,”

press release, July 11, 2013, http://www.state.gov/s/d/2013/211850.htm.

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July 30-31, 2013: The 18th Session of the U.S.-China

Human Rights Dialogue

The 18th session of the bilateral human rights dialogue opened in Kunming, the capital of China’s

Yunnan Province, on July 30, 2013. Acting Assistant Secretary for Democracy, Human Rights,

and Labor Uzra Zeya led the U.S. delegation and Chinese Ministry of Foreign Affairs Department

of International Organizations and Conferences Director-General Li Junhua led the Chinese

delegation.11

For a list of select upcoming events in the bilateral relationship, see Appendix C.

Obama Administration Policy on China

With some in the United States concerned that a rising China poses challenges to the U.S.

economy and to U.S. global leadership, and with many in China believing that the United States

feels threatened by China’s growing economic and military might, President Obama has declared

that the United States welcomes China’s “peaceful rise.” Meeting with his Chinese counterpart in

June 2013, Obama stated that, “it is very much in the interest of the United States for China to

continue its peaceful rise, because if China is successful, that helps to drive the world economy

and it puts China in the position to work with us as equal partners in dealing with many of the

global challenges that no single nation can address by itself.”12 Building on that belief, the Obama

Administration has sought to expand cooperation with China on a wide range of issues, seizing

opportunities for high-level bilateral meetings and adding to the existing plethora of bilateral

dialogue mechanisms.

At the same time, the Administration’s China policy has focused on ways to ensure that China’s

rise is, indeed, peaceful, and that it does not undermine the stability of the world’s most

economically dynamic region or the integrity of the international system. The Administration has

sought to encourage China to abide by international norms, in part through engagement in

multilateral fora. At the same time, the Administration has stepped up its engagement in Asia as

part of its policy of strategic rebalancing, seeking to “give comfort to countries uncertain about

the impact of China’s rise and provide important balance and leadership,” in the words of a

former senior Obama Administration official.13 The Administration has stated that human rights is

a priority in the relationship, but some observers believe that U.S. government advocacy on rights

issues has taken a back seat to the focus on trying to shape Chinese behavior in the economic,

security, and environmental arenas.

Recognizing that China is more than the Chinese Communist Party and the government

bureaucracy, the Administration has expanded its public diplomacy, particularly its electronic

outreach, in order to engage more directly with the Chinese public. It has also overhauled its visa

U.S. Department of State, press release, July 26, 2013, http://www.state.gov/r/pa/prs/ps/2013/07/212477.htm.

The White House Office of the Press Secretary, “Remarks by President Obama and President Xi Jinping of the

People’s Republic of China After Bilateral Meeting,” transcript, June 8, 2013, http://www.whitehouse.gov/the-pressoffice/2013/06/08/remarks-president-obama-and-president-xi-jinping-peoples-republic-china-.

Jeffrey A. Bader, Obama and China’s Rise: An Insider’s Account of America’s Asia Strategy (The Brookings

Institution, 2012), p. 4.

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processing services, to facilitate more travel to the United States by Chinese officials and the

Chinese public alike.

The Policy of Strategic Rebalancing to the Asia-Pacific

In the fall of 2011, the Obama Administration announced that with the wars in Iraq and

Afghanistan winding down, the United States was, in President Obama’s words, “turning our

attention to the vast potential of the Asia Pacific region.”14 Then-Secretary of State Hillary

Clinton described economics as a major motivation for the rebalancing, writing that, “Open

markets in Asia provide the United States with unprecedented opportunities for investment, trade,

and access to cutting edge technology,” and arguing that, “Our economic recovery at home will

depend on exports and the ability of American firms to tap into the vast and growing consumer

base in Asia.”15 Another major motivation for the rebalance was the desire to shape the

development of norms and rules in the Asia-Pacific and, although articulated less explicitly, to

shape China’s choices as a rising power, while offering reassurance to China’s neighbors through

intensive U.S. engagement in the region.

The military component of the Administration’s rebalancing strategy was outlined in a January

2012 Defense Strategic Guidance.16 The Guidance described plans to strengthen U.S. treaty

alliances in the region—with Japan, South Korea, Australia, the Philippines, and Thailand—and

to expand cooperation with “emerging partners” in order to “ensure collective capability and

capacity for securing common interests.” The Guidance specifically stated that the United States

was “investing in a long-term strategic partnership with India”—a country with which China

fought a war in 1962 and with which China continues to have territorial disputes and a wary

relationship—“to support its ability to serve as a regional economic anchor and provider of

security in the broader Indian Ocean region.” In a paragraph related to China, the document

pledged that the United States would work with its allies and partners “to promote a rules-based

international order that ensures underlying stability and encourages the peaceful rise of new

powers, economic dynamism, and constructive defense cooperation.” Chinese commentators

quickly noted that the document grouped China and Iran together as countries that “will continue

to pursue asymmetric means to counter our power projection capabilities.... ”

Under the rebalancing policy, the Administration has announced a series of moves including new

troop rotations to Australia, naval deployments in Singapore, and military engagements with the

Philippines; stepped up its engagement with regional multilateral institutions; expanded relations

with such “emerging powers” as India, Indonesia, and Vietnam; pursued a new relationship with

Burma; and pushed to expand free trade with Asian nations through the Trans-Pacific Partnership

(TPP). Confirming the Administration’s continued commitment to the rebalancing at the start of

President Obama’s second term, then-National Security Advisor Thomas Donilon stated in

November 2012 that the vision for Asia driving the rebalancing strategy was for a region “where

the rise of new powers occurs peacefully, [where] the freedom to access the sea, air, space, and

cyberspace empowers vibrant commerce, where multinational forums help promote shared

The White House Office of the Press Secretary, “Remarks by President Obama to the Australian Parliament,” press

release, November 16, 2012.

Hillary Clinton, “America’s Pacific Century,” Foreign Policy, November 2011.

U.S. Department of Defense, Sustaining U.S. Global Leadership: Priorities for 21st Century Defense, Washington,

DC, January 2012.

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values, and where citizens increasingly have the ability to influence their governments, and

universal human rights are upheld.... ”17

A common criticism of the rebalancing policy is that it may be unnecessarily antagonizing China

while leading U.S. allies and partners—among them the Philippines, Japan, and Vietnam—to

believe that they have more U.S. support in their disputes with China than the United States is

actually prepared to offer. Those who subscribe to this criticism believe that the rebalancing is

over-focused on military elements and may be eroding already limited U.S.-China strategic trust

and feeding regional instability, rather than minimizing it.18 Other critics suggest that the military

side of the rebalancing may be insufficiently robust, resulting in a U.S. policy that is the

equivalent of “speak loudly and carry a shrinking stick.”19 (For discussion of China’s reaction to

the rebalance, see below, “China’s Reaction to U.S. Strategic Rebalancing to the Asia-Pacific”.)

For more information, see CRS Report R42448, Pivot to the Pacific? The Obama

Administration’s “Rebalancing” Toward Asia, coordinated by (name redacted).

Forging a “New Model of Cooperation”

According to one scholar, “In 11 of 15 cases since 1500 in which a rising power rivaled a ruling

power, the outcome was war.”20 Mindful of that history, China’s new top leader, President Xi

Jinping, has pressed for a U.S. commitment to a “new model” of U.S.-China relationship that

explicitly seeks to avoid strategic rivalry or conflict between a rising China and this era’s

established power, the United States. The desire for such a commitment appears to reflect

President Xi’s concern that facing myriad challenges at home, including a slowing economy and

dangerously high levels of local government debt, China cannot afford debilitating rivalry with

the United States. Talk of the “new model” relationship has come to dominate Chinese discourse

about the relationship with the United States, with Chinese elites deriving reassurance about U.S.

intentions from reported high-level U.S. agreement on the concept. The “new model” language is

less prominent in U.S. discourse about the relationship with China, with senior U.S. officials

sometimes portraying the concept as a Chinese proposal about which the United States still has

questions, creating a potentially significant gap in expectations.21

U.S. National Security Adviser Thomas Donilon, President Obama’s Asia Policy and Upcoming Trip to the Region,

Center for Strategic and International Studies (CSIS), November 15, 2012, http://csis.org/files/attachments/

121511_Donilon_Statesmens_Forum_TS.pdf.

Robert S. Ross, “Obama’s New Asia Policy Is Unnecessary and Counterproductive,” Foreign Affairs, vol. 91, no. 6

(November/December 2012), pp. 70-82.

Bruce Klingner and Dean Cheng, “U.S. Asian Policy: America’s Security Commitment to Asia Needs More Forces,”

The Heritage Foundation, August 7, 2012.

Graham T. Allison, “Obama and Xi Must Think Broadly to Avoid a Classic Trap,” The New York Times, June 6,

2013.

At a briefing before the opening of the 5th Round of the Strategic and Economic Dialogue in July 2013, for example,

a senior Administration official, speaking on background, responded to a question about the “new model” relationship

by saying, “We have in a number of senior-level discussions over the last few months heard the Chinese talk about a

new type of relationship.... I think it’s important to ask the Chinese side what they—how they would define this

expression.... [I]f we are going to establish a new type of relationship, what we would like to see is something more

concrete in terms of cooperation.... [W]e understand the Chinese side has an interest in realizing a new type of

relationship. But the key for us is to find a way to do that and to build confidence between our two sides so we can

actually achieve what we hope to.” U.S. Department of State, “Background Briefing on the Upcoming Strategic and

Economic Dialogue and U.S.-China Relations,” transcript, July 8, 2013, http://www.state.gov/r/pa/prs/ps/2013/07/

(continued...)

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U.S.-China Relations: An Overview of Policy Issues

As noted above, on a visit to the United States as vice president in February 2012, Xi reported

that he had reached “important consensus” with his hosts, President Obama and Vice President

Biden, that the two countries should “open a new path of cooperative partnership between major

countries featuring harmonious coexistence, sound interactions and win-win cooperation.”22

Following his summit meeting with President Obama in June 2013, Xi re-stated the concept,

saying that, “China and the United States must find a new path—one that is different from the

inevitable confrontation and conflict between the major countries of the past. And that is to say

the two sides must work together to build a new model of major country relationship based on

mutual respect and win-win cooperation.”23 President Obama used language that seemed to echo

Xi’s before the start of the June 2013 summit, when he said that he saw the meeting as an

opportunity to discuss “how we can forge a new model of cooperation between countries based

on mutual interest and mutual respect.”24 Senior Chinese officials described the two presidents as

having “reached an important agreement” at the summit to work toward the new model of

relationship, and asserted that this reported agreement has “charted the course” for the future of

the relationship.25

While both countries share a goal of a relationship that avoids conflict, U.S. officials have so far

offered only general principles as a guide to forging such a relationship. Fielding a question about

the concept during a background briefing before the June 2013 presidential summit, one senior

Obama Administration official suggested that the key would be having “the ability to work well

in some areas even when we’re in competition or have strong differences in other areas.” The

official cited the example of recent “constructive cooperation” with China on North Korea at the

same time as the United States was raising concerns with China about official Chinese actors’

alleged involvement in cyber-enabled theft of U.S. commercial information. Another senior

Administration official, speaking on background during the same briefing, suggested that forging

such a relationship would require having “bilateral mechanisms” in place to allow the two

countries “to deal with the greatest sources of instability and competition that could take this

relationship down the pathway toward rivalry.”26

(...continued)

211606.htm.

The White House, “Remarks by Vice President Biden and Chinese Vice President Xi at the State Department

Luncheon,” press release, February 14, 2012, http://www.whitehouse.gov/photos-and-video/video/2012/02/14/

president-obama-s-bilateral-meeting-vice-president-xi-china#transcript. In the months after Xi’s 2012 visit to the

United States, English-language commentaries in official Chinese news outlets often described the relationship that

China sought with the United States as a “new type of great power relations.” China has now dropped that translation,

using the term “major country relationship” instead of “great power relations.” The Chinese phrase, “xin xing da guo

), has remained constant. See, for example, “Building New Type of Great Power Relations

guanxi” (

Between China, US,” People’s Daily Online, November 16, 2012, http://english.peopledaily.com.cn/90883/

8022064.html.

The White House Office of the Press Secretary, “Remarks by President Obama and President Xi Jinping of the

People’s Republic of China Before Bilateral Meeting,” transcript, June 7, 2013.

See remarks by Vice Premier Wang Yang and State Councilor Yang Jiechi, in U.S. Department of State, “U.S.-China

Strategic and Economic Dialogue Joint Opening Session,” transcript, July 10, 2013, http://www.state.gov/secretary/

remarks/2013/07/211773.htm.

The White House Office of the Press Secretary, “Background Conference Call by Senior Administration Officials on

the President’s Meetings with President Xi Jinping of China,” transcript, June 4, 2013, http://www.whitehouse.gov/thepress-office/2013/06/04/background-conference-call-senior-administration-officials-presidents-me.

新型大国关系

Congressional Research Service

U.S.-China Relations: An Overview of Policy Issues

For China, the new model of relationship involves more specific commitments. According to

China’s top diplomat, State Councilor Yang Jiechi, at the June 2013 summit, President Xi

summed up the meaning of the new model of relationship for President Obama in three sentences:

“seek no conflicts and no confrontation,” “have respect for each other,” and “conduct cooperation

for win-win results.” Yang explained that “have respect for each other” meant that the two

countries should “respect each other’s social system and development road, respect each other’s

core interests and significant concerns, and make common progress through seeking common

points while reserving differences.”27

Acquiescing to China’s demand for “respect” on those terms would require a major reorientation

of U.S. policy. China routinely uses the language of “social system and development road” to

refer to Chinese Communist Party rule. China’s demand for such respect would thus need to be

reconciled with the United States’ longstanding commitment to democracy promotion and

universal human rights. China has defined its “core interests,” meanwhile, to include not just

maintaining Communist Party rule, but also safeguarding China’s “sovereignty and security,

territorial integrity, and national unity,” and sustaining China’s economic and social

development.28 Sovereignty, China has made clear, refers not just to the People’s Republic of

China’s sovereignty over the mainland China, but also the PRC’s claims to sovereignty over

Taiwan and disputed maritime territories in the South China Sea and the East China Sea. China’s

quest for U.S. respect for its core interests thus potentially challenges:

•

U.S. commitments to Taiwan as described in the Taiwan Relations Act (P.L. 968);

•

the U.S. security treaty commitment to ally Japan over islets in the East China

Sea whose sovereignty is disputed among Japan, China, and Taiwan;

•

U.S. support for treaty ally the Philippines, which is involved in territorial

disputes with China; and,

•

in the case of Chinese use of force to assert its sovereignty claims, the U.S.

“national interest” in peace and stability, respect for international law, freedom of

navigation, and unimpeded lawful commerce in the South China Sea, where

China is involved in territorial disputes with multiple countries.

Finally, China frequently uses the term “national unity” in the context of Tibetan areas of China

and the Xinjiang region in China’s northwest. In seeking respect for China’s core interests,

including safeguarding national unity, China may hope, therefore, that the U.S. government will

refrain from speaking out about conditions in Tibet and Xinjiang, and foreswear meetings with

Tibet’s exiled spiritual leader, the Dalai Lama, whom China accuses of advocating for Tibetan

independence.

Notably, although China has proposed that the United States and China respect each other’s “core

interests,” the United States has never explicitly defined its “core interests,” raising questions

about what China considers them to be.

Yang Jiechi’s Remarks on the Results of the Presidential Meeting between Xi Jinping and Obama at the Annenberg

Estate, press release, June 9, 2013, http://www.fmprc.gov.cn/eng/zxxx/t1049263.shtml.

Dai Bingguo, “Persisting with Taking the Path of Peaceful Development,” Review Volume on “Chinese Communist

Party Central Committee’s Suggestions on Setting the Twelfth Five Year Plan for the National Economy and Social

Development,” December 6, 2010.

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Bilateral Engagement

The pace of U.S.-China bilateral interaction at the most senior level has increased dramatically in

recent years. In the 30 years from 1979, the year the United States and China established

diplomatic relations, until the Obama Administration took office in January 2009, the top leaders

of the United States and China met 24 times. In the first term of the Obama Administration alone,

President Obama and his then-counterpart, Chinese President Hu Jintao, met 12 times. The

greater frequency of meetings is related in large part to expanded opportunities to meet on the

sidelines of multilateral meetings. At one time, the only multilateral meetings regularly attended

by the leaders of both countries were annual meetings of the United Nations General Assembly

and, starting in 1993, Asia Pacific Economic Cooperation (APEC) Leaders’ Meetings. Today, the

two countries’ leaders also meet at G-20 summits, nuclear security summits, and since 2012, at

East Asia Summits. Exchanges of visits also happen with more frequency now than in the past.

President Obama visited China in his first year in office, in 2009, and President Hu made a state

visit to the United States in January 2011. Their vice presidents, Joe Biden and Xi Jinping,

exchanged visits in 2011 and 2012. The first meeting between President Obama and Xi Jinping

since Xi became China’s President in March 2013 took place June 7-8, 2013, in California.

A hallmark of the U.S.-China relationship under the Obama Administration has been the

proliferation of bilateral dialogue mechanisms, building on an already robust set of dialogues

inherited from the George W. Bush Administration. The U.S. government has not published a

comprehensive list, but the Chinese government and state media refer to China and the United

States being involved in “over 90” bilateral dialogue and consultation mechanisms.29 The Obama

Administration argues that the dialogues allow U.S. and Chinese officials to understand each

other’s positions better on a wide range of issues, a first step to finding areas of common interest

and managing differences. Dialogue on strategic issues remains limited, however, with U.S.

officials sometimes complaining that even at the height of the Cold War, the United States and the

Soviet Union had closer consultation on strategic issues, such as nuclear weapons policy, than the

United States and China do now.

The relationship’s highest-profile regularly scheduled dialogue is the annual Strategic and

Economic Dialogue (S&ED), created in 2009 by combining two previously existing dialogues.30

On the U.S. side, the Secretary of State leads the strategic track of the dialogue and the Secretary

of the Treasury leads the economic track. In 2011 the two countries inaugurated a Strategic

Security Dialogue (SSD) under the S&ED, co-chaired by the U.S. Deputy Secretary of State and

the Chinese Executive Vice Foreign Minister, and including the Under Secretary of Defense for

Policy and a Deputy Chief of the People’s Liberation Army General Staff. A first ever “informal

round” of the SSD is scheduled for later in 2013. Other high-profile dialogues include the U.S.China Consultation on People-to-People Exchange (CPE), established in 2010, and three

dialogues established before President Obama took office: the Joint Commission on Commerce

and Trade (JCCT), the Ten-Year Framework on Energy and Environment Cooperation, and

the Joint Committee on Environmental Cooperation.31 To broaden interaction to the sub-national

Yang Jiechi’s Remarks on the Results of the Presidential Meeting between Xi Jinping and Obama at the Annenberg

Estate, press release, June 9, 2013, http://www.fmprc.gov.cn/eng/zxxx/t1049263.shtml.

The S&ED was created by combining the State Department’s U.S.-China Senior Dialogue (known in China as the

China-U.S. Strategic Dialogue), established in 2005, and the Treasury Department’s Strategic Economic Dialogue,

created in 2006.

See JCCT factsheet at http://www.export.gov/china/policyadd/jcct.asp?dName=policyadd.

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U.S.-China Relations: An Overview of Policy Issues

level, the U.S. and Chinese governments in 2011 instituted a U.S.-China Governors Forum,

intended to help deepen relationships between U.S. governors and Chinese provincial officials,32

and an Initiative on City-Level Economic Cooperation, bringing together U.S. mayors and

Chinese mayors and Party Secretaries. A separate program for mayors, initiated in 2010 by the

U.S. Department of Energy and the Ministry of Housing and Urban Development, brings together

mayors from the two countries “to examine best practices in eco-city development.”33

Multilateral Engagement

As a means of encouraging China to adhere to international norms and “assume responsibilities

commensurate with its growing global impact and its national capabilities,” in the words of

President Obama’s then-National Security Advisor, Tom Donilon,34 the Obama Administration

has consciously sought to engage with China in multilateral settings. The United States and China

are fellow permanent members of the U.N. Security Council and have worked together

successfully in that setting to pass sanctions targeting North Korea and Iran’s nuclear programs,

although China has also blocked some proposed Security Council actions sought by the United

States, most notably a series of actions related to Syria. The Obama Administration elevated the

profile of the G-20 grouping of major economies in part to have a vibrant multilateral forum for

engaging with China on economic issues. In addition, the United States has sought to resolve

trade disputes with China through the rules-based mechanisms of the World Trade Organization,

and engaged with China on climate change through meetings of parties to the U.N. Framework

Convention on Climate Change. Washington has also urged Beijing to follow norms on aid,

export credit finance, and overseas investment established by the Paris-based Organization for

Economic Cooperation and Development (OECD), although China is not an OECD member, and

to accept principles related to freedom of navigation contained in the United Nations Convention

on the Law of the Sea (UNCLOS), although the United States itself has not ratified the treaty.35

In Asia, the United States has prioritized its own attendance at meetings of regional multilateral

groups, including the East Asia Summit, which the United States joined in 2011, in part to be able

to engage China in those settings. The advantage of the multilateral settings of regional

institutions, then-Secretary of State Hillary Clinton opined in 2011, is that, “responsible behavior

is rewarded with legitimacy and respect, and we can work together to hold accountable those who

take counterproductive actions to peace, stability, and prosperity.”36

Office of the Spokesperson, Department of State, “U.S.-China Governors Forum Convenes in Utah,” press release,

July 15, 2011, http://www.state.gov/r/pa/prs/ps/2011/07/168613.htm.

U.S. Department of State, “U.S.-China Strategic and Economic Dialogue Outcomes of the Strategic Track,” press

release, July 12, 2013, http://www.state.gov/r/pa/prs/ps/2013/07/211861.htm.

The White House Office of the Press Secretary, “Remarks by National Security Advisor Tom Donilon—As Prepared

for Delivery: President Obama’s Asia Policy and Upcoming Trip to Asia,” November 15, 2013,

http://www.whitehouse.gov/the-press-office/2012/11/15/remarks-national-security-advisor-tom-donilon-prepareddelivery.

Jeffrey A. Bader, Obama and China’s Rise: An Insider’s Account of America’s Asia Strategy, Brookings Institution

Press, 2012, p. 70.

Secretary of State Hillary Rodham Clinton, “A Broad Vision of U.S.-China Relations in the 21st Century,” Inaugural

Richard C. Holbrooke Lecture, Washington, DC, January 14, 2011.

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U.S.-China Relations: An Overview of Policy Issues

Public Diplomacy

The U.S. Department of State operates multiple Chinese-language blogs and microblogs on

Chinese platforms in an effort to circumvent often heavy-handed Chinese censorship of the

traditional news media and reach out directly to the Chinese public with messages about U.S.

policy. The Embassy’s flagship microblogs each have nearly 700,000 registered followers.37

When followers of U.S. government blogs re-post U.S. blog posts for their own followers, the

U.S. government is sometimes able to reach directly many millions of Chinese who might not

otherwise be exposed to U.S. government messages. That said, although the range of permitted

expression on Chinese social media is broader than in traditional media, China-based microblog

accounts are still subject to Chinese censorship. In July 2012, a Chinese microblog service

disabled a popular microblog operated by the U.S. Consulate General in Shanghai, presumably

because government censors felt uncomfortable with the material the Consulate General was

posting.38

The State Department also operates Chinese-language accounts on the online social networking

service Twitter, which is based in the United States and does not censor content. The U.S.

government posts on Twitter sensitive information that is often censored on Chinese social media,

such as U.S. government speeches related to human rights and Internet freedom. The Chinese

government’s policy of blocking access to Twitter from inside China reduces the service’s reach

in the country, but technologically savvy Chinese are able to use virtual private networks to evade

the blocking technologies. The Chinese-language Twitter account operated by the State

Department’s Bureau of International Information Programs (IIP), @meiguocankao, currently has

just over 38,000 followers, a small fraction of the followers of the U.S. Embassy microblogs in

China. A second account operated by the State Department’s Bureau of Public Affairs,

@USA_Zhongwen, has just 2,440 followers.

Of longer standing are U.S. government efforts to reach out to the Chinese public through

programming produced by Radio Free Asia (RFA) and the Voice of America (VOA). Both are

overseen by the Broadcasting Board of Governors (BBG), an independent entity responsible for

all U.S. government and government-sponsored non-military international broadcasting. RFA’s

stated mission is “to provide accurate and timely news and information to Asian countries whose

governments prohibit access to a free press.”39 The Chinese government routinely seeks to block

RFA programming from reaching the Chinese public, has not allowed RFA to open a permanent

office in China, and denies RFA journalists temporary visas to report in China.40 VOA’s mandate

is to “present a balanced and comprehensive view of significant American thought and

institutions” and “clearly present the policies of the United States.”41 VOA has had a permanent

When accessed on July 29, 2013, the Embassy’s Sina microblog, http://weibo.com/usembassy, had 699,750

followers, while the Embassy’s Tencent microblog, http://e.t.qq.com/USEmbassy, had 667,047 followers.

William Gallo, “In Shanghai, US Consulate’s Microblog Disappears,” Voice of America, July 13, 2012.

Broadcasting Board of Governors, “RFA President Responds to Press Freedom Findings,” press release, May 3,

2012, http://www.bbg.gov/press-release/rfa-president-responds-to-freedom-of-the-press-findings/.

The Heritage Foundation, “H.R. 2899 ‘Chinese Media Reciprocity Act of 2011,’” Testimony before the House

Judiciary Subcommittee on Immigration Enforcement, June 20, 2012, http://judiciary.house.gov/hearings/

Hearings%202012/Zahn%2006202012.pdf. See also John Eggerton, “Radio Free Asia Voice Denied Chinese Visa:

Dhondup Gonzar Has Not Received Entry Permit One Day Before Opening Ceremonies of 2008 Beijing Olympic

Games,” Broadcasting & Cable, August 7, 2008, http://www.broadcastingcable.com/article/97412Radio_Free_Asia_Voice_Denied_Chinese_Visa.php.

Broadcasting Board of Governors, Voice of America, Fact Sheet, http://www.bbg.gov/broadcasters/voa/.

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U.S.-China Relations: An Overview of Policy Issues

office in China since the 1980s, although the Chinese government restricts the number of

accredited journalists VOA is permitted to base in China, allowing only one reporter for the VOA

English-language service, known as Central News, and one reporter for the Chinese service.42 The

Chinese government also routinely seeks to block VOA transmissions. Through appropriations,

Congress has supported the BBG’s efforts to provide Chinese and other audiences whose home

media are subject to censorship with means of accessing the blocked websites of BBG

broadcasters through proxy servers and other tools.

For more information about the Internet in China, see CRS Report R42601, China, Internet

Freedom, and U.S. Policy, coordinated by (name redacted), and CRS Report R41007,

Understanding China’s Political System, by (name redacted) and (name redacted).

Visa Policy

In January 2012, President Obama issued an Executive Order requiring the Secretaries of State

and Homeland Security, in consultation with others, to develop a plan to streamline visa and

foreign visitor processing worldwide, “in order to create jobs and spur economic growth in the

United States, while continuing to protect our national security.” The Executive Order set targets

of increasing non-immigrant visa processing capacity in China and Brazil by 40% over the

subsequent year, and of reducing wait times for visa interviews to within three weeks of receipt of

application in most cases.43 Meeting these goals was a major 2012 focus for the U.S. mission in

China. In FY2012, the U.S. Embassy in Beijing and U.S. consulates in four other Chinese cities

jointly issued 1.2 million non-immigrant visas, an increase of 36% over FY2011.44 China, Brazil,

and Mexico are the only U.S. missions that currently process more than 1 million non-immigrant

visas per year. In addition, in an August 2012 report to the White House, the State Department

reported that it had succeeded in reducing the average wait time for a visa interview in China to

under 10 days, despite the large increase in visa applications.45 The Commerce Department has

predicted a 198% increase in Chinese visitors from 2012 levels by 2016.46

U.S. Assistance to China

The State Department and the U.S. Agency for International Development say they engage China

“primarily as a development partner with the resources to invest in its own future.” U.S.

assistance is designed to “protect and promote U.S. national interests and values,” particularly in

the areas of promoting rule of law, strengthening the judiciary, improving health, and helping

The Heritage Foundation, “H.R. 2899 ‘Chinese Media Reciprocity Act of 2011,’” Testimony before the House

Judiciary Subcommittee on Immigration Enforcement, June 20, 2012.

Executive Order 13597, “Establishing Visa and Foreign Visitor Processing Goals and the Task Force on Travel and

Competitiveness,” 77 Federal Register 3473, January 24, 2012, http://www.gpo.gov/fdsys/pkg/FR-2012-01-24/pdf/

2012-1568.pdf.

U.S. State Department Bureau of Consular Affairs, Table XIX: Nonimmigrant Visas Issued by Issuing Office

(Including Border Crossing Cards) Fiscal Years 2003-2012, Report of the Visa Office 2012,

http://www.travel.state.gov/pdf/FY12AnnualReport-TableXIX.pdf.

Department of State and Department of Homeland Security, Executive Order 13597: Improvements to Visa

Processing and Foreign Visitor Processing 180-Day Progress Report, August 2012.

Department of State and Department of Homeland Security, Executive Order 13597: Improvements to Visa

Processing and Foreign Visitor Processing 180-Day Progress Report, August 2012.

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Tibetan communities.47 Appropriations for assistance to China peaked in FY2010 at $46.9

million. FY2012 funding was $28.3 million, or 60% of the 2010 level. Most direct recipients of

State Department and U.S. Agency for International Development (USAID) grants have been

U.S.-based nongovernmental organizations (NGOs) and universities.

See CRS Report RS22663, U.S. Assistance Programs in China, by (name redacted).

Congressional Action Related to China in the

113th Congress

The 113th Congress has so far passed two laws with provisions related to China, P.L. 113-6, the

Consolidated and Further Continuing Appropriations Act, 2013, and P.L. 113-17, directing the

Secretary of State to develop a strategy to obtain observer status for Taiwan at the International

Civil Aviation Organization Assembly. On February 15, 2013, the House agreed to a simple

resolution on North Korea (H.Res. 65) that includes provisions related to China. On July 29,

2013, the Senate agreed to a simple resolution reaffirming strong U.S. support for the peaceful

resolution of territorial, sovereignty, and jurisdictional disputes in the Asia-Pacific maritime

domains (S.Res. 167), including multiple references to China. Summaries of all legislation on

China enacted or agreed to in the 113th and 112th Congresses are included as appendices to this

report. (See Appendix A and Appendix B.)

Select Policy Issues

Congress faces challenges in exercising oversight over the United States’ relationship with a

China that is rapidly growing in economic, military, and geopolitical power. Selected policy

issues for Congress related to the bilateral relationship are summarized in the sections below,

starting with security issues and Taiwan, followed by economic issues, climate change and

renewable energy cooperation, and human rights issues.

Security Issues

The U.S.-China Military-to-Military Relationship

Since coming into office, the Obama Administration has repeatedly called for a stronger militaryto-military relationship with China. “Leaving the military dimension of our dialogue

underdeveloped on both sides causes us to run unnecessary risk,” Vice President Joe Biden

argued in July 2013, observing that China’s military is expanding its presence in Asia at the same

time that the United Sates is implementing its rebalancing to the Asian Pacific, bringing the two

U.S. Department of State, The Foreign Assistance Dashboard, http://www.foreignassistance.gov. Note that totals on

the site do not currently include State Department Human Rights and Democracy Fund spending in China or Peace

Corps programs.

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militaries into greater proximity. Dialogue, exchanges, and cooperation between the two

militaries must expand, he said, because “We have to know what each other are doing.”48

A 2009 U.S.-China joint statement issued in the name of President Obama and his counterpart at

the time, then-Chinese President Hu Jintao, pledged the two countries to “take concrete steps to

advance sustained and reliable military-to-military relations in the future.” A 2011 joint statement

similarly pledged the two governments to pursue “a healthy, stable, and reliable military-tomilitary relationship.” Moves to strengthen the military-to-military relationship did not begin to

gain momentum until after the 2011 joint statement, however, as the transition from Hu Jintao to

Xi Jinping as China’s top leader began unfolding. Some analysts believe an unusual visit to the

Pentagon accorded to Xi in February 2012, when he visited the United States as Vice President,

may have helped win his support for more regular exchanges, and that his strong relationship with

the Chinese military has allowed him to bring the Chinese military along with him.

Operational cooperation between the two militaries remains extremely limited, but in remarks in

Singapore in June 2013, Secretary of Defense Hagel characterized dialogue between the two

militaries as “steadily improving.”49 Among the positive developments in the relationship that he

cited in his remarks were the following.

•

Xi’s February 2012 Pentagon visit and visits to China by the chief of the Pacific

Command Navy Adm. Samuel J. Locklear III (July 2012); then-Secretary of

Defense Leon Panetta (September 2012); and Chairman of the Joint Chiefs of

Staff General Martin Dempsey (April 2013);

•

China’s first ever participation as an observer of the U.S.-Philippine Balikatan

joint military exercise in April 2013;

•

A first-ever U.S.-China joint anti-piracy exercise in the Gulf of Aden in

September 2012;

•

A first-ever U.S. invitation to China to participate in the United States’ largest

military exercises in the Pacific, the Rim of the Pacific or RIMPAC exercise, in

the summer of 2014, and China’s April 2013 acceptance of the invitation;

•

An agreement for the United States and China to co-host a Pacific Army Chiefs

Conference for the first time.

Since then, the two governments have agreed that the United States will host a visit from China’s

Minister of National Defense Chang Wanquan in August 2013,50 and from China’s Naval

Commander Wu Shengli in September 2013, and that Hagel will visit China in 2014.51 In June

2013, the two militaries both participated in a humanitarian assistance and disaster relief military

exercise under the auspices of the Association of Southeast Asian Nations Defense Ministers’

U.S. Department of State, “U.S.-China Strategic and Economic Dialogue Joint Opening Session,” press release, July

9, 2013, http://www.state.gov/secretary/remarks/2013/07/211773.htm.

Department of Defense, “Remarks by Secretary Hagel at the IISS Asia Security Summit, Shangri-La Hotel,

Singapore,” June 1, 2013.

U.S. Department of Defense, “Readout of Secretary Hagel’s Meeting with Chinese State Councilor Yang,” press

release, July 12, 2013, http://www.defense.gov/releases/release.aspx?releaseid=16151.

U.S. Department of State, “U.S.-China Strategic and Economic Dialogue Outcomes of the Strategic Track,” press

release, July 12, 2013, http://www.state.gov/r/pa/prs/ps/2013/07/211861.htm.

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Meeting Plus.52 In July 2013, the two countries expanded the agenda of a meeting of the civilianmilitary Strategic Security Dialogue to include two new topics: missile defense and nuclear

policy. The same SSD meeting produced an agreement “to actively explore a notification

mechanism for major military activities” and to continue to discuss rules of the road for air and

maritime activities.”53

Further development of the military-to-military relationship is subject to restrictions imposed by

Congress. The National Defense Authorization Act (NDAA) for Fiscal Year 2000 (P.L. 106-65)

bars exchanges or contacts with China’s military that include “inappropriate exposure” to a range

of subjects, including surveillance and reconnaissance operations and arms sales.54 The provision

remains a major irritant in the bilateral relationship, with Chinese authorities arguing that it

signals U.S. ill will. For its part, China remains wary that closer ties will expose vulnerabilities in

its weaker force. It has also been suspicious of the intentions behind the U.S. policy of

rebalancing to the Asia-Pacific.

For more information, see CRS Report RL32496, U.S.-China Military Contacts: Issues for

Congress, by (name redacted).

China’s Military Modernization

China’s military modernization has been fueled by two decades of steadily increasing military

spending. According to the DOD report to Congress, China’s officially disclosed military budget

increased an average of 9.7% annually in inflation-adjusted terms over the decade from 2003 to

2012. At $114 billion, China’s officially announced budget for 2013 represents an increase of

10.7% over 2012. The Pentagon believes China’s actual military spending is higher than the

officially disclosed figures, with the report to Congress estimating that China’s military spending

for 2012 was in the range of $135 billion to $215 billion.

The United States has long been concerned about the intentions behind China’s military

modernization. In the January 2012 Defense Strategic Guidance that outlined the military

component of the U.S. rebalancing toward the Asia Pacific, for example, the Department of

Defense (DOD) stated that, “The growth of China’s military power must be accompanied by

greater clarity of its strategic intentions in order to avoid causing friction in the region.”55 China

has repeatedly offered assurances that it is committed to peace and to working within the existing

Martin Sieff, “ASEAN Defense Ministers Host Disaster Relief, Military Medicine Exercise,” Asia Pacific Defense

Forum, June 26, 2013, pp. http://apdforum.com/en_GB/article/rmiap/articles/online/features/2013/06/28/asean-disasterrelief.

U.S. Department of State, “U.S.-China Strategic and Economic Dialogue V Strategic Track Select Outcomes,” fact

sheet, July 12, 2013.

The restrictions are contained in Section 1201 of the NDAA for FY2000. They bar military-to-military exchanges or

contacts that include “inappropriate exposure” to 12 operational areas: “1.) Force projection operations; 2.) Nuclear

operations; 3.) Advanced combined-arms and joint combat operations; 4.) Advanced logistical operations; 5.) Chemical

and biological defense and other capabilities related to weapons of mass destruction; 6.) Surveillance and

reconnaissance operations; 7) Joint warfighting experiments and other activities related to a transformation in warfare;

8.) Military space operations; 9.) Other advanced capabilities of the Armed Forces; 10.) Arms sales or military-related

technology transfers; 11.) Release of classified or restricted information; 12.) Access to a Department of Defense

laboratory.”

U.S. Department of Defense, Sustaining U.S. Global Leadership: Priorities for 21st Century Defense, Washington,

DC, January 2012.

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international system, not challenging it. Chinese officials have also stated that China has neither

the desire nor the capability to challenge the United States position in Asia. In comments

following his summit meeting with President Obama in June 2013, President Xi Jinping pledged

that, “China will be firmly committed to the path of peaceful development.” He also reiterated

China’s acceptance of the United States presence in Asia, observing, “When I visited the United

States last year, I stated that the vast Pacific Ocean has enough space for the two large countries

of China and the United States. I still believe so.”56 U.S. officials, however, have pressed China to

move beyond such broad assurances to more transparency about its decisions related to

modernization of the Chinese military.

In its 2013 report to Congress on military developments involving the PRC, the Department of

Defense (DOD) stated that it believed China’s military modernization is “designed to improve the

capacity of [China’s] armed forces to fight and win short-duration, high-intensity regional

military conflict.”57 DOD assessed that the “principal focus and primary driver of China’s

military investment” is preparing for a contingency involving Taiwan, over which the PRC claims

sovereignty. The DOD report observed, though, that China’s military modernization also appears

increasingly focused on developing capabilities for extended-range power projection and

operations in emerging domains such as cyber, space, and electronic warfare, as well as other

missions, including anti-piracy missions, peacekeeping, humanitarian assistance and disaster

relief, and regional military operations.

Of particular concern to the U.S. government are Chinese capabilities that appear aimed at

allowing China to deter intervention by American forces in a conflict in the Western Pacific. The

United States describes such capabilities as being for “anti-access/area-denial” (A2/AD)

missions; Chinese refers to such missions as “counter-intervention operations.” Among Chinese

weapons programs of concern to the United States is China’s “carrier killer” anti-ship ballistic

missile (ASBM) known as the DF-21D. The Pentagon report described the DF-21D as giving the

PLA “the capability to attack large ships, including aircraft carriers, in the western Pacific

Ocean.” China has also test flown an indigenously produced fifth generation stealth fighter

aircraft prototype, the J-20, and appears to be developing a second advanced stealth aircraft,

tentatively identified as the J-31. The DOD report stated that such planes are intended to

strengthen China’s “ability to strike regional airbases and facilities,” presumably including U.S.

military bases in Asia. The military development that has stirred the greatest national pride in

China is the September 2012 commissioning of China’s first aircraft carrier, although it has so far

provided China with more symbolic than real military power. Acquired from Ukraine in 1998, it

was previously known as the Varyag and is now known as the Liaoning. The DOD report to

Congress predicted that the carrier would reach operational effectiveness “in three to four years”

and that, “China will probably build several aircraft carriers over the next 15 years.”

For more information, see CRS Report RL33153, China Naval Modernization: Implications for

U.S. Navy Capabilities—Background and Issues for Congress, by (name redacted).

The White House Office of the Press Secretary, “Remarks by President Obama and President Xi Jinping of the

Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the

People’s Republic of China 2013, May 7, 2013, http://www.defense.gov/pubs/2013_china_report_final.pdf.

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Cyber Activities Directed Against U.S. National Defense Programs

In DOD’s 2013 annual report to Congress on military developments involving China, the U.S.

government for the first time stated that some cyber-intrusions targeting U.S. government and

other computer systems, “appear to be attributable directly to the Chinese government and

military.” The report went on to accuse China of using “computer network exploitation (CNE)”

capabilities to collect intelligence from government and sectors of the U.S. economy that support

U.S. national defense programs. The report did not acknowledge what damage might have been

caused by such intrusions.58 Responding to the allegations in the report, a Chinese Foreign

Ministry spokesperson told reporters, “We resolutely oppose hacking attacks of any form and

stand ready to have calm and constructive dialogue with the U.S. on the cyber security issue.

Unwarranted accusations and hyping will do nothing but undermine our joint efforts for dialogue

and poison the atmosphere.”59

Although DOD has so far accused China only of ex-filtrating information, it has raised concern

about the threat of computer network attacks from China, noting that “the accesses and skills”

required for cyber intrusions are closely related to those needed for attacks.60

For more information about cybersecurity, see “Cyber-Enabled Theft of Commercial

Information” below.

China’s Reaction to U.S. Strategic Rebalancing to the Asia-Pacific

While concerns about cyber security have rapidly emerged as a top concern for the United States

in the U.S.-China relationship, the U.S. strategic rebalance toward the Asia-Pacific is among

China’s top concerns. During a trip to the United States in February 2012, shortly after the

rebalancing strategy was officially launched, President Xi Jinping, then China’s Vice President,

responded with the statement, “China welcomes a constructive role by the United States in

promoting peace, stability and prosperity in the Asia-Pacific. At the same time, we hope the

United States will respect the interests and concerns of China and other countries in this

region.”61 Since then, Chinese officials have repeatedly raised questions about whether the U.S.

Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the

People’s Republic of China 2013, May 7, 2013, p. 36, http://www.defense.gov/pubs/2013_china_report_final.pdf. A

confidential 2013 Defense Science Board document reportedly alleged, however, that 29 DOD system designs,

including the designs for ballistic missile defense systems, and many other defense technologies had been

“compromised via cyber exploitation.” Officials with knowledge of the breaches told The Washington Post, “the vast

majority [of the exploitations] were part of a widening Chinese campaign of espionage against U.S. defense contractors

and government agencies.” Ellen Nakashima, “Confidential Report Lists U.S. Weapons System Designs Compromised

by Chinese Cyberspies,” Washington Post, May 27, 2013, http://www.washingtonpost.com/world/national-security/

confidential-report-lists-us-weapons-system-designs-compromised-by-chinese-cyberspies/2013/05/27/a42c3e1c-c2dd11e2-8c3b-0b5e9247e8ca_story.html.

Ministry of Foreign Affairs of the People’s Republic of China, “Foreign Ministry Spokesperson Hua Chunying’s

Regular Press Conference on May 7, 2013,” transcript, May 13, 2013, http://www.fmprc.gov.cn/eng/xwfw/s2510/2511/

t1038551.shtml.

Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the

People’s Republic of China 2013, May 7, 2013, p. 36, http://www.defense.gov/pubs/2013_china_report_final.pdf.

Vice President Xi Jinping, “Remarks by Chinese Vice President Xi Jinping at a Luncheon Co-hosted by the U.S.China Business Council and the National Committee on U.S.-China Relations,” Federal News Service, February 15,

2012.

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rebalancing is, in fact, contributing to peace, stability, and prosperity, and whether, despite U.S.

assurances to the contrary, it is in fact intended to “contain” China.

July 2012, China’s Vice Foreign Minister with responsibility for the United States, who is now

China’s Ambassador to the United States, co-authored an article with a fellow diplomat raising

questions about the United States’ “true motive” in rebalancing to the Asia-Pacific and demanding

greater reassurance about U.S. intentions. “The United States must face the issue and convince

China, other countries in the region and the international community that there is no gap between

its policy statements on China and its true intentions,” the diplomats wrote. They identified as

particular areas of concern for China the U.S. effort to strengthen the U.S. alliance system in

Asia, U.S. plans to advance ballistic missile defense in the region, the U.S. “air-sea battle

concept”—an effort to increase the joint operating effectiveness of U.S. naval and air units,

particularly in “anti-access” environments, such as those China has allegedly sought to create;

and alleged U.S. intervention in disputes between China and its neighbors.62

That many in China still do not feel reassured was made plain at a security summit in Singapore

in June 2013, when a senior Chinese PLA scholar told Secretary of Defense Hagel that the

rebalance has been interpreted in China as an “attempt to contain China’s rising influence and to

offset the increasing military capabilities of the Chinese PLA.” U.S. government officials “have

on several occasions clarified that the rebalance is not against China,” she noted. “However,

China is not convinced.” The PLA scholar went on to question Hagel on apparent tensions

between the United States’ stated desire to build a more positive relationship with China, and U.S.

plans to step up military deployments in Asia and reassure U.S. allies.63

The most common charge from Chinese critics is that the United States’ higher profile in Asia,

including its deeper engagement with multilateral groupings such as ASEAN and its

strengthening of its military alliances, is destabilizing the region by emboldening countries with

which China has territorial disputes, including Japan, the Philippines, and Vietnam, to press their

claims more assertively. Chinese commentators have been critical, too, of the flagship economic

initiative of the U.S. rebalancing to Asia, the Trans-Pacific Partnership (TPP).64 The TPP has been

characterized in the Chinese media as an initiative that deliberately excludes China, that is

intended to thwart regional economic integration, and that challenges ASEAN’s leadership role in

promoting trade and investment liberalization in the region. Chinese views of the TPP may be

softening, however. At the Obama-Xi summit in June 2013, President Obama agreed to a request

from President Xi for briefings on U.S. progress toward a TPP agreement,65 and at the Strategic

and Economic Dialogue meeting in July, China agreed to move into the “substantive” phase of

Cui Tiankai and Pang Hanzhao, “China-US Relations in China’s Overall Diplomacy in the New Era—On China and

US Working Together to Build a New-Type Relationship Between Major Countries,” China International Strategy

Review 2012, July 20, 2012, http://www.fmprc.gov.cn/eng/zxxx/t953682.htm

The PLA scholar was Major Gen. Yao Yunzhu, Director of the Center for China-America Defense Relations at the

PLA’s Academy of Military Sciences. Department of Defense, “Remarks by Secretary Hagel at the IISS Asia Security

Summit, Shangri-La Hotel, Singapore,” June 1, 2013, http://www.defense.gov/transcripts/transcript.aspx?transcriptid=

5251.

As discussed in other parts of this memorandum, formal U.S. participation in the proposed TPP was initiated under

the Bush Administration. Subsequently, it has become an important part of the Obama Administration’s rebalancing

toward the Asia-Pacific.

The White House Office of the Press Secretary, “Press Briefing by National Security Advisor Tom Donilon,”

transcript, June 8, 2013, http://www.whitehouse.gov/the-press-office/2013/06/09/press-briefing-national-securityadvisor-tom-donilon.

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negotiations over a bilateral investment treaty that would, if the U.S. has its way, mirror the

investment provisions of the TPP.

For more information, see CRS Report R42448, Pivot to the Pacific? The Obama

Administration’s “Rebalancing” Toward Asia, coordinated by (name redacted) and CRS Report

R43116, Ballistic Missile Defense in the Asia-Pacific Region: Cooperation and Opposition, by

(name redacted), (name redacted), and (name redacted).

Maritime Territorial Disputes

China has long placed a high priority on sovereignty and territorial integrity, a priority reflected in

its decades-long effort to bring Taiwan under its control. The same priority has propelled China

into a series of disputes with its neighbors over maritime territory in the South China Sea and

East China Sea. Beijing’s increasing willingness to bring its maritime power and growing

economic clout to bear on those disputes has raised concerns in Asia and among policymakers in

the United States about whether China’s continued rise will be as peaceful as China has long

promised. Two of China’s rival claimants, Japan and the Philippines, are U.S. treaty allies, and the

United States has specifically acknowledged that the U.S. security treaty with Japan covers all

areas under Japanese administration, including islands that are currently at the center of a

territorial dispute between Japan and China.

On July 29, 2013, the Senate passed a resolution (S.Res. 167), reaffirming strong U.S. support for

the peaceful resolution of territorial, sovereignty, and jurisdictional disputes in the Asia-Pacific

maritime domains. China formally complained to the U.S. government about the resolution and a

Chinese Foreign Ministry statement denounced it as “unjustifiably blaming China and sending the

wrong message.”66 (For details of the resolution, see Appendix A.)

For more information, see CRS Report R42930, Maritime Territorial Disputes in East Asia:

Issues for Congress , by (name redacted), (name redacted), and (name redacted) and CRS Report

R42784, Maritime Territorial and Exclusive Economic Zone (EEZ) Disputes Involving China:

Issues for Congress, by (name redacted).

South China Sea

Tensions among rival claimants to territory in the South China Sea (SCS) have emerged as a

major U.S. security concern in the Asia Pacific. China has extensive, though imprecise, claims to

large parts of the SCS, which is believed to be rich in oil and gas deposits as well as fisheries, and

through which a major portion of world’s trade passes. China physically controls the Paracel

Islands and seven reefs among the Spratly Islands.67 Territory claimed by China is also claimed in

part by Brunei, Malaysia, the Philippines, and Vietnam, and in entirety by Taiwan, with the

fiercest territorial disputes being those between China and Vietnam and China and the

Philippines. The SCS is bordered by a U.S. treaty ally, the Philippines, and is a key strategic

waterway for the U.S. Navy.

Ben Blanchard, “China Condemns U.S. Senate over Sea Dispute Resolution,” Reuters, August 1, 2013.

The seven Spratly Islands reefs that China controls are Cuarteron Reef (known in China as Huayang Jiao), Fiery

Cross Reef (Yongshu Jiao), Gaven Reef (Nanxun Jiao), Hugh Reef (Dongmen Jiao), Johnson Reef (Chigua Jiao),

Mischief Reef (Meiji Jiao), and Subi Reef (Zhubi Jiao).

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In July 2010, then Secretary of State Hillary Clinton explicitly declared a U.S. “national interest”

in maintaining freedom of navigation in the SCS. An August 2012 State Department statement

further defined that national interest as being in “the maintenance of peace and stability, respect

for international law, freedom of navigation, and unimpeded lawful commerce” in the sea. The

statement noted that United States does not take a position on the competing sovereignty claims,

but believes that, “the nations of the region should work collaboratively and diplomatically to

resolve disputes without coercion, without intimidation, without threats, and without the use of

force.”68 China’s Foreign Minister declared Secretary Clinton’s comments to have been “in effect

an attack on China.”69

The territorial disputes at the heart of the tensions are decades, or even centuries, old, but

observers have noted a sharp uptick in incidents at sea since 2005-2006, from claimants seeking

to assert sovereignty or exploit offshore hydrocarbons and fishery resources. A major incident

occurred in 2012 at Scarborough Shoal, known in China as Huangyan Dao, a set of landmasses

disputed between China and the Philippines. Chinese vessels confronted a Philippine Naval

vessel that had interdicted Chinese fishing boats. After a weeks-long standoff, Philippine vessels

left the area, leaving China in control of an area it had not previously held. This development was

among several that prompted the August 2012 State Department statement opposing coercion,

threats and the use of force. China and the Philippines have been facing off since May 2013 over

a remote coral reef, the Second Thomas Shoal, known in China as Ren’ai Reef.

The United States has supported efforts by China’s rival claimants to place the issue of the

tensions in the South China Sea on the discussion agenda for regional meetings. China, which

argues that the disputes are best handled among the rival claimants alone, has resisted what it

calls U.S. efforts to “internationalize” the disputes. The United States has also publicly urged the

Association of Southeast Asian Nations (ASEAN) and China to move forward with long-stalled

negotiations over the text of a binding code of conduct that would govern behavior in the SCS,

and would include specific dispute-resolution mechanisms. ASEAN and China announced on

June 30, 2013 they will begin official consultations on a code of conduct at a meeting in China in

September 2013.70

East China Sea

In the East China Sea, China is involved in a territorial dispute with Japan over the sovereignty of

uninhabited islets known in Japan as the Senkakus and in China as the Diaoyu Dao. The islets are

also claimed by Taiwan, which refers to them as the Diaoyutai. The United States does not take a

position on the sovereignty dispute, but has a strong interest in the issue because the U.S.-Japan

Treaty of Mutual Cooperation and Security covers areas under Japanese administration, and the

United States government has repeatedly confirmed that such areas include the Senkakus/Diaoyu

Islets.

U.S. Department of State, “Patrick Ventrell, Acting Deputy Spokesperson, Office of Press Relations: Statement on

the South China Sea,” August 3, 2012, http://www.state.gov/r/pa/prs/ps/2012/08/196022.htm.

Ministry of Foreign Affairs of the People’s Republic of China, Foreign Minister Yang Jiechi Refutes Fallacies on the

South China Sea Issue, Statement posted on website, July 25, 2010, http://www.mfa.gov.cn/eng/zxxx/t719460.htm.

“China, ASEAN to Hold Meetings on South China Sea in September,” Xinhua News Service, June 30, 2013,

http://news.xinhuanet.com/english/china/2013-07/01/c_124933373.htm.

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Japan-China tensions over the islets have run high since September 11, 2012, when Japan’s

government purchased three of the islands from their private Japanese owners, a move that China

charged was equivalent to “nationalizing” the islands. Since then, China has maintained a nearly

continuous presence near the islets and repeatedly sent its vessels into the 12 nautical mile

territorial waters around them. China has mainly deployed vessels from the two civilian agencies,

China Maritime Surveillance and the Bureau of Fisheries, but it has also sent Navy vessels and

military aircraft into the area near the islands. Japan has responded with stepped-up coast guard

patrols and missions by Japanese Self Defense Force fighter planes.

Chinese officials have indicated that among their immediate goals is to force Japan to

acknowledge that sovereignty of the islets is in dispute, an acknowledgement that Japan has

resisted. Some observers believe that China may also have hoped to undermine the case for

possible U.S. intervention in a conflict over the islets by arguing that the Chinese presence near

the islands proves the islets are no longer administered solely by Japan, and thus may not fall

within the scope of the U.S.-Japan security treaty. Congress sought to address that line of

argument in Section 1286 of the FY2013 National Defense Authorization Act (P.L. 112-239). The

section stated that it was the sense of Congress that “the unilateral action of a third party”—a

reference to China—“will not affect the United States’ acknowledgement” of Japanese

administration over the islands. The section also reaffirmed the United States commitment to

Japan under Article V of the security treaty. Then-Secretary of State Hillary Clinton adopted the

same position in remarks in January 2013,71 as did Secretary of Defense Chuck Hagel in remarks

in April 2013.72 A Chinese Foreign Ministry spokesman denounced Clinton’s statement as

“ignorant of facts and indiscriminate of rights and wrongs.”73 After the Obama-Xi summit in June

2013, National Security Advisor Donilon paraphrased President Obama as telling his Chinese

counterpart that the United States does not take a position on the sovereignty of the disputed

islets, but “the parties should seek to de-escalate, not escalate; and the parties should seek to have

conversations about this through diplomatic channels and not through actions out of the East

China Sea.”74

The China-Japan dispute over the Senkakus/Diaoyu previously rose to the level of an

international crisis in September 2010, after a collision between Japanese Coast Guard vessels

and a Chinese fishing trawler near the islands, and the Japanese decision to detain the Chinese

crew and charge the Chinese captain under Japanese law.

Clinton stated that, “... although the United States does not take a position on the ultimate sovereignty of the islands,

we acknowledge they are under the administration of Japan and we oppose any unilateral actions that would seek to

undermine Japanese administration.... ” Department of State, “Secretary of State Hillary Rodham Clinton Remarks with

Japanese Foreign Minister Fumio Kishida After Their Meeting,” January 18, 2013, http://www.state.gov/secretary/rm/

2013/01/203050.htm.

Hagel stated that, “... the United States opposes any unilateral or coercive action that seeks to undermine Japan’s

administrative control.... ” He added, “The United States does not take a position on the ultimate sovereignty of the

islands, but we do recognize they are under the administration of Japan and fall under our security treaty obligations.”

Department of Defense, “Press Conference with Secretary Hagel and Defense Minister Onodera from the Pentagon,”

April 29, 2013, http://www.defense.gov/transcripts/transcript.aspx?transcriptid=5230.

“China Opposes U.S. Comments About Diaoyu Islands: Spokesman,” Xinhua News Agency, January 20, 2013.

The White House Office of the Press Secretary, “Press Briefing by National Security Advisor Tom Donilon,”

transcript, June 8, 2013, http://www.whitehouse.gov/the-press-office/2013/06/09/press-briefing-national-securityadvisor-tom-donilon.

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For more information, see CRS Report R42761, Senkaku (Diaoyu/Diaoyutai) Islands Dispute:

U.S. Treaty Obligations, by (name redacted) and CRS Report RL33436, Japan-U.S. Relations:

Issues for Congress, coordinated by (name redacted).

Exclusive Economic Zone (EEZ) Disputes

The issue that has for years provided the greatest day-to-day threat of inadvertent military

confrontation between the United States and China is disagreement over whether the United

Nations Convention on the Law of the Sea (UNCLOS)—a treaty to which China but not the

United States is a party—gives coastal states a right to regulate foreign military activities in their

maritime exclusive economic zones (EEZs). A coastal state’s EEZ generally extends from the

edge of its territorial sea (12 nautical miles from its coast) to a distance of 200 nautical miles from

its coast. China’s view, which is shared by a small number of other countries, has been that it has

the legal right under UNCLOS to regulate foreign military activities in its EEZ. The U.S. view,

which is shared by most other nations, is that international law as reflected in UNCLOS does not

give coastal states this right.

The United States, acting on its view, has long operated military ships and aircraft in China’s

EEZ, carrying out surveillance missions to monitor China’s military deployments and

capabilities, surveying the ocean floor to facilitate submarine navigation, and engaging in military

exercises with allies such as South Korea and Japan. China, acting on its view, has long protested,

and sometimes physically resisted, these operations. The issue appears to be at the heart of

multiple incidents between Chinese and U.S. ships and aircraft in international waters and

airspace, including incidents in March 2001, March 2009, and May 2009 in which Chinese ships

and aircraft confronted and harassed the U.S. naval ships as they were conducting survey and

ocean surveillance operations in China’s EEZ, and an incident on April 1, 2001, in which a U.S.

Navy EP-3 electronic surveillance aircraft flying in international airspace about 65 miles

southeast of China’s Hainan Island in the South China Sea was intercepted by Chinese fighters.75

In 2010, China reiterated its opposition to foreign military activities in its EEZ in response to the

announcement of joint military exercises between the United States and South Korea in the

Yellow Sea, following provocations by North Korea.76

Revelations in 2013 have raised questions about whether the Chinese position may be changing,

however. DOD’s 2013 report to Congress on military developments involving China noted that

the United States had “observed over the past year several instances of Chinese naval activities in

the EEZ around Guam and Hawaii.” The DOD report observed that the United States considers

such activities to be “lawful,” but noted that “the activity undercuts China’s decades-old position

that similar foreign military activities in China’s EEZ are unlawful.”77 In June 2013, a PLA

One of the fighters accidentally collided with and damaged the EP-3, which then made an emergency landing on

Hainan Island. For more on this incident, see CRS Report RL30946, China-U.S. Aircraft Collision Incident of April

2001: Assessments and Policy Implications, by (name redacted) et al.

In July 2010, China’s Foreign Minister Yang Jiechi told Secretary of State Hillary Clinton that China “firmly

opposes foreign warships and military aircraft entering the Yellow Sea and other coastal waters of China to engage in

activities affecting China’s security and interests.” See Ministry of Foreign Affairs of the PRC, “Yang Jiechi Meets

with U.S. Secretary of State Clinton and Canadian Foreign Minister Cannon,” press release, July 23, 2010,

http://www.china-embassy.org/eng/zmgx/t719784.htm. In November 2010, a Foreign Ministry spokesman declared

that “We oppose any party to take any military acts in our exclusive economic zone without permission.” See “China

Opposes Any Military Acts in Exclusive Economic Zone Without Permission,” Xinhua, November 26, 2010.

Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the

(continued...)

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officer attending a security dialogue in Singapore reportedly publicly acknowledged that China

has sent vessels into the United States’ EEZ “a few times.”78

For more information, see CRS Report R42784, Maritime Territorial and Exclusive Economic

Zone (EEZ) Disputes Involving China: Issues for Congress, by (name redacted).

Managing North Korea

The United States and China share a common interest in peace and stability on the Korean

peninsula and in verifiable denuclearization of the peninsula. With China serving as North

Korea’s largest supplier of fuel and food supplies and its most powerful diplomatic ally, however,

the United States continues to call on China to do more to leverage its relationship with

Pyongyang to persuade it to avoid provocations and denuclearize. Washington also wants Beijing

to strengthen its implementation of U.N. sanctions against North Korea. “We believe that no

country, including China, should conduct ‘business as usual’ with a North Korea that threatens its

neighbors,” then-National Security Advisor Tom Donilon remarked in a speech on Asia policy in

March 2013.79

Since the death of former North Korean leader Kim Jong-il in December 2011 and the installation

of his son, Kim Jong-un, as North Korea’s supreme leader, Chinese-North Korean relations have

frequently appeared strained. North Korea repeatedly ignored China’s warnings not to carry out

the rocket launches and a nuclear test and in May 2012 North Korea stirred angry populist

passions in China when its Navy boarded a Chinese fishing boat and held the crew for more than

two weeks.80 In January 2013, soon after China’s new leaders took up their Communist Party

posts, China supported U.N. Resolution 2087 condemning North Korea’s December 2012 rocket

launch. In March, China supported Resolution 2094, which strengthened existing sanctions

against North Korea in response to the country’s February 2013 nuclear test.81 In April 2013,

shortly after he took office as China’s state President, Xi Jinping raised eyebrows among

observers of the China-North Korea relations when he warned that, “No one should be allowed to

throw a region or even the whole world into chaos for selfish gain.”82 The comment was widely

interpreted to be directed at Pyongyang. In May 2013, a major Chinese state bank, Bank of China,

announced that it had closed the account of North Korea’s primary foreign-exchange bank, the

(...continued)

People’s Republic of China 2013, May 7, 2013, http://www.defense.gov/pubs/2013_china_report_final.pdf.

The Chinese military officer was Senior Colonel Zhou Bo. See Jeff M. Smith, China Comes Around?, Pacific

Forum—CSIS, PacNet #41, June 11, 2013, http://csis.org/publication/pacnet-41-china-comes-around.Rory Medcalf,

“Maritime Game Changer Revealed at Shangri-la Dialogue,” The Diplomat, June 2, 2013.

The White House Office of the Press Secretary, “Remarks By Tom Donilon, National Security Advisor to the

President: The United States and the Asia-Pacific in 2013,” remarks to the Asia Society, March 11, 2013,

http://www.whitehouse.gov/the-press-office/2013/03/11/remarks-tom-donilon-national-security-advisory-presidentunited-states-a.

Jane Perlez, “North Korea Tests the Patience of Its Closest Ally,” New York Times, June 24, 2012.

United Nations News Service, Security Council Tightens Sanctions on DPR Korea in Wake of Latest Nuclear Blast,

March 7, 2013, http://www.un.org/apps/news/story.asp?NewsID=44313&Cr=democratic&Cr1=korea.

The White House Office of the Press Secretary, “Remarks By Tom Donilon, National Security Advisor to the

President: The United States and the Asia-Pacific in 2013,” remarks to the Asia Society, March 11, 2013,

http://www.whitehouse.gov/the-press-office/2013/03/11/remarks-tom-donilon-national-security-advisory-presidentunited-states-a.

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Foreign Trade Bank.83 In late June 2013, China snubbed North Korea by hosting a high-profile

visit by the South Korean President Park Geun-hye when it had yet to host the North’s leader. In

his meeting with President Park, President Xi issued what was interpreted as another tough

warning to North Korea. The Xinhua News Agency paraphrased him as stating that, “China’s

stance in working to achieve peninsula denuclearization is firm, and its attitude is serious and

sincere.” It also paraphrased him as saying that China “opposes the action of any party in

wrecking peace and stability,” a statement seen as referring to North Korea.84 North Korea was a

major topic of discussion both at the summit between President Obama and President Xi in June

2013 and at the Fifth Round of the Strategic and Economic Dialogue in July 2013. After the

S&ED, the State Department announced that the two countries “agreed on the fundamental

importance of the denuclearization of the Korean Peninsula in a peaceful manner,” and on “the

importance of working together to ensure full implementation of UN Security Council Resolution

2094 and other relevant resolutions by all UN Member States.”85

China has long been committed to providing material support to the Pyongyang regime because

of fears about the potentially destabilizing consequences of the regime’s collapse, which China

believes could include military hostilities, waves of North Korean refugees flooding into China’s

northeast provinces, and a reunified Korean peninsula allied with the United States. Scholars are

asking whether China’s new leaders may now be moving toward the view that it is the status quo

that has become destabilizing.

In February 2013, the House passed a resolution condemning North Korea for its “flagrant and

repeated violations” of U.N. Security Council resolutions and for other provocations. The

resolution called on China to use its economic leverage to pressure North Korea’s leaders, and

also called on China “to take immediate actions to prevent the transshipment of illicit technology,

military equipment, and dual-use items through its territory, waters, and airspace that could be

used in North Korea’s nuclear weapons and ballistic missile programs.”

China’s treatment of North Korean refugees has been an issue of concern for Congress. China

considers North Koreans who have fled their homeland to China to be economic migrants, rather

than refugees, and continues to resist allowing the United Nations High Commissioner on

Refugees access to them. China’s official policy is to repatriate the refugees to North Korea,

where they face prison camp sentences or worse. North Korean refugees continue to trickle out of

China to neighboring countries in North and Southeast Asia, however, and substantial numbers of

North Korean refugees continue to live underground in China.

For more information, see “June 7-8, 2013: The Presidential Summit in Rancho Mirage, CA”

above. See also CRS Report R41259, North Korea: U.S. Relations, Nuclear Diplomacy, and

Internal Situation, by (name redacted) and (name redacted); CRS Report R40684,

North

Korea’s Second Nuclear Test: Implications of U.N. Security Council Resolution 1874, coordinated

by (name redacted) and (name redacted); CRS Report RL31555,

China and Proliferation of

Weapons of Mass Destruction and Missiles: Policy Issues, by (name redacted); and CRS Report

Heng Xie and Megha Rajagopalan, “Bank of China Closes Account of Key North Korean Bank,” Reuters, May 7,

2013.

习近平同韩国总统朴槿惠会谈时强调全面推进互利合作推动中韩关系取得更大发展

Qian Zhou, “

,” (“In Talks

with ROK President Park Geun-hye, Xi Jinping Emphasizes Comprehensively Promoting Mutually Beneficial

Cooperation, Spurring Still Greater Development of Sino-ROK Relations”), Xinhua News Agency, June 27, 2013.

U.S. Department of State, “U.S.-China Strategic and Economic Dialogue Outcomes of the Strategic Track,” press

release, July 12, 2013, http://www.state.gov/r/pa/prs/ps/2013/07/211861.htm.

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U.S.-China Relations: An Overview of Policy Issues

RS22973, Congress and U.S. Policy on North Korean Human Rights and Refugees: Recent

Legislation and Implementation, by (name redacted).

Curbing Iran’s Nuclear Program

Since 2006, China has been an important player in United States- and European-led multilateral

efforts to rein in Iran’s suspected nuclear weapons program. As a permanent member of the U.N.

Security Council, China has participated in negotiations with Iran over the nuclear program as

part of the P5+1 grouping (permanent members of the United Nations Security Council plus

Germany). It has also supported a series of U.N. resolutions imposing limited U.N. sanctions

against Iran, although it has frequently urged the use of dialogue rather than sanctions to address

the nuclear program and joined Russia in pushing for more narrowly targeted sanctions than the

U.S. and European nations sought. In the case of U.N. Resolution 1929, passed in June 2010, for

example, Russia and China successfully insisted that new sanctions not target Iran’s civilian

economy or its population.

China’s policy toward Iran is also of crucial importance to U.S. efforts to pressure the Iranian

regime because China is Iran’s largest trading partner, single largest customer for oil, and a major

investor in the Iranian energy and other sectors. Since passage of U.N. Resolution 1929, the

United States has sought to encourage China to follow the lead of the United States and European

Union countries in imposing bilateral sanctions on Iran’s energy and financial sector that exceed

those mandated in U.N. Security Council resolutions. China has declined to impose its own

bilateral sanctions and has criticized other countries for doing so. It did substantially decrease its

oil imports from Iran in 2012, though, reportedly in part because of disputes with Iran over the

terms of annual purchase contracts.86

The Administration granted China P.L. 112-81 sanctions exemptions on June 28, 2012, December

7, 2012, and June 5, 2013. At the same time, the United States has also sanctioned Chinese

businesses for their involvement in Iran. In July 2012, for example, the Administration sanctioned

the Xinjiang-based Bank of Kunlun, which is affiliated with the China National Petroleum

Corporation, “for knowingly facilitating significant transactions and providing significant

financial services for designated Iranian banks.”87 China angrily protested the move and defended

China’s business ties with Iran. A Chinese Foreign Ministry spokesman insisted that China’s

cooperation with Iran, “has nothing to do with Iran’s nuclear program, is not in violation of any

U.N. Security Council resolutions or other international norms, and does not harm the interests of

any third party.”88

U.S. officials give China credit for not moving to take over contracts given up by other countries,

a behavior that the United States refers to as “backfilling.” In March 2011, Robert Einhorn, then

the State Department’s Special Advisor for Nonproliferation and Arms Control, cited “substantial

U.S. Energy Information Administration, Iran, March 28, 2013, http://www.eia.gov/countries/cab.cfm?fips=ir.

U.S. Department of the Treasury, “Treasury Sanctions Kunlun Bank in China and Elaf Bank in Iraq for Business

with Designated Iranian Banks,” press release, July 31, 2012, http://www.treasury.gov/press-center/press-releases/

Pages/tg1661.aspx.

Ministry of Foreign Affairs of the People’s Republic of China, “Foreign Ministry Spokesperson Qin Gang’s Remarks

on US Sanctions against Bank of Kunlun,” August 1, 2012, http://www.fmprc.gov.cn/eng/.

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U.S.-China Relations: An Overview of Policy Issues

evidence that Beijing has taken a cautious, go-slow approach toward its energy cooperation with

Iran.”89

The United States has for many years implicated Chinese firms in sales to Iran of missile

technology. The Central Intelligence Agency’s 2012 report to Congress on the Acquisition of

Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions,

covering the 2011 calendar year, stated that, “Chinese entities—primarily private companies and

individuals—continue to supply a variety of missile-related items to multiple customers,

including Iran and Pakistan.”90

For more information, see CRS Report RS20871, Iran Sanctions, by (name redacted); and CRS

Report RL31555, China and Proliferation of Weapons of Mass Destruction and Missiles: Policy

Issues, by (name redacted).

Resolving the Crisis in Syria

The United States has looked to China, a fellow permanent member of the United Nations

Security Council, to play a constructive role in helping to resolve the crisis in Syria. China has

opposed all military intervention in Syria, including proposals for U.N. authorization of use of

force, and has on three occasions joined Russia in blocking U.S.-backed Security Council

resolutions on Syria. In the 112th Congress, S.Res. 379 expressed “strong disappointment” with

both Russia and China for their vetoes of one such resolution, which would have adopted an Arab

League plan outlining a Syrian-led political transition to a democratic, plural political system.

Repeating a longstanding position, China’s Foreign Ministry spokesman stated in early July 2013

that, “We respect the Syrian people’s choice, and appeal to the parties concerned to work together

to promote a ceasefire and end of violence in Syria as soon as possible, and launch a political

dialogue process.”91

For more information, see CRS Report RL33487, Armed Conflict in Syria: U.S. and International

Response, by (name redacted) and (name redacted).

Taiwan

The U.S. relationship with the island democracy of Taiwan, also known as the Republic of China,

is one of the most sensitive and complex issues in the bilateral U.S.-China relationship. In 1949,

following a civil war between the Kuomintang (KMT) and the Chinese Communist Party (CCP)

that brought the CCP to power in mainland China, the KMT re-established itself on Taiwan. The

PRC has consistently claimed sovereignty over Taiwan in the six decades since, but has never

controlled it. Unification with Taiwan and its 23 million people remains one of the PRC’s most

cherished national goals, one Beijing has vowed to achieve by force if necessary. Beijing sees the

State Department Special Advisor for Nonproliferation and Arms Control Robert Einhorn, “The Impact of Sanctions

on Iran’s Nuclear Program,” Remarks to Arms Control Association Briefing Series, Washington, DC, March 9, 2011,

http://www.armscontrol.org/events/RoleSanctionsIranNuclear.

Office of the Director of National Intelligence, Unclassified Report to Congress on the Acquisition of Technology

Relating to Weapons of Mass Destruction and Advanced Conventional Munitions, Covering 1 January to 31 December

2011, February 2012, p. 8, http://www.fas.org/irp/threat/wmd-acq2011.pdf.

Ministry of Foreign Affairs of the People’s Republic of China, “Transcript of Regular News Conference By PRC

Foreign Ministry on 2 July 2013, hosted by spokesman Hua Chunying,” press release, July 2, 2013.

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U.S.-China Relations: An Overview of Policy Issues

United States, which is required by law to “maintain the capacity …to resist any resort to force or

other forms of coercion” against Taiwan, as a major obstacle to that goal.

Finding language on Taiwan that both the PRC and the United States could accept was a

prerequisite for the establishment of diplomatic relations between the two countries in 1979. In

the 1972 Shanghai Communiqué, the United States declared that it “acknowledges that all

Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a

part of China.” In the 1979 communiqué on the establishment of U.S.-China diplomatic relations,

the United States agreed that it would henceforth have only “unofficial” relations with Taiwan. In

a subsequent 1982 communiqué, the United States said it intended “gradually to reduce its sale of

arms to Taiwan.”

Concerned that the Joint Communiqués did not do enough to protect Taiwan’s interests, Congress

in March 1979 passed the Taiwan Relations Act or TRA (P.L. 96-8). The TRA declared that it is

U.S. policy “to maintain the capacity of the United States to resist any resort to force or other

forms of coercion that would jeopardize the security, or the social or economic system, of the

people of Taiwan.” The TRA also mandated that the United States would sell Taiwan defense

items “in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense

capability.” Washington continues to sell arms to Taiwan, over strenuous PRC objections, and

Washington and Beijing continue to plan for the possibility that they could one day find

themselves involved in a military confrontation over Taiwan’s fate.

Despite reduced cross-strait tensions since 2008, when President Ma Ying-jeou of the KMT took

office, the Department of Defense estimates that the PRC deploys more than 1,100 short-range

ballistic missiles opposite Taiwan’s coast. China has also engaged in a program of military

modernization that includes the development or deployment of military capabilities “to coerce

Taiwan or attempt an invasion, if necessary,” according to DOD.92

The United States has repeatedly assured China that it does not support independence for Taiwan,

but it has retained ambiguity about its willingness to defend Taiwan in a conflict with China. That

ambiguity is intended both to deter China from attempting to use force to bring Taiwan under its

control, and to deter Taiwan from moves that might trigger China’s use of force, such as a

declaration of formal independence. As part of a statement known as the “Three No’s,” President

Clinton also in 1998 publicly stated that the United States does not support Taiwan’s membership

in any international organizations for which statehood is a requirement.93

Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the

People’s Republic of China 2013, May 7, 2013, pp. 5, 55, http://www.defense.gov/pubs/2013_china_report_final.pdf.

President Clinton’s statement, made on June 30, 1998, in Shanghai, was: “I had a chance to reiterate our Taiwan

policy which is that we don't support independence for Taiwan, or ‘two Chinas,’ or ‘one Taiwan, one China,’ and we

don't believe that Taiwan should be a member in any organization for which statehood is a requirement.”

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U.S.-China Relations: An Overview of Policy Issues

The Three Joint Communiqués, the Taiwan Relations Act, and the Six Assurances

The governments of the United States and China consider three joint communiqués concluded in 1972, 1979, and

1982 to underpin their bilateral relationship. The United States considers The Taiwan Relations Act of 1979 to be a

fourth core document guiding the relationship, although China does not. In addition, in 1982, during negotiations over

the third U.S.-China joint communiqué, the United States orally conveyed “Six Assurances” to the government of

Taiwan. The documents and oral commitments are listed below:

•

The Shanghai Communiqué (Joint Communiqué, of the United States of America and the

People’s Republic of China), dated February 28, 1972. The United States declared that it “acknowledges

that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of

China.” The United States also reaffirmed its “interest in a peaceful settlement of the Taiwan question by the

Chinese themselves” and committed as an “ultimate objective” to withdrawing all U.S. forces and military

installations from Taiwan.94

•

Joint Communiqué on the Establishment of Diplomatic Relations Between the United States of

America and the People’s Republic of China, dated January 1, 1979. The United States recognized the

government of the People’s Republic of China as the sole legal government of China and, in that context, stated

that “the people of the United States will maintain cultural, commercial, and other unofficial relations with the

people of Taiwan.”

•

The August 17th Communiqué (Joint Communiqué of the United States of America and the

People’s Republic of China), dated August 17, 1982. The United States stated “that it does not seek to

carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in

qualitative or in quantitative terms, the level of those supplied in recent years … and that it intends gradually to

reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution.”

•

The Taiwan Relations Act (TRA) (P.L. 96-8), enacted April 10, 1979. The TRA stated that it is U.S.

policy “that the United States decision to establish diplomatic relations with the People’s Republic of China rests

upon the expectation that the future of Taiwan will be determined by peaceful means.” The TRA also stated that

it is U.S. policy “to consider any effort to determine the future of Taiwan by other than peaceful means, including

by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern

to the United States,” and “to maintain the capacity of the United States to resist any resort to force or other

forms of coercion that would jeopardize the security, or the social or economic system, of the people on

Taiwan.” The law stated that, “the United States will make available to Taiwan such defense articles and defense

services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability.”

•

“The Six Assurances,” conveyed by the Reagan Administration to Taiwan in 1982, during the negotiations

between Washington and Beijing over the August 17th Communiqué. They were that the United States had not

set a date for ending arms sales to Taiwan; had not agreed to consult with Beijing prior to making arms sales to

Taiwan; would not play a mediation role between Taipei and Beijing; had not agreed to revise the Taiwan

Relations Act; had not altered its position regarding sovereignty of Taiwan; and would not exert pressure on

Taiwan to negotiate with the PRC.95

An additional factor influencing U.S. policy is the fact that Taiwan has blossomed into a vibrant

and unpredictable democracy. As Taiwan’s elected leaders have sought to define Taiwan’s place

in the world and expand its “international space,” the United States has sometimes found itself

urging restraint, opening Washington to charges that it is placing its interest in regional stability

and cooperative relations with Beijing above the aspirations of the Taiwan people. Supporters of

Taiwan’s largest opposition party, the independence-minded Democratic Progressive Party (DPP),

charged that in the run-up to January 2012 presidential and legislative elections, the United States

inappropriately signaled its support for President Ma’s candidacy because of a fear of heightened

The United States withdrew all military personnel from Taiwan in 1979, during the Carter Administration.

Different sources give slightly differing versions of the language of the “Six Assurances.” See CRS Report RL30341,

China/Taiwan: Evolution of the “One China” Policy—Key Statements from Washington, Beijing, and Taipei, by

(name redacted).

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tensions between Taipei and Beijing if the DPP candidate were to win.96 President Ma was reelected to a second four-year term, which is scheduled to conclude in May 2016.

For more information, see CRS Report R41952, U.S.-Taiwan Relationship: Overview of Policy

Issues, by (name redacted) and (name redacted); CRS Report R41263,

Democratic Reforms in

Taiwan: Issues for Congress, by (name redacted); and CRS Report RL30341,China/Taiwan:

Evolution of the “One China” Policy—Key Statements from Washington, Beijing, and Taipei, by

(name redacted).

Cross-Strait Relations

Tensions between Beijing and Taipei have eased since President Ma first took office in Taiwan in

2008, following eight years of rule by the Democratic Progressive Party (DPP). Under President

Ma, long-stalled official talks with China reconvened in June 2008 in Beijing, resulting in

groundbreaking agreements on direct charter flights, the opening of permanent offices in each

other’s territories, and Chinese tourist travel to Taiwan, among others. Other rounds produced

accords related to postal links, food safety, and Chinese investment in Taiwan.97

In April 2009, in an indication of greater flexibility on both sides, the World Health Organization

(WHO) invited Taiwan to attend the 2009 World Health Assembly (WHA) as an observer under

the name “Chinese Taipei.”98 The invitation, issued with China’s assent, marked the first time that

Taiwan had been permitted to participate in an activity of a U.N. specialized agency since it lost

its U.N. seat to China in 1971. Some analysts have questioned how much Taiwan gained,

however, noting that China has a memorandum of understanding with the WHO requiring that

any interaction between Taiwan and the WHO be approved first by the Chinese Ministry of

Health, and noting, too, that in WHO documents, Taiwan is referred to as “Taiwan Province of

China.”99

Taiwan is now seeking observer status in a second specialized agency of the United Nations, the

International Civil Aviation Organization (ICAO). In a September 2012 meeting between China’s

then-President Hu Jintao and Lien Chan, Honorary Chairman of Taiwan’s KMT, Hu pledged that

Beijing would, in the KMT’s words, “seriously study how to allow Taiwan to participate in ICAO

events in an appropriate way.”100 Hu is now retired, but Beijing still appears to consider itself

While the DPP candidate Tsai Ying-wen was visiting Washington, DC, an unnamed senior Administration official

told the Financial Times that Tsai “left us with distinct doubts about whether she is both willing and able to continue

the stability in cross-Strait relations the region has enjoyed in recent years.” Anna Fifield, “U.S. Concerned About

Taiwan Presidential Candidate,” Financial Times, September 15, 2011. In the closing months of the campaign the

Administration also dispatched two high level officials to visit Taiwan and officially nominated Taiwan to the

Department of Homeland Security’s visa waiver program, a major goal of the Ma Administration.

The Taiwan and PRC governments conduct cross-strait talks through quasi-official organizations. In Taiwan, crossstrait talks are handled by the Straits Exchange Foundation (SEF), a private organization authorized by the government

to handle these exchanges. The corresponding body in the PRC is the Association for Relations Across the Taiwan

Strait (ARATS).

Low, Y.F., “CNA: World Health Assembly’s Invitation Raises Taiwan’s International Profile,” Taipei Central News

Agency, April 29, 2009.

For discussion of Taiwan’s participation in international organizations and its observer status in the World Health

Association, see Sigrid Winkler, “Taiwan’s UN Dilemma: To Be or Not To Be,” June 2012, Brookings Institution

website, http://www.brookings.edu/research/opinions/2012/06/20-taiwan-un-winkler.

100

Kuomintang Official Website, “Lien Chan: Cross-StraitEconomic and Trade Relations Enter Deep Waters,” press

release, September 10, 2013, http://www.kmt.org.tw/english/page.aspx?type=article&mnum=112&anum=11835.

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bound by Hu’s words. It has not sought to block Taiwan’s bid for observer status in the ICAO, but

has made clear that it expects to be heavily involved in negotiating the terms of any Taiwan

participation. P.L. 113-17, signed into law in July 2013, directs the Secretary of State to develop a

strategy to obtain observer status for Taiwan at the triennial International Civil Aviation

Organization Assembly, to be held in September 2013 in Montreal, Canada.

Beijing and Taipei signed a landmark free trade arrangement, the Economic Cooperation

Framework Agreement (ECFA), in June 2010, removing many remaining barriers to trade and

investment across the Taiwan Strait and hastening cross-strait economic integration.101 That

integration has raised fears among some in both Taiwan and the United States about a possible

erosion of Taiwan’s autonomy. At the same time, some analysts believe that closer economic ties

may deter cross-straits conflict by increasing the potential economic and human costs for both

sides. In the joint statement issued during Chinese President Hu Jintao’s state visit to Washington

in January 2011, the United States said that it “applauded” the ECFA and “welcomed the new

lines of communication developing between” the two sides of the Taiwan Strait.

U.S. Arms Sales to Taiwan

The issue of U.S. arms sales to Taiwan is among the most contentious in the U.S.-China

relationship. The PRC argues that U.S. arms sales embolden those in Taiwan who seek Taiwan’s

formal independence—China calls them “separatist forces”—and that the arms sales are therefore

destabilizing.102 China also charges that continued U.S. arms sales represent a betrayal of U.S.

commitments under the August 17th Communiqué of 1982, in which the United States stated its

intention “gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final

resolution.” The U.S. government argues that arms sales to Taiwan give Taiwan’s leaders the

confidence and “capacity to resist intimidation and coercion” required to engage with China.103

The United States also cites its obligation under the Taiwan Relations Act (P.L. 96-8) to provide

Taiwan with defense articles and services “in such quantity as may be necessary to enable Taiwan

to maintain a sufficient self-defense capability.”

In October 2011, the Obama Administration notified Congress of a $5.85 billion arms package,

including upgrades to 145 F-16A/B fighter jets, the extension of a pilot training program, and

spare parts for three types of aircraft. Although China has previously suspended the military-tomilitary relationship with the United States to protest U.S. arms sales packages to Taiwan, it did

not do so in this case, perhaps because the Obama Administration chose not to sell Taiwan more

advanced F-16C/D fighters. China strenuously opposes the sale of F-16C/Ds to Taiwan, arguing

that they are offensive, rather than defensive in nature, and that selling them to Taiwan would run

counter to the U.S. pledge in the 1982 Communiqué not to sell arms to Taiwan that “exceed,

either in qualitative or in quantitative terms, the level of those supplied in recent years.” Sec.

101

Cross-Straits trade in 2010 amounted to roughly $152 billion, making the PRC Taiwan’s largest trading partner; see

U.S. Congress, House Committee on Foreign Affairs, Testimony of Dr. Kurt M. Campbell, 112th Cong., October 4,

2011, http://www.state.gov/p/eap/rls/rm/2011/10/174980.htm.

102

At a meeting in Singapore in June 2010, Ma Xiaotian, Deputy Chief of the General Staff of the Chinese military,

stated, in a reference to Taiwan, that “China has yet to achieve national unification and there is still support for the

separatist forces from outside the country.” Ma Xiaotian, “New Dimensions of Security,” Address to the 9th IISS Asian

Security Summit, the Shangri-La Dialogue, Singapore, June 5, 2010, http://www.iiss.org/conferences/the-shangri-ladialogue/shangri-la-dialogue-2010/plenary-session-speeches/second-plenary-session/ma-xiaotian/.

103

U.S. Congress, House Committee on Foreign Affairs, Testimony of Dr. Kurt M. Campbell, 112th Cong., October 4,

2011, http://www.state.gov/p/eap/rls/rm/2011/10/174980.htm.

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1281 of the FY2013 National Defense Authorization Act (P.L. 112-239) stated that it was the

Sense of the Congress that the President should take steps to address Taiwan’s shortfall in fighter

aircraft, “whether through the sale of F-16 C/D aircraft or other aircraft of similar capacity.”

For more information, see CRS Report RL30957, Taiwan: Major U.S. Arms Sales Since 1990, by

(name redacted).

Economic Issues

The U.S. and Chinese economies are the first and second largest in the world respectively, and are

heavily interdependent. The Obama Administration has sought to cooperate with China in

rebalancing the global economy, while acknowledging that the two nations are engaged in what

President Obama calls “healthy economic competition.”104 Bilateral economic issues include the

issue of commercial cyber espionage allegedly originating from China; China’s currency and

industrial policies; and China’s weak enforcement of intellectual property rights. Both countries

have welcomed the growth of Chinese foreign direct investment in the United States, although

China has complained about U.S. scrutiny of investments on national security grounds. The

primary bilateral fora for discussion of economic issues are the U.S.-China Strategic and

Economic Dialogue (S&ED) and the Joint Commission on Commerce and Trade (JCCT).

For more information, see CRS Report RL33536, China-U.S. Trade Issues, by (name red

acted), and CRS Report RL33534,

China’s Economic Rise: History, Trends, Challenges, and

Implications for the United States, by (name redacted).

Basic Facts About the U.S.-China Economic Relationship

Basic facts about the bilateral economic relationship include

•

The U.S. and Chinese economies are the first and second largest in the world

respectively on both a nominal dollar basis and a purchasing power parity basis.

In 2012, according to the World Bank, U.S. nominal GDP was nearly twice the

size of China’s, at $15.68 trillion compared to China’s $8.227 trillion.105

•

According to official U.S. trade data, China is the United States’ second largest

trading partner, after Canada. Two-way trade in 2012 topped $536 billion.

China’s exports to the United States totaled $426 billion, and U.S. exports to

China totaled $111 billion. The U.S. goods trade deficit with China was $315

billion.

•

According to official Chinese data, the United States is China’s largest trading

partner and U.S.-China two-way trade in 2012 was $480 billion, with Chinese

exports to the United States totaling $352 billion and U.S. exports to China

totaling $128 billion. Chinese data shows the Chinese trade surplus with the

United States to be $224 billion.106

104

The White House Office of the Press Secretary, “Remarks by President Obama and President Xi Jinping of the

People’s Republic of China Before Bilateral Meeting,” press release, June 7, 2013.

105

World Bank data, http://data.worldbank.org/country/china.

106

CRS Report RS22640, What’s the Difference?—Comparing U.S. and Chinese Trade Data, by (name redacted).

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•

According to official U.S. data, China is the United States’ largest supplier of

imports, third largest export market (after Canada and Mexico), second largest

agricultural export market (after Canada), and fifth largest market for exports of

private services. Imports from China make up 19% of all U.S. imports and

exports to China account for 7% of all U.S. exports.

•

According to an Associated Press analysis, for at least 124 countries, China is

now a larger trading partner than the United States.107

•

China is the largest foreign holder of U.S. Treasury securities, holding $1.32

trillion in U.S. Treasury securities as of the end of May 2013. At that time,

China’s holdings represented 23.3% of all foreign holdings of U.S. Treasury

securities, and 7.9% of total outstanding U.S. debt.108

•

According to official U.S. data, by the end of 2010 U.S. businesses had invested

a cumulative $60.5 billion in China, an increase of 21.4% from 2009.109

•

According to U.S. Bureau of Economic Analysis (BEA) figures, cumulative

Chinese foreign direct investment (FDI) in the United States, reached $3.8 billion

in 2011, just 6% of U.S. FDI in China, but a six-fold increase over 2007.110

According to official Chinese data, by 2013, Chinese FDI in the United States

had reached $20 billion.111 Private-sector researchers in the United States believe

that the cumulative volume of Chinese FDI in the United States is larger still.112

Global Rebalancing and China’s 12th Five-Year Plan

World leaders have acknowledged the need for fundamental restructuring of the global economy,

with major onus for action on the United States and China. According to the World Bank, the

United States had the world’s largest current account deficit in 2011, while China had the world’s

second largest surplus. Many economists say that such huge imbalances in global trade

undermine the health of the global economy, and that the United States needs to save more and

consume less, while China needs to reduce its dependence on exports and investment and

consume more.

China signaled its intention to tackle its side of the equation in its 12th Five-Year Plan, an

authoritative plan for national economic and social development covering the years 2011 to 2015.

107

Joe McDonald and Youkyung Lee, “AP Impact: China Surpasses US As Top Global Trader,” Associated Press,

December 2, 2012.

108

Department of the Treasury, Major Foreign Holders of Treasury Securities, March 15, 2013,

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt; Department of the Treasury,

Treasury Direct, “The Debt to the Penny and Who Holds It,” http://www.treasurydirect.gov/NP/debt/current.

109

Office of the United States Trade Representative, “U.S.-China Trade Facts,” http://www.ustr.gov/countries-regions/

china-mongolia-taiwan/peoples-republic-china. Accessed July 19, 2013.

110

Bureau of Economic Analysis, Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment

Position Data, http://www.bea.gov/international/di1fdibal.htm.

111

Chen Weihua, “US, China hopeful of BIT after talks reignited,” China Daily, July 13, 2013.

112

Thilo Hanemann and Daniel H. Rosen, China Investment Monitor: Tracking Chinese Direct Investment in the U.S.,

Rhodium Group, http://rhgroup.net/interactive/china-investment-monitor.

Congressional Research Service

U.S.-China Relations: An Overview of Policy Issues

Adopted by China’s National People’s Congress in March 2011, the 12th Five-Year Plan includes

plans for: 113

•

slower GDP growth than China has enjoyed in the past, with a target of 7%

annual GDP growth over the five years of the plan;

•

boosting domestic consumption as a percentage of GDP, in part by increasing

wages for Chinese workers and improving China’s social welfare net, so that

citizens do not need to set aside so much of their incomes to pay for education,

health care, and retirement;

•

increasing the service sector’s contribution to GDP;

•

expanding urbanization, with a target of creating more than 45 million jobs in

urban areas and increasing China’s urbanization rate to 51.5%, an increase of

four percentage points;

•

prioritizing development of seven “emerging strategic industries,” three intended

to support China’s goal of moving toward more environmentally sustainable

growth, and four intended to support China’s goal of moving away from laborintensive low-end manufacturing;

•

meeting ambitious energy and environmental targets, including increasing the

proportion of non-fossil fuels in China’s energy mix to 11.4% and reducing

energy consumption per unit of GDP by16%.

Cyber-Enabled Theft of Commercial Information

Cyber-enabled theft of commercial information is a rapidly growing issue in the U.S.-China

relationship. After years of discussing the issue only in classified writings, the U.S. government in

2011 made public some of its concerns in a report to Congress issued by the Office of the

National Counterintelligence Executive (NCIX).114 The NCIX report described Chinese actors as

“the world’s most active and persistent perpetrators of economic espionage,” and both the

Chinese and Russian governments as “aggressive and capable collectors of sensitive U.S.

economic information and technologies, particularly in cyberspace.” The report noted that U.S.

businesses and cyber security experts had reported “an onslaught of computer network intrusions

originating from Internet Protocol (IP) addresses in China,” although it also noted the difficulty of

“attribution,” or determining what entities were behind the attacks, whether individuals, corporate

actors or state actors.

In February 2013, Mandiant, a private information security company, published a report accusing

a Shanghai-based unit of China’s People’s Liberation Army of cyber espionage targeting multiple

U.S. and other corporations.115 In remarks to the Asia Society the next month, then-National

Security Advisor Tom Donilon spoke out against “sophisticated, targeted theft of confidential

business information and proprietary technologies through cyber intrusions emanating from

113

“Key targets of China’s 12th five-year plan ,” Xinhua News Agency, March 5, 2013, http://news.xinhuanet.com/

english2010/china/2011-03/05/c_13762230.htm.

114

Office of the National Counterintelligence Executive, Foreign Spies Stealing U.S. Economic Secrets in Cyberspace:

Report to Congress on Foreign Balance Economic Collection and Industrial Espionage, 2009-2011, October 2011,

http://www.ncix.gov/publications/reports/fecie_all/Foreign_Economic_Collection_2011.pdf.

115

Mandiant, APT1: Exposing One of China’s Cyber Espionage Units, February 2013, http://intelreport.mandiant.com/.

Congressional Research Service

U.S.-China Relations: An Overview of Policy Issues

China on an unprecedented scale,” but did not explicitly accuse the Chinese Communist Party or

the government of complicity in the intrusions.116 The U.S. government for the first time publicly

pinned responsibility on official Chinese actors in May 2013. In a report to Congress that month,

the Department of Defense wrote that cyber-intrusions targeting U.S. government and other

computer systems “appear to be attributable directly to the Chinese government and military.”117

As accusations of official Chinese actors’ involvement in enabled-theft of intellectual property,

trade secrets, and business proprietary information have mounted, official Chinese spokespeople

have frequently dismissed the allegations as “groundless,” citing the difficulty of attribution of

cyberattacks and intrusions. Responding to the Mandiant report in February 2013, a spokesman

for China’s Ministry of National Defense stated that, “the Chinese military has never supported

any hacker activity.” He noted that Chinese law prohibits hacker attacks and “other such activities

that undermine the security of the Internet.” He also stated that China is itself a major victim of

network attacks, with the networks of the Ministry of National Defense and China Military

Online coming under attack more than 144,000 times a month on average, with 63% of the

attacks allegedly originating from the United States.118

The U.S. and Chinese governments in 2013 established a high-level working group on cyber

security under U.S.-China Strategic Security Dialogue, a sub-dialogue of the two countries’

Strategic and Economic Dialogue. The Cyber Working Group (CWG) met for the first time on

July 8, 2013. According to the State Department, at the meeting the two governments “decided to

take practical measures to enhance dialogue on international norms and principles in order to

guide action in cyber space.” They also agreed to strengthen coordination and cooperation

between the U.S. Computer Emergency Readiness Team (US-CERT) and the National Computer

Network Emergy Response Technical Team/Coordination Center of China (CNCERT/CC).119

Former National Security Agency contractor Edward Snowden’s allegations related to U.S.

intelligence collection programs may have complicated the U.S. effort to hold China to account

for its alleged involvement in cyber-enabled theft targeting the United States. A report from

China’s state news agency, Xinhua, claimed that information provided by Snowden had revealed

U.S. “hypocrisy” on the cyber-security issue, and added “a dose of conviction” to China’s denials

of state-sponsored hacking and its claim to be a victim of cyber-crimes.120 A Xinhua commentary

claimed that Snowden’s allegations “demonstrate that the United States, which has long been

trying to play innocent as a victim of cyber attacks, has turned out to be the biggest villain in our

age.”121 A senior administration official, speaking on background to the media in July 2013,

sought to draw a distinction between Snowden’s allegations and U.S. concerns related to China’s

116

The White House Office of the Press Secretary, “Remarks By Tom Donilon, National Security Advisor to the

President: The United States and the Asia-Pacific in 2013,” remarks to the Asia Society, March 11, 2013,

http://www.whitehouse.gov/the-press-office/2013/03/11/remarks-tom-donilon-national-security-advisory-presidentunited-states-a.

117

Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the

People’s Republic of China 2013, May 7, 2013, p. 36, http://www.defense.gov/pubs/2013_china_report_final.pdf.

118

Ministry of National Defense of the People’s Republic of China, Regular News Conference Hosted By Senior

Colonel Geng Yansheng, February 28, 2013.

119

U.S. Department of State, “U.S.-China Strategic and Economic Dialogue Outcomes of the Strategic Track,” press

release, July 12, 2013, http://www.state.gov/r/pa/prs/ps/2013/07/211861.htm.

120

Liu Dan and Bi Mingxin, “Surveillance Programs Reveal U.S. Hypocrisy,” Xinhua News Agency, June 14, 2013.

121

Ming Jinwei, “Commentary: Washington owes world explanations over troubling spying accusations,” Xinhua News

Agency, June 23, 2013.

Congressional Research Service

U.S.-China Relations: An Overview of Policy Issues

behavior, arguing that, “there is a vast distinction between intelligence-gathering activities that all

countries do and the theft of intellectual property for the benefit of business in the country, which

we don’t do and we don’t think any country should do.”122

For more information, see CRS Report R42984, The 2013 Cybersecurity Executive Order:

Overview and Considerations for Congress, by (name redacted) et al.

The Bilateral Trade Deficit

Trade between the United States and China has expanded dramatically in the years since China

acceded to the World Trade Organization in December 2001. The size of the U.S. trade deficit

with China has risen with the greater volume of trade.

Economists argue that the global trade balance is a more meaningful indicator of an economy’s

health than bilateral balances, and in recent years, China’s current account surplus has fallen

significantly, as a share of GDP, from 10.1% in 2007 to 2.3% in 2012.123 Many U.S. analysts

nonetheless point to the United States’ bilateral goods trade imbalance with China to highlight

China’s allegedly unfair trade practices and undervalued currency, and their impact on the U.S.

economy. Chinese officials, who cite different figures for the bilateral trade deficit than the

United States, routinely seek to shift some of the blame for the trade deficit to the United States

by criticizing U.S. controls on exports of advanced technology. They also argue that the increase

in exports to the United States reflects the shifting of production from other countries to China,

with many “made in China” products containing components made in other countries, and China

adding only a small percentage of the value. In trade statistics, however, the entire value of such

products is counted as being from China.

Table 1. U.S. Merchandise Trade with China over Time

Year

U.S. Imports from

China

U.S. Exports to

China

U.S. Trade Deficit

with China

1995

$46 billion

$12 billion

$34 billion

2000

$100 billion

$16 billion

$84 billion

2005

$243 billion

$41 billion

$202 billion

2010

$365 billion

$92 billion

$273 billion

2012

$426 billion

$111 billion

$315 billion

Source: U.S. International Trade Commission.

Note: This table does not reflect U.S. trade with China in services, in which the United States runs a surplus.

122

U.S. Department of State, “Senior Administration Officials On the First Day of the Strategic and Economic

Dialogue and U.S.-China Relations,” press release, July 10, 2013, http://www.state.gov/r/pa/prs/ps/2013/07/

211801.htm.

123

Department of the Treasury, Department of the Treasury Office of International Affairs, Report to Congress on

International Economic and Exchange Rate Policies, April 12, 2013, http://www.treasury.gov/resource-center/

international/exchange-rate-policies/Documents/Foreign%20Exchange%20Report%20April%202013.pdf.

Congressional Research Service

U.S.-China Relations: An Overview of Policy Issues

For more information, see CRS Report RL33536, China-U.S. Trade Issues, by (name red

acted), and CRS Report RS22640,

What’s the Difference?—Comparing U.S. and Chinese

Trade Data, by (name redacted).

China’s Currency Policy

The issue of China’s management of its currency, the renminbi (“people’s money”) or RMB, once

topped the Obama Administration’s shortlist of economic disputes with China. It remains a major

concern, but appears to have lost some of its urgency as other economic disputes with China have

moved to the fore, and as China has continued to allow its currency to appreciate gradually.

According to the U.S. Treasury Department, Chinese leaders increasingly acknowledge the value

of a stronger RMB as a tool to combat inflation, and have made commitments at the G-20 and the

S&ED to promote greater flexibility in the exchange rate and to “gradually reduce the pace of

accumulation of foreign reserves.”124 According to Treasury Department data, from June 2010,

when China’s central bank, the People’s Bank of China, announced a policy of greater exchange

rate “flexibility,” to early April 2013, the RMB appreciated against the U.S. dollar by 10% in

nominal terms. In real, inflation-adjusted terms, it appreciated 16.2% between June 2010 and

February 2013. From July 2005 to April 2013, China’s “real effective exchange rate” (REER)

appreciated 33.8% in real terms. The Treasury Department believes that “While the estimated

range of misalignment has narrowed, China’s real effective exchange rate continues to exhibit

significant undervaluation.”125 The U.S. government argues that an undervalued RMB makes

China’s exports to the world artificially cheap, and China’s imports from the rest of the world,

including the United States, artificially expensive for Chinese consumers.

For more information about China’s currency policy, see CRS Report RS21625, China’s Currency

Policy: An Analysis of the Economic Issues, by (name redacted) and (name redacted).

China’s Holdings of U.S. Treasuries

The U.S. federal budget deficit has increased rapidly since 2008, financed by sales of Treasury

securities. China, with $3.3 trillion in foreign currency reserves in December 2012,126 has been

either the largest or the number two foreign holder of U.S. Treasury securities since then, and thus

one of the largest foreign financers of the U.S. federal budget deficit. China’s holdings of U.S.

Treasury securities totaled $1.32 trillion as of the end of March 2013, accounting for 23.3 of all

foreign holdings of U.S. Treasury securities, and nearly 7.9% of total outstanding U.S. debt.

Japan was the second-largest holder of U.S. Treasury securities.127

124

U.S. Department of The Treasury, The 2011 U.S.-China Strategic and Economic Dialogue U.S. Fact Sheet –

Economic Track, May 10, 2011, http://www.treasury.gov/press-center/press-releases/Pages/TG1172.aspx.; U.S.

Department of the Treasury, Report to Congress on International Economic and Exchange Rate Policies, December 27,

2011, pp. 16, http://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/

FX%20Report%202011.pdf.

125

U.S. Department of the Treasury, Report to Congress on International Economic and Exchange Rate Policies, April

10, 2013, p. 3, http://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/

Foreign%20Exchange%20Report%20April%202013.pdf.

126

U.S. Department of the Treasury, Report to Congress on International Economic and Exchange Rate Policies,

December 27, 2011, pp. 18, http://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/

FX%20Report%202011.pdf.

127

Department of the Treasury, Major Foreign Holders of Treasury Securities, March 15, 2013,

(continued...)

Congressional Research Service

U.S.-China Relations: An Overview of Policy Issues

Some observers have raised concerns about the possibility of China destabilizing the U.S.

economy by drawing down its holdings of U.S. Treasuries. Economists familiar with China’s

financial system note, however, that it does not allow foreign currency to be spent in China,

meaning that China has no choice but to invest its large current account surplus overseas. The

United States is the only economy large enough to absorb foreign exchange on the scale that

China is accumulating it.128 The combination of China’s large volume of exports to the United

States and its purchase of U.S. debt has given China a major stake in the health of the U.S.

economy. Some analysts argue that China’s holdings of U.S. Treasuries have also shifted the

balance of financial power between Washington and Beijing, emboldening China to speak out

with criticisms of the way the U.S. economy is managed. Beijing has spoken out, for example,

about its concerns regarding the U.S. use of quantitative easing monetary policy to stimulate its

economy. China fears the policy, by suppressing interest rates, could produce inflation and/or a

devaluation of the U.S. dollar, which would lessen the value of China’s U.S. dollar assets.

For more information, see CRS Report RL34314, China’s Holdings of U.S. Securities:

Implications for the U.S. Economy, by (name redacted) and (name redacted).

China’s Compliance with World Trade Organization (WTO) Commitments

Since 2006, the U.S. government has repeatedly raised concerns about alleged backsliding in

China’s implementation of commitments it made as part of its 2001 accession to the World Trade

Organization. In December 2012, in the midst of China’s transition to a new leadership team, the

U.S. Trade Representative charged in a report to Congress that, “For much of the past decade, the

Chinese government has been re-emphasizing the state’s role in the economy, diverging from the

path of economic reform that drove China’s accession to the WTO.” Of particular concern to

USTR has been China’s use of “new and more expansive industrial policies, often designed to

limit market access for imported goods, foreign manufacturers and foreign service suppliers,

while offering substantial government guidance, resources and regulatory support to Chinese

industries, particularly ones dominated by state-owned enterprises.”129

The United States and China routinely discuss U.S. concerns in detail in the context of two

bilateral dialogues, the Joint Commission on Commerce and Trade (JCCT) and the Strategic and

Economic Dialogue (S&ED), as well as in other bilateral settings. Each round of the two

dialogues produces new commitments from China to review and often revise specific policies.

When bilateral negotiations have failed to resolve U.S. concerns, the United States has taken

disputes to the World Trade Organization (WTO). The United States has brought 15 dispute

settlement cases against China to the WTO, including eight under the Obama Administration

(three in 2012, one in 2011, three in 2010, and one in 2009). China has brought eight WTO cases

against the United States to the WTO, five of them during the Obama Administration’s time in

(...continued)

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt; Department of the Treasury,

Treasury Direct, “The Debt to the Penny and Who Holds It,” http://www.treasurydirect.gov/NP/debt/current.

128

Derek Scissors, Chinese Investment in the U.S.: $2 Trillion and Counting, The Heritage Foundation, blog post,

Washington, DC, March 1, 2011, http://www.heritage.org/Research/Reports/2011/02/Chinese-Investment-in-the-US$2-Trillion-and-Counting.

129

United States Trade Representative, 2012 Report to Congress on China’s WTO Compliance, December 2012,

http://www.ustr.gov/webfm_send/3620.

Congressional Research Service

U.S.-China Relations: An Overview of Policy Issues

office (two in 2012, one in 2011, and two in 2009).130 Two of China’s cases against the United

States have challenged legislation passed by the U.S. Congress. In September 2010, a WTO panel

found for China in determining that that Section 727 of P.L. 111-8 was inconsistent with the

United States’ WTO obligations, but did not recommend further action because the provision had

expired. A pending Chinese case against the United States at the WTO challenges P.L. 112-99, An

Act to Apply the Countervailing Duty Provisions of the Tariff Act of 1930 to Nonmarket

Economy Countries, and For Other Purposes.

For more information, see CRS Report RL33536, China-U.S. Trade Issues, by (name red

acted); and CRS Report RL33976,

U.S. Trade Remedy Laws and Nonmarket Economies: A

Legal Overview, by (name redacted).

China and the WTO Government Procurement Agreement

Although China acceded to the World Trade Organization in 2001, and although its government

procurement market has since grown to be among the largest in the world, China has yet to join

the WTO’s Government Procurement Agreement (GPA). Its procurement policies are thus not

subject to most WTO rules. The United States has been eager to see China join the agreement so

as to ensure access for U.S. firms to what China says was a $179 billion in 2011.131 China has so

far submitted four offers to join the GPA, but none acceptable to current GPA members. At the

meeting of the U.S.-China Strategic and Economic Dialogue in July 2013, China made a new

commitment to submit a revised offer to join the GPA by the end of 2013, and to “begin intensive

technical discussions with the United States this summer with the aim of tackling remaining

obstacles to China’s GPA accession.”132

For more information, see CRS Report RL33536, China-U.S. Trade Issues, by (name red

acted).

Negotiations Over a U.S.-China Bilateral Investment Treaty (BIT)

At the July 2013 round of the U.S.-China Strategic and Economic Dialogue (S&ED), the United

States and China agreed to re-start negotiations over a Bilateral Investment Treaty (BIT), which

could serve to resolve disagreements between the two countr

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