Last week the U.S.-China Economic and Security Review Commission submitted their annual report to Congress. The Commission was created on October 30, 2000, by the Floyd D. Spence National Defense Authorization Act of 2001. The 418-page unclassified report reveals the increasing threat that China poses to the U.S. economy and national security, so one can only imagine how much more serious threats were detailed in the separate classified report that was also submitted.

The report covers the following areas (abbreviated):

• Proliferation Practices -- The role of China in the proliferation of weapons of mass destruction and other weapons (including dual-use technologies)
• Economic Transfers -- The qualitative and quantitative nature of the transfer of U.S. production activities to China, including the relocation of high technology, manufacturing, and research and development facilities, the impact of such transfers on U.S. national security, the adequacy of U.S. export control laws, and the effect of such transfers on U.S. economic security and employment
• Energy -- The effect of the large and growing economy of China on world energy supplies and the role the U.S. can play (including joint research and development efforts and technological assistance), in influencing the energy policy of China.
• U.S. Capital Markets -- The extent of access to and use of U.S. capital markets by China, including whether or not existing disclosure and transparency rules are adequate to identify China companies engaged in harmful activities
• Regional Economic and Security Impacts -- The triangular economic and security relationship among the United States, [Taiwan] and China (including the military modernization and force deployments of China aimed at [Taiwan]
• U.S.–China Bilateral Programs -- Science and technology programs, the degree of noncompliance by China with agreements between the U.S. and China on prison labor imports and intellectual property rights, and U.S. enforcement policies with respect to such agreements.
• World Trade Organization Compliance -- The compliance of China with its accession agreement to the World Trade Organization (WTO)
• Freedom of Expression -- The implications of restrictions on speech and access to information in China for its relations with the U.S. in the areas of economic and security policy

Since it would difficult to summarize the key points of the whole report, this article only highlights the areas posing a threat to the economy and national security of the U.S.

The report states that China is now the second-largest economy in the world and the world’s largest manufacturer, surpassing the U.S. in this ranking for the first time. Its market exceeds that of the U.S. in industries such as automobiles, mobile handsets, and personal computers. China’s gross domestic product (GDP) has grown from $1.32 trillion in 2001 to a projected $5.87 trillion in 2011, representing an increase of more than 400%.

China continues to maintain an export-driven economy with policies that subsidize Chinese companies and undervalue their currency (renminbi or RMB). While the RMB rose by roughly 6% over the last year, it is still widely believed to be undervalued by as much as 30%-40%. "For the first eight months of 2011, the U.S. trade deficit with China increased 9% over the same period in 2010. The U.S. trade deficit with China is now more than half of the total U.S. trade deficit with the world. In the year to date ending August 2011, the United States exported about $13.4 billion in advanced technology products to China, but imported over $81.1 billion in advanced technology products from China, for a deficit of about $67.7 billion. This is a 17% increase in the advanced technology products deficit for the same period over the previous year, ending in August 2010."

The Chinese economy and its product exports are moving up the value chain. On a monthly basis, the U.S. now imports roughly 560% more advanced technology products from China than it exports to China. Exports of low-cost, labor-intensive manufactured goods as a share of China’s total exports decreased from 37% in 2000 to 14% in 2010.

“China’s foreign currency reserves are skyrocketing. A major contributor to this phenomenon is China’s continued policy of maintaining closed capital accounts. China’s foreign currency reserves exceed $3 trillion, three times higher than the next largest holder of foreign currency reserves, Japan." Building currency reserves is one of the main goals of China’s predatory mercantilism trade policies.

China’s domestic money supply is becoming out of control. "Between 2000 and 2010, China’s money supply grew by 434%. China’s money supply is now ten times greater than the U.S. money supply, despite the fact that China’s GDP is only one-third as large."

View article on one page