"The U.S.-China Economic and Security Review Commission is watching the events now unfolding in Hong Kong with great concern. We support an open and democratic system in Hong Kong based on universal suffrage, freedom of expression, and freedom of assembly. As called for in the Basic Law, Hong Kong should have a high degree of autonomy, which is essential to maintaining its long-term stability and prosperity. To do so, we urge Hong Kong’s leadership to adopt an election process based on universal suffrage which provides a genuine choice of candidates representing the true aspirations of the Hong Kong people.
Hong Kong’s traditions of openness and freedom are well-established. We urge Hong Kong and Chinese authorities to exercise restraint and to respect protestors’ right to continue to express their views on Hong Kong's future in a peaceful manner."
On November 19, the Commission will publicly release its annual report, which will include recommendations to Congress on Hong Kong.
Highlights of this month’s edition:
Bilateral trade: Monthly U.S. trade deficit with China declines 2.2 percent but year-to-date deficit up 4.1 percent; U.S. exports to China continue to rise, while imports slow; Bilateral policy issues: Inflows and outflows of FDI in China decline amid anticorruption and antimonopoly crackdowns; Policy trends in China’s economy: The People’s Bank of China, the central bank, is injecting RMB 500 billion into China’s five largest banks on concerns over economic slowdown; the State Council introduced new measures to boost small companies; and Sector spotlight – China-India-U.S. Economic Relations: In mid-September, President Xi Jinping made his inaugural visit to New Delhi as China’s head of state. Two weeks later, India’s Prime Minister Narendra Modi traveled to Washington for the first time since taking office in May. The two visits mark an important step in the development of triangular relationship between the United States, China and India.
Since its last overhaul in 1994, China’s flawed fiscal system has muddled through. Local debt, slowing revenue, and greater spending obligations are now spurring a new round of reform under President Xi Jinping;
By eliminating the so-called “business tax,” Beijing is allowing services companies to enjoy the same tax deductions and rebates manufacturers do. The government may also establish a price-based tax on coal and a recurring tax on property;
The government ultimately seeks to rebalance the economy. Fiscal reform could boost services, prevent housing bubbles, redistribute income, and reduce pollution. But it will be difficult to implement in China’s segmented economy and authoritarian system;
The central government has a clear vision for improving budget flexibility and transparency. Yet it remains ambivalent about how to share revenue, spending responsibilities, and borrowing authority with local governments.
• Chinese authorities have used Hong Kong’s position as a global financial center to promote the use of the RMB abroad. Hong Kong is the oldest and largest market for offshore RMB transactions, and will remain so despite the emergence of several other offshore contenders.
• To date, RMB internationalization efforts have involved three main channels: offshore RMB deposit accounts and bonds, use of the RMB for cross-border trade settlement, and establishment of RMB swap lines between the People’s Bank of China and other central banks.
• Despite growth in onshore and offshore use, the RMB cannot become a true international currency until Chinese authorities liberalize China’s capital account, allowing for unrestrained movement of financial flows.
In May 2014, Alibaba, China’s leading e-commerce website, filed for a U.S.-based initial public offering (IPO) in what is expected to be one of the largest in U.S. history. The highly anticipated IPO will be just one in a recent wave of Chinese Internet companies launching IPOs in the United States. The trend has raised some misgivings among U.S. regulators about the corporate structures of these companies. To bypass Chinese government restrictions on foreign investment in the Internet sector, Chinese Internet companies use a complex and highly risky mechanism known as a Variable Interest Entity (VIE).
An addendum was added to this paper on September 12, 2014.
This report examines 35 years of cooperation between the United States and China in the areas of science and technology (S&T) since the signing of the 1979 U.S.-China Science and Technology Cooperation Agreement.
The U.S.-China Economic and Security Review Commission was created by the United States Congress in October 2000 with the legislative mandate to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.