China's Financial Incentive Strategy

Americans pride themselves as the world's leading capitalists, but when it comes to attracting manufacturing investment, China may be well ahead of the game, according to experts at a news briefing on the latest U.S.-China Economic and Security Review Commission report.

Complaints by Chinese leaders that the United States is moving toward protectionism are "ironic" given Beijing's moves toward "even greater government control of their economy," according to Carolyn Bartholomew, the bipartisan commission's chair.

Bartholomew says China is employing a multi-faceted policy involving artificially low currency valuation, cheap labor and a variety of financial incentives to attract foreign business investment and promote exports. In particular, Bartholomew points out that China's industrial policy chooses particular industrial segments as "national champions" and "throws everything it has at supporting those industries and protecting them from foreign competition."

Bartholomew told reporters there are reports that China's next five-year plan will focus on promoting green technology. She says there is concern that the U.S. will lose its competitve edge on green technology "before we really even get going."

Bartholomew said Chinese incentives to companies are resulting not only in the loss of manufacturing jobs in the U.S., but also the movement of research and development to China. "Once you have lost R&D capability as well as manufacturing capability, you lose your innovation capability," she warns.