The U.S. Congress should press the Treasury Department to label China a currency manipulator and encourage trade authorities to consult the World Trade Organization on Chinese export controls, procurement policies and subsidies, said the U.S.-China Economic and Security Review Commission.
"China promotes industrial policies that manipulate trade rules to benefit domestic firms to the detriment of American and other foreign competitors," the bipartisan commission said in its annual report to Congress.
"China protects many domestic industries through an increasingly restrictive investment regime and export restrictions," it said.
In addition to suppressing the value of its currency to boost exports, China has implemented "indigenous innovation" policies that require foreign investors to transfer technology to Chinese partners and limit non-Chinese firms' access to China's large government procurement market, it said.
The report comes just days after President Barack Obama attended a summit of the Group of 20 major economies in South Korea and tried, unsuccessfully, to get China to revalue its yuan currency and cut its huge trade surplus.
"The U.S. trade deficit with China is a major drag on the U.S. economy," said the report, noting the United States ran a $264 billion trade deficit with China in 2009.
The report offered a bleak assessment of benefits to the United States from China's joining the WTO a decade ago.
"Predictions of a more balanced trade relationship between the two countries as a result of China's entry into the WTO have proven false," the commission said.
Chairman Dan Slane said the heavy, and increasing, government role in China's economy was not compatible with the free-trade system envisioned by the WTO.
US Companies vs Beijiang
"That changes the whole matrix: American companies aren't competing with Chinese companies. They're competing with the Chinese government," he told reporters.
In a separate report that echoed some commission concerns, the U.S.-China Business Council said its members -- roughly 220 U.S. businesses with links to China -- continue to do well in China but are concerned about how market access barriers could affect their future operations.
The U.S.-China Economic and Security Review report said fears that China might dump its holdings of more than $1 trillion in U.S. debt were overblown, because Beijing had few alternatives to the dollar and would hurt the value of its holdings if it sold off Treasury bills.
"China's purchases of dollar-denominated debt are part of its system of capital controls, designed to keep the renminbi undervalued as an aid to China's exports," the report said. "For these reasons, China's threats to dump the dollar are not credible."
The panel also expressed concern that many U.S. solar, wind and other green energy companies have been put "at a strategic disadvantage" by Chinese subsidies and market barriers.
It urged Congress to consider boosting support for U.S. producers and said the Obama administration should press China to ensure its market is open "to imported green technology products, including solar, wind and battery products."
Military Implications
In the security portion of the 328-page report, the commission said China's air and missile modernization advances meant that "Beijing's ability to threaten U.S. forward-deployed forces and bases in the (Pacific) region is improving."
China's military modernization also has been accompanied by "renewed forcefulness" in its vast territorial claims in the South China Sea that are disputed by Vietnam and other Southeast Asian states, the report said.
"If you take what we put in this report and then put it in the context of the daily news, there are a lot of reasons to be concerned about China's growing assertiveness in the region," Commission
