Tag: China’s military

The US-China Economic and Security Review Commission has just released its 2017 “Report to Congress.” The Commission’s analysis reveals that Beijing’s meteoric economic rise in recent years is beginning to show some strain and  increasing debt. Of particular concern to Americans is the vast deficit the U.S. has in its trade relations, some of which has been generated by China’s unfair trade practices.  Perhaps the most worrisome aspect is Beijing’s continued massive growth in military power, and the aggressive nature of Chinese relations with nations within its region.  We have excerpted the key findings of the Report, and present them in four parts without comment. 

CHINA’S DOMESTIC INFORMATION CONTROLS, GLOBAL MEDIA INFLUENCE, AND CYBER DIPLOMACY

In 2017, the CCP tightened its control over media and online content. Authorities shut down independent media, penalized companies for disseminating news content without authorization, and eroded the privacy of Internet users in China by forcing them to connect their online profiles to their real names. As a result of a crackdown on “unauthorized” virtual private networks (VPNs), many popular VPN apps have been removed from online stores, and some VPN distributors based in China have been prosecuted and harassed by the state. VPNs have historically been one of the only reliable methods of circumventing China’s censorship of the Internet; this censorship functions as a “tax” by forcing users to spend more time and money to access blocked content. The Chinese government’s nascent “social credit” program, which relies on accumulated user data to build comprehensive profiles of Chinese citizens, is set to usher in a period of pervasive personal surveillance and social engineering. Multinational corporations with operations in China also have become unsettled by the tightening information controls, which many said negatively impact their business.

Amid the crackdown on independent media, and as journalists increasingly fear the repercussions of pursuing sensitive stories, investigative reporting in China has gradually diminished. Foreign journalists and their local assistants in China now face more restrictions and harassment than at any other time in recent history. The Chinese government also delays or denies visas from foreign journalists; in at least one case in 2016, Chinese authorities held up a visa for a foreign journalist until they were satisfied that another recent hire by the same press agency would not be covering human rights. Foreign correspondents also are increasingly being summoned by local authorities for informal interrogations.

Meanwhile, Beijing has rapidly expanded its overseas media influence by growing its overseas press corps and by exerting pressure on foreign publications both indirectly and directly. In April, the Chinese government also launched a major international media campaign to discredit a Chinese whistleblower living in the United States. In August, the Turkish foreign minister vowed to eliminate anti-China media reports in that country. Chinese authorities also (ultimately unsuccessfully) pressured Cambridge University Press to censor several of its academic publications. At the same time, China’s influence over Hollywood and the U.S. entertainment industry has grown.

The Chinese government has been promoting its views of “Internet sovereignty,” including in international fora, to legitimize its monitoring and control the Internet in China. This concept entails that a government has the right to monitor and control the networks in its territory and the content that Internet users there access and transmit. Beijing also advocates for a “multilateral” system of Internet governance in which national governments are the main actors. These views sharply contrast with longstanding U.S. support for the “multistakeholder” model, in which governmental, industry, academic, and other nonstate organizations have an equal role in the management of the Internet.
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CHINA’S HIGH TECH DEVELOPMENT

The Chinese government is implementing a comprehensive, long-term industrial strategy to ensure its global dominance in computing, robotics, artificial intelligence (AI), nanotechnology, and biotechnology. This strategy is laid out in the 13th Five-Year Plan, and the Made in China 2025 and Internet Plus initiatives and continues China’s state-directed approach over the last six decades to build internationally competitive domestic firms. Beijing’s ultimate goal is for domestic companies to replace foreign companies as designers and manufacturers of key technology and products first at home, then abroad. It utilizes state funding, regulations, China-specific standards, localization targets, government procurement, foreign investment restrictions, recruitment of foreign talent, close integration of civilian and military technology development, and, in some cases, industrial espionage.

China is also leveraging the openness of the United States and other market-based economies to gain access to advanced research and data, recruit a globally talented workforce, acquire and invest in leading edge firms, and freely sell their products and services abroad. The scale and volume of government resources directed toward these sectors undermines the ability of foreign firms to fairly compete in China’s market and creates distorted global and domestic market conditions and rampant overproduction and overcapacity. In addition, China’s high market access barriers for foreign firms, localization targets, and China specific standards further restrict foreign competition’s access to China’s rapidly growing market, a major loss of market and job opportunities.

The United States remains a global technological and innovation leader in many cutting-edge, dual-use technologies due to its world-renowned universities, innovation ecosystem, federal funding of basic research and development (R&D), and recruitment of the world’s brightest minds. But falling and inconsistent federal R&D spending, reduced openness to global talent, and lack of interagency coordination are undermining these drivers of U.S. innovation to China’s advantage. Loss of global leadership in these key high-value-added, dual-use sectors is detrimental to U.S. long-term economic growth, weakening U.S. firms’ competitive edge, and reducing the capabilities, capacity, and resilience of the U.S. defense industrial base.

The US-China Economic and Security Review Commission has just released its 2017 “Report to Congress.” The Commission’s analysis reveals that Beijing’s meteoric economic rise in recent years is beginning to show some strain and  increasing debt. Of particular concern to Americans is the vast deficit the U.S. has in its trade relations, some of which has been generated by China’s unfair trade practices.  Perhaps the most worrisome aspect is Beijing’s continued massive growth in military power, and the aggressive nature of Chinese relations with nations within its region.  We have excerpted the key findings of the Report, and present them in four parts without comment. 

CHINA AND THE WORLD

China and continental Southeast Asia

China’s relations with Burma (Myanmar), Cambodia, Laos, and Thailand are driven by two broad goals: taking advantage of Southeast Asia’s economic potential and balancing the region’s geopolitical opportunities against its security vulnerabilities. In pursuit of these goals, China has leveraged its economic importance to Southeast Asia and capitalized on regional countries’ infrastructure needs. China has also forged ties with key regional political groups, particularly in Burma where China has supported different sides of Burma’s ethnic conflict.

Economically, the region boasts some of the highest growth rates in the world as well as valuable mineral and agricultural resources, such as Burma’s $31 billion jade trade. China uses a number of tactics to exploit the region—including trade links, infrastructure projects, and assistance packages—in a way that benefits China’s economic interests. For example, Chinese infrastructure projects in the region will help give Chinese exporters a competitive edge in regional markets and ameliorate excess capacity in China’s construction sector. Chinese firms have also invested in plantations and mineral extraction projects that have harmed host countries, including jade smuggling in Burma and pesticide-heavy plantations in Laos that have left thousands of workers sick.

Geopolitically, China desires stability and leverage along its 1,370 mile border with Burma where fighting between ethnic armed groups and Burma’s army has claimed the lives of Chinese citizens. China sees an opportunity to bypass its energy supply vulnerabilities in the Strait of Malacca by establishing transportation corridors through Burma and has built oil and natural gas pipelines connecting China to Burma’s Indian Ocean coast, where China seeks to control a key port. China has used regional countries’ membership in the Association of Southeast Nations (ASEAN) to its advantage—China’s financial support and close relationship with Cambodia has been pivotal to preventing joint ASEAN opposition to China’s land reclamation in the South China Sea. Finally, following the coup in Thailand, China has sought to move closer to the U.S. treaty ally, and has exceeded the United States in arms sales to Thailand, although the degree to which Thai-China ties have improved is uncertain.

Geopolitically, China desires stability and leverage along its 1,370 mile border with Burma where fighting between ethnic armed groups and Burma’s army has claimed the lives of Chinese citizens. China sees an opportunity to bypass its energy supply vulnerabilities in the Strait of Malacca by establishing transportation corridors through Burma and has built oil and natural gas pipelines connecting China to Burma’s Indian Ocean coast, where China seeks to control a key port. China has used regional countries’ membership in the Association of Southeast Nations (ASEAN) to its advantage—China’s financial support and close relationship with Cambodia has been pivotal to preventing joint ASEAN opposition to China’s land reclamation in the South China Sea. Finally, following the coup in Thailand, China has sought to move closer to the U.S. treaty ally, and has exceeded the United States in arms sales to Thailand, although the degree to which Thai-China ties have improved is uncertain.

China and Northeast Asia

Northeast Asia—encompassing China, Japan, North Korea, and South Korea—is the locus of some of the most pressing security challenges in Asia. Two of these countries—Japan and South Korea—are U.S. treaty allies. North Korea, on the other hand, is highly antagonistic to the United States and a threat to global peace and security.

Although Beijing increasingly is frustrated and concerned by Pyongyang’s missile and nuclear testing and escalatory rhetoric, China is North Korea’s top trading partner, most reliable supporter, and treaty ally. China is necessarily a key player in any significant international effort to manage the North Korean threat, and took some steps to strengthen international sanctions against North Korea in 2017. It is too soon to measure China’s compliance with the latest rounds of sanctions, which, if implemented fully, would significantly constrain the North Korean regime’s ability to fund its nuclear and conventional weapons programs. Given China’s lackluster record of previous sanctions enforcement and continued sanctions violations by Chinese companies exporting dual-use items to North Korea, however, the United States and the international community should keep their expectations low. China’s reluctance to assist with the U.S.-led effort to neutralize the North Korean threat is also driven by Beijing’s belief that Washington’s North Korea policy is designed to strengthen U.S. regional alliances and military posture to contain China.

China-South Korea relations are evidence of this belief. After years of generally positive bilateral relations buoyed by robust trade and cooperative efforts by the countries’ top leaders, the China-South Korea relationship took a negative turn starting in 2016 over the planned deployment of a U.S. Terminal High Altitude Area Defense (THAAD) missile defense system to South Korea. China indicated its displeasure with this development by mounting a massive economic retaliation campaign against South Korea, causing millions of dollars in losses and forcing one South Korean company to cut back on operations in China. Comparing China’s harsh rhetorical response to THAAD and its lukewarm response to North Korea’s provocations, it appears Beijing finds U.S.-South Korea missile defense cooperation to be a greater threat to Chinese interests than a nuclear-armed North Korea. China has clearly signaled to South Korea that cooperation with the United States will be met with punishment from Beijing. This puts Seoul, which already struggles to balance its relations with Washington and Beijing, in a strategically difficult position, and will necessarily complicate U.S. efforts to enhance cooperation with South Korea going forward.

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In the near term, Chinese aggression toward Japan and economic coercion against South Korea seem to be driving both countries toward closer security cooperation with the United States. Prospects for enhanced South Korea-Japan security cooperation are less certain, however, and longstanding tensions between the two countries complicate U.S. efforts to evolve Northeast Asia’s security architecture from a “hub and spokes” model to a more integrated trilateral cooperative structure.

China and Taiwan

Cross-Strait relations entered a period of increased tension after President Tsai Ing-wen was elected in January 2016, as Beijing steadily increased pressure on Taiwan. Despite President Tsai’s cross-Strait policy of “maintaining the status quo,” Beijing has been displeased with her unwillingness to endorse the “one China” framework for cross-Strait relations (a 1992 framework Taipei and Beijing endorsed during the previous administration in Taiwan that acknowledges there is “one China,” but that allows each side to maintain its own interpretation of the meaning of “one China”). The measures Beijing is employing to pressure Taiwan include suspending official and semiofficial cross-Strait communication and meetings; establishing diplomatic relations with three of Taiwan’s former diplomatic partners (The Gambia, Sao Tome and Principe, and Panama); reducing the number of Chinese group tours to Taiwan and Chinese students who can attend Taiwan universities; refusing to facilitate repatriation to Taiwan of citizens accused of telecommunications fraud in countries with which Taiwan does not have diplomatic relations; and blocking Taiwan’s participation in certain international fora, such as the International Civil Aviation Organization and the UN World Health Assembly. A complicating factor in cross-Strait relations is Taiwan’s dependence on China-bound exports. China remains Taiwan’s largest trading partner, biggest export market, and top source of imports, giving Beijing significant economic leverage over Taipei. President Tsai has sought to reduce Taiwan’s reliance on China by diversifying Taiwan’s economic ties. Central to this effort is President Tsai’s New Southbound Policy, which seeks to strengthen trade, investment, people-to-people, and other links with countries in Southeast Asia, South Asia, and Oceania. The policy already has led to increased tourism to Taiwan, with the number of visitors from New Southbound Policy target countries increasing 28.6 percent in the first six months after the policy was enacted.

China’s military modernization program remains focused on deterring Taiwan from moving toward formal independence and preparing the Chinese military for a cross-Strait conflict. Faced with a growing threat from China’s military modernization, Taiwan has sought to enhance its own military capabilities in part by indigenously developing combat ships, aircraft, and weapons systems. Advanced antiship cruise missiles, air defense missiles, and fast attack and stealthy catamaran-style patrol ships are among the newest platforms and weapons systems Taiwan has produced. In 2017, Taiwan launched programs to build submarines and advanced jet trainers. Taiwan also seeks to enhance its military capabilities through the procurement of military equipment from the United States. In June 2017, the U.S. Department of State announced its approval of seven foreign military sales and one direct commercial sale to Taiwan valued at $1.4 billion, including AGM-154C joint stand-off weapon air-to-ground missiles and AGM-88B high-speed antiradiation missiles, among other items.

President Tsai has emphasized enhancing Taiwan’s economic relations with the United States as a top priority for her administration. Although there remain obstacles for U.S.-Taiwan trade (particularly the decade-long dispute over Taiwan’s ban on U.S. pork products), both Washington and Taipei remain committed to furthering their economic relationship. Beyond commercial and security ties, U.S.-Taiwan cooperation spans many other areas, including environmental protection, cybersecurity, education, public health, and science and technology. Taiwan’s robust democracy, civil society, and technology sector, and its vast expertise and experience in areas such as humanitarian assistance and disaster relief, make it a strong partner for the United States.

China and Hong Kong

In 2017, 20 years after Hong Kong’s handover from the United Kingdom to China, Beijing continued to erode the spirit of the “one country, two systems” policy that has guided its relationship with Hong Kong since 1997. (This policy grants Hong Kong and Macau the right to self-govern their economy and political system to a certain extent, excluding foreign affairs and defense.) The Chinese government increased its interference in the territory’s political affairs, becoming more pervasive in Hong Kong’s government and civil society. Several notable examples include Beijing’s use of legal measures to vacate the seats of six democratically-elected legislators for altering their oaths of office before taking office; its reported involvement in the apparent extralegal abduction of a Chinese billionaire from Hong Kong; and its active efforts to ensure Carrie Lam Cheng Yuet-ngor was selected as the territory’s new chief executive. Hong Kong’s rule of law, widely viewed as central to its unique status and a key distinguishing characteristic from the Mainland, is being challenged on many fronts. Freedom of expression in the territory—as guaranteed by China’s handover agreement with the UK and the Basic Law, Hong Kong’s mini constitution— also faces mounting challenges; these range from a crackdown on prodemocracy activists to pressure on the media, universities, and others to self-censor and conform to Beijing’s views.

As it has done in other aspects of Hong Kong’s politics and society, Beijing has become more active in asserting its presence in Hong Kong’s economy. For example, in 2017, Hong Kong-listed Chinese state-owned enterprises were ordered to include a formal role for the CCP in their articles of association, raising concerns among investors who feel the Chinese government is interfering in business operations. Integration of the mainland and Hong Kong economies continues to deepen, with the launch of the Shenzhen-Hong Kong Stock Connect and the China-Hong Kong Bond Connect serving as the latest in a series of measures aimed at attracting global investors to China’s domestic markets. Hong Kong’s strong rule of law and economic openness have long made it an important destination for international trade and investment. However, some observers are beginning to question Hong Kong’s ability to maintain its status as Asia’s premier financial center if companies and individuals lose confidence in the territory’s rule of law, political autonomy, and other freedoms as they are eroded by Beijing.

Mainland China’s increasing encroachment on Hong Kong’s promised “high degree of autonomy” poses obstacles for the United States in carrying out its policy objectives in the territory. Hong Kong is a major destination and partner for U.S. trade and investment and plays a valuable role as a participant in important international economic organizations. In light of China’s recent intrusions into Hong Kong’s democratic institutions, some observers argue the territory is losing its unique characteristics that make it a close U.S. partner in the Asia Pacific. U.S. allies and partners in the region, particularly Taiwan, also are closely watching these developments with unease. The Mainland’s adherence to its commitments regarding Hong Kong is necessary to ensure continued strong ties between the United States and the territory.

The Report Concludes Tomorrow.

The US-China Economic and Security Review Commission has just released its 2017 “Report to Congress.” The Commission’s analysis reveals that Beijing’s meteoric economic rise in recent years is beginning to show some strain and  increasing debt. Of particular concern to Americans is the vast deficit the U.S. has in its trade relations, some of which has been generated by China’s unfair trade practices.  Perhaps the most worrisome aspect is Beijing’s continued massive growth in military power, and the aggressive nature of Chinese relations with nations within its region.  We have excerpted the key findings of the Report, and present them in four parts without comment. 

U.S.-China Security Relations

China’s territorial disputes in the South China Sea and in South Asia flared in 2017. China continued to rely primarily on nonmilitary and semiofficial actors (such as the China Coast Guard and maritime militia) to advance its interests in the disputed South China Sea, straining already-unsettled relations with the Philippines and Vietnam. The 2016 ruling by the Permanent Court of Arbitration in The Hague, which overwhelmingly sided against China’s position, has not deterred Beijing. China’s territorial assertiveness was also on display when Chinese armed forces attempted to consolidate control over territory disputed by Bhutan and India. Ultimately, India was more successful than the Philippines and Vietnam in countering Chinese coercion.

China’s One Belt, One Road initiative continued to expand in 2017. Although China claims the mega-project is primarily economic in nature, strategic imperatives are at the heart of the initiative. China aims to use One Belt, One Road projects to expand its access to strategically important places, particularly in the Indian Ocean; to enhance its energy security; and to increase its leverage and influence over other countries.

The People’s Liberation Army continues to extend its presence outside of China’s immediate periphery by opening its first overseas military base in Djibouti, increasing its contributions to UN peacekeeping operations, and conducting more bilateral and multilateral exercises. China’s arms exports continued to grow in volume and sophistication in 2017, although they remain limited to low- and middle-income countries and are dwarfed by U.S. and Russian sales in value. The People’s Liberation Army’s expanded exercise portfolio includes new partners, such as Burma and Nepal, as well as long-time partners Pakistan and Russia. China’s defense ties with Russia continued an upward trend in 2017.

U.S.-China security relations saw new dialogue formats emerge following the U.S. presidential transition, but were marked by growing tension due to disagreements over issues such as North Korean denuclearization and China’s continued coercive actions in regional territorial disputes.

CHINA’S MILITARY MODERNIZATION IN 2017

China’s military modernization program seeks to advance Beijing’s security interests, prevent other countries from challenging those interests, and defend China’s sovereignty claims to disputed areas along its border and maritime periphery. The weapons and systems under development and those that are being fielded by China’s military—such as intermediate-range ballistic missiles, bombers with long-range precision strike capabilities, and guided missile nuclear attack submarines—are intended to provide China the capability to strike targets further from shore, such as Guam, and potentially complicate U.S. responses to crises involving China in the Indo-Pacific.

China will continue to modernize strategic air and sea lift capabilities, which will enable China’s military to conduct expeditionary operations. The continued production of the Chinese navy’s amphibious lift ships and the air force’s heavy lift transport aircraft will increase China’s ability to deliver troops abroad and to conduct expeditionary operations beyond the first island chain, humanitarian assistance operations, and noncombatant evacuation operations.

China’s increasingly accurate and advanced missile forces are intended to erode the ability of the United States to operate freely in the region in the event of a conflict and are capable of holding U.S. forces in the region at risk.

China’s continued focus on developing counterspace capabilities indicates Beijing seeks to hold U.S. intelligence, surveillance, and reconnaissance satellites at risk in the event of conflict.

The consolidation of space, cyber, electronic warfare, signals, and potentially human intelligence capabilities under the Strategic Support Force provides China a centralized all-source intelligence apparatus to support national-level decision makers. Furthermore, this development could strengthen the Chinese military’s ability to conduct integrated joint operations by providing a wide range of collection capabilities including intelligence, surveillance, and reconnaissance support to commanders responsible for operational forces under the military’s five theater commands.

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PLA GROUND FORCES • 850,000 Troops • 13 Group Armies • 78 Combined Arms Brigades • 2 Infantry Brigades • 4 Infantry Divisions • 1 Mechanized Infantry Brigade • 15 Air Defense Brigades • 14 Army Aviation Brigades • 15 Artillery Brigades • 1 Airborne Corps • 15 Special Operations Brigades • 7,000 Tanks • 8,000 Artillery Pieces PLA AIR FORCE AND NAVAL AVIATION • 1,700 Fighter Aircraft • 400 Bombers/Attack Aircraft • 475 Transport Aircraft • 115 Special Mission Aircraft PLA NAVY • 1 Aircraft Carrier • 26 Destroyers • 55 Frigates • 34 Corvettes • 86 Coastal Patrol (Missile) Boats • 27 Tank Landing Ships • 4 Amphibious Transport Docks • 21 Medium Landing Ships • 57 Diesel Attack Submarines • 5 Nuclear Attack Submarines • 4 Nuclear Ballistic Missile Submarines PLA ROCKET FORCE • 75-100 Intercontinental Ballistic Missiles • 200-300 Medium-Range Ballistic Missiles • 1,200 Short-Range Ballistic Missiles • 200-300 Ground-Launched Cruise Missiles • 200-300 Land-Attack Cruise Missiles

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CHINA’S PURSUIT OF ADVANCED WEAPONS

China is pursuing a wide range of military technologies at the global frontier—weapons just now being developed or not yet developed by any country. Advanced systems such as maneuverable reentry vehicles, hypersonic weapons, directed energy weapons, electromagnetic railguns, counterspace weapons, and unmanned and AI-equipped weapons contribute to China’s longstanding goal of military modernization and its efforts to compete militarily with the United States. They also go hand in hand with Beijing’s desire for the country to become a leading high technology power across commercial and dual-use areas. China’s government has taken a comprehensive approach to the development of key dual-use technologies, leveraging state funding, licit and illicit technological exchange, foreign investment, and talent recruitment opportunities to build national champions and advance its military capabilities.

Although information regarding China’s advanced weapons programs is not always publicly available, numerous open source writings, government statements, and testing and deployment activities indicate Beijing has undertaken vigorous efforts in these areas. China revealed two antiship ballistic missile systems with reported maneuverable reentry vehicle capabilities in 2010 and 2015, respectively, and has taken steps toward developing the reconnaissance-strike complex necessary to successfully strike a moving target at sea, still unproven. China’s hypersonic weapons program appears to be in developmental stages but progressing rapidly, featuring seven likely hypersonic glide vehicle tests since 2014 and a reported scramjet engine flight test in 2015. Following a deep history of research into directed energy weapons, China’s progress includes reported advancements in developing a highpower microwave antimissile system in 2017, at least one chemical high energy laser designed to damage or blind imaging satellites as of 2006 (with likely further developments), and recent marketing of low-power solid state laser weapons. China has reportedly built experimental electromagnetic railguns, and numerous research institutes in China are studying aspects of electromagnetic launch technology. China’s technology tests applicable to counterspace weapons include direct-ascent antisatellite missiles, ground-based directed energy weapons, and rendezvous and proximity operations; and its writings and capabilities indicate the potential for directed energy weapons based on co-orbital platforms. Finally, in addition to developing and marketing a wide range of unmanned systems, China has conducted research into autonomous systems such as AIequipped cruise missiles, autonomous vehicles, and drone swarms, alongside its rapid rise in the global commercial AI sector.

While the United States appears to retain a lead in developing most of these systems according to public reports, China likely possesses the key factors (scientific knowledge, critical components, and skills and techniques) necessary to successfully develop advanced weapons. China is able to access scientific knowledge through publicly available information, academic exchanges, and strong efforts to cultivate human talent. Its advances in computing and robotics provide critical components for next frontier weapons: semiconductors are key to intelligent weapons systems; supercomputing is crucial for weapons design and testing; industrial robotics enhances the quality and efficiency of manufacturing; and national champions in the commercial robotics and AI sectors are well positioned to provide next frontier military applications. Finally, while China currently trails the United States in developing relevant skills and techniques, the only fundamental barriers to achieving these will be effort: time, will, and financial support. China appears to have the long-term plans, consistent funding, and human talent in place to eventually overcome these barriers. China may in fact be moving toward a phase of higher-end innovation, given cutting-edge advances in emerging technologies such as artificial intelligence, high-performance computing, and quantum information science. Should the United States falter in its own efforts, China is well prepared to close the gap further than it already has.

China’s advanced weapons programs present both direct implications for U.S. security interests and broader implications for long-term U.S.-China defense technological competition. Breakthroughs in any of the aforementioned advanced weapons categories would contribute to China’s antiaccess/area denial capabilities and directly challenge U.S. advantages. Notable examples include the potential for antiship ballistic missiles to hold U.S. surface ships at risk; for hypersonic weapons to defeat kinetic missile defenses, if capable of sufficient speed and maneuverability; for directed energy weapons and railguns to undermine future U.S. military concepts such as using distributed low-cost platforms to assure access to contested environments; for counterspace weapons to deny key space-based systems to the U.S. military in a contingency; and for unmanned and AI-equipped weapons in large numbers to saturate U.S. air defenses, particularly by using swarm technology. China is poised to challenge U.S. technological leadership in an environment in which dual-use commercial technology increasingly contributes to military technological strength. As the United States seeks to ensure it is prepared to deter aggression and defend key interests in the Asia Pacific, such as the security of allies and partners, the peaceful resolution of disputes, and freedom of navigation, recognizing these critical challenges will be crucial.

HOTSPOTS ALONG CHINA’S MARITIME PERIPHERY

U.S. presence and alliance commitments have helped maintain regional stability in Asia. China’s aggressive actions in the East China Sea, South China Sea, and Taiwan Strait threaten principles such as freedom of navigation, the use of international law to settle disputes, and free trade. If Beijing continues to increase its control over the East and South China seas, the United States could receive requests for additional assistance by allies, friends, and partners to improve their capabilities to defend themselves, along with calls for the United States to remain engaged in the region to maintain security and stability.

With China actively preparing contingency plans for operations against U.S. allies, friends, and partners along China’s maritime periphery, the United States and China could quickly become involved in a conflict if Beijing escalates. This risk becomes greater depending on the level of tensions associated with any of the following flashpoints: the Korean Peninsula, the South China Sea, the East China Sea, and cross-Strait relations.

Chinese leaders are cautious about letting a crisis escalate into conflict, and Chinese military thinkers study “war control” as a method for limiting the scope of a conflict to minimize negative consequences and achieve a victory at minimal cost. However, if Beijing believes the risk of a response to Chinese action is low, China may be tempted to risk brinksmanship to achieve its national objectives. Furthermore, if Beijing is unable to avoid escalation, any crises involving the use of the People’s Liberation Army (PLA) create opportunities to widen a crisis into a conflict that results in the use of force.

China has emphasized building a military capable of responding to situations in multiple regions and has developed theater commands capable of planning and executing missions in their respective areas of responsibility. A key element of success in achieving operational objectives, however, will be managing resources across multiple theaters should China find itself challenged in multiple directions simultaneously. This could create an opportunity to dissuade Chinese aggression or potentially result in Beijing escalating or accelerating a conflict.

The PLA presently lacks the amphibious lift to directly assault Taiwan, and would instead have to successfully seize ports and airfields for the flow of follow-on forces to conduct onisland operations. Likewise, sustaining a prolonged air and maritime blockade against Taiwan is likely to strain PLA logistical capabilities, potentially disrupt trade routes through East Asia, and inhibit freedom of navigation in the region. These are high risk operations for China, and may be conducted only after other coercive options are exhausted.

Military facilities currently under construction in the Spratly Islands are intended to improve the PLA’s operational reach by strengthening logistical support, extending operational reach, and bolstering the military’s capability to monitor potential adversaries. Once these outposts are completed, they will improve the PLA’s ability to take action against Vietnamese or Filipino forces on adjacent features if so ordered. China’s militarization of these features is therefore inherently destabilizing for its neighbors who have overlapping sovereignty claims.

There are several U.S. alliances and other commitments that could be activated by a maritime hotspot conflict with Japan, the Philippines, or Taiwan. Depending on the scenario, the United States could be expected to become involved in a conflict, although China will seek to discourage this by many means, possibly to include ensuring conflict remains in the “grey zone” where U.S. defense commitments are uncertain and the onus of escalation is shifted to China’s adversary.

The forward presence of U.S. forces in East Asia, coupled with the treaty alliances and partnerships of the United States in the region, constitute the most important factor in deterring Chinese adventurism. Nevertheless, they also increase the likelihood, should deterrence fail, that the United States becomes involved in armed conflict. The Commission has documented in previous reports how the balance of military power in the region has shifted in China’s direction. Should that shift continue without a change in U.S. policy, there is a danger that Chinese leaders will consider the United States an obstacle to their ambitions that must be removed. In that event, Beijing may decide to escalate a crisis when the circumstances seem favorable to the achievement of China’s larger ambitions.

The Report Continues Tomorrow.

The US-China Economic and Security Review Commission has just released its 2017 “Report to Congress.” The Commission’s analysis reveals that Beijing’s meteoric economic rise in recent years is beginning to show some strain and  increasing debt. Of particular concern to Americans is the vast deficit the U.S. has in its trade relations, some of which has been generated by China’s unfair trade practices.  Perhaps the most worrisome aspect is Beijing’s continued massive growth in military power, and the aggressive nature of Chinese relations with nations within its region.  We have excerpted the key findings of the Report, and present them in four parts without comment.

ECONOMICS AND TRADE

In 2016 and the first half of 2017, the Chinese government has reported it met or exceeded the targets it set for gross domestic product (GDP) growth—an important deliverable in advance of the political leadership transitions at the Chinese Communist Party’s 19th Party Congress scheduled for October 2017. The Chinese government has achieved this high growth through reliance on old drivers: credit and real estate. However, the government’s unwillingness to allow the market to play a bigger role has resulted in deteriorating investment efficiency, meaning higher levels of debt are necessary to generate growth. Household consumption—an essential element of China’s economic rebalancing—is growing but at a sluggish pace due to the slow rate of reform.

China’s high and rising debt levels pose a growing threat to the country’s financial stability. China’s total debt reached $27.5 trillion, or 257 percent of GDP, at the end of 2016. The dramatic rise in China’s debt burden can be attributed to the relentless expansion of credit the government has relied on to generate growth since the global financial crisis.

The U.S. trade deficit in goods with China totaled $347 billion in 2016, the second-highest deficit on record. In the first eight months of 2017, the goods deficit increased 6.2 percent year-on-year to $239.1 billion, with U.S. exports to China reaching $80.2 billion, an increase of 15 percent year-on-year, while imports from China grew 8.3 percent year-on-year to $319.3 billion. In 2016, the U.S. services trade surplus with China reached a record high of $37 billion, driven almost entirely by an increase in Chinese tourism to the United States.

China’s foreign investment climate continues to deteriorate as government policy contributes to rising protectionism and unfair regulatory restrictions on U.S. companies operating in China. The newly implemented cybersecurity law illustrates this trend. The law contains data localization requirements and a security review process U.S. and foreign firms claim can be used to discriminatorily advantage Chinese businesses or access proprietary information from foreign firms.

U.S. government efforts to tackle China’s trade-distorting practices continue to yield limited results. The inaugural Comprehensive Economic Dialogue, created following a meeting between President Trump and President Xi in April 2017, concluded with no concrete agreements or future agenda.

At the World Trade Organization (WTO), the United States continues to challenge China’s non-compliance with key provisions of its accession agreement, including failure to notify subsidies. In the past year, the United States requested WTO consultations over China’s management of tariff rate quotas for rice, wheat, and corn, and subsidies to select producers of primary aluminum.

CHINESE INVESTMENT IN THE UNITED STATES

Chinese government policies, coupled with increased investor uncertainty in China, have contributed to increased investment flows to the United States in recent years. In 2017, Chinese investment flows to the United States are expected to decline relative to 2016 as the Chinese government seeks to limit capital outflows and fend off risks from mounting corporate debt.

Sectors of the U.S. economy deemed strategic by the Chinese government are more likely to be targeted by Chinese firms for investment, while Chinese investments in nonstrategic sectors like entertainment, real estate, and hospitality are declining amid Chinese Communist Party efforts to limit capital outflows and reduce corporate debt.

Some Chinese firms seek to obscure their dealings in the United States through U.S.-based shell companies or attempt to drive down the value of U.S. assets through sophisticated cyber espionage campaigns. These firms are becoming more sophisticated in their attempts to circumvent Committee on Foreign Investment in the United States (CFIUS) reviews and other U.S. investment regulations.

Greenfield investments in the United States are not subject to the CFIUS review process, which may raise national security risks. Although the number of Chinese greenfield investments in the United States remains limited compared to acquisitions of U.S. assets, federal laws and screening mechanisms do not sufficiently require federal authorities to evaluate whether a greenfield investment may pose a national security threat.

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The opaque nature of China’s financial system makes it impossible to verify the accuracy of Chinese companies’ financial disclosures and auditing reports. Chinese businesses continue to list on U.S. stock exchanges to raise capital, despite operating outside the laws and regulations governing U.S. firms.

U.S. regulators have struggled to deter Chinese fraud schemes on U.S. exchanges, with Chinese issuers stealing billions of dollars from U.S. investors. Efforts to prosecute the issuers of the fraudulent securities have been unsuccessful, with Chinese regulators choosing not to pursue firms or individuals for crimes committed by Chinese companies listed overseas.

Some Chinese companies operate with little oversight under China’s opaque financial system, leaving U.S. investors exposed to exploitative and fraudulent schemes perpetrated by China-based issuers. Negotiations between the Public Company Accounting Oversight Board and its counterparts in China have resulted in little progress toward securing increased cross-border transparency and accountability.

U.S. ACCESS TO CHINA’S CONSUMER MARKET

China’s rebalancing to a more consumption-driven growth model should present opportunities for U.S. companies in the e-commerce, logistics, and financial services sectors. However, U.S. companies operating in China do not have a level playing field and continue to face significant market access challenges, including informal bans on entry, caps on foreign equity, licensing delays, and data localization policies.

China is the largest e-commerce market in the world, with e-commerce sales reaching $787 billion in 2016. According to the U.S. Department of Commerce, by 2019 an estimated one out of every three retail dollars in China will be spent online, the highest percentage in the world. Although China has traditionally provided the world with its manufactured goods, its e-commerce boom should offer increased opportunities for U.S. retailers and brands, with more and more Chinese consumers purchasing foreign goods. Demand is strong in areas where the United States excels, such as high-quality foods and supplements, beauty products, and healthcare-related goods.

Although China’s e-commerce market offers opportunities for U.S. retailers and brands, it is not without its challenges and risks. While the Chinese government has made some improvements in enforcing intellectual property rights, intellectual property issues remain a key challenge for U.S. companies operating in China. In particular, the prevalence of counterfeit goods on Chinese e-commerce platforms continues to hurt U.S. retailers and brands.

E-commerce has been a key driver of improvements to China’s $2.2-trillion-dollar logistics sector. Yet, China’s domestic logistics industry remains underdeveloped, due to the country’s historical focus on improving export logistics at the expense of domestic logistics infrastructure. This has caused logistics to become a major bottleneck for China’s e-commerce sector. China’s efforts to develop and modernize its express delivery industry could offer U.S. logistics firms like FedEx and UPS opportunities to expand their China operations.

Financial services have been a major driver of growth within China’s services sector, increasing 11 percent annually from 2012 to 2016. However, Chinese consumers’ access to financial services remains inadequate, and most Chinese consumers lack formal credit histories. Improving their access to financial services will be critical for raising domestic consumption levels. In addition, China has made limited progress in implementing reforms to improve the market orientation and efficiency of its financial sector.

Financial services are a mainstay of the U.S. economy and a major services export to China. While China has taken some steps to expand foreign firms’ access to its financial markets since joining the World Trade Organization, U.S. financial services companies continue to face significant market access barriers in China. These include informal and formal bans on entry, equity caps, licensing restrictions, and data localization requirements. China’s new cybersecurity law poses additional challenges for U.S. financial institutions operating in China. As a result, U.S. firms’ market share in China’s financial sector has been stagnant or declining in recent years.

China has become a global leader in financial technology. China’s Internet giants have emerged as significant players not only in e-commerce and logistics, but also in China’s financial services sector, particularly in payments and lending.

The Report Continues Tomorrow.