China is pursuing a detailed industrial policy designed to attract foreign investment and production, promoting economic imbalances and undercutting the United States manufacturing base, according to a new report from the U.S.-China Economic and Security Review Commission.
In its seventh annual report, the commission, which was created by Congress to monitor the national security implications of the bilateral trade and economic relationship between the U.S. and China, states that while China had take some steps during the economic crisis to increase domestic consumption, it was concerned that Beijing is "still pursuing an export-led strategy based on a wide variety of subsidies to export industries, including an RMB that remains substantially undervalued." The report notes that China now as $2.27 trillion in foreign currency reserves.
China has been pursuing a "government-directed industrial policy" for 30 years, the report states, and that policy is now directed at shifting the Chinese economy away from labor-intensive operations and toward "increasing the production of high-technology goods."
China employs a variety of incentives, including subsidized land, energy and water, to foreign companies that relocate their operations there. China uses tax incentives and preferential loans, the report notes, to further reduce the cost of investing in China.
The report says China is selectively targeting industries such as auto parts, machine tools, information technology, optics, photonics and clean renewable energy. This policy, it warns, is contributing to the loss of jobs in the upstate New York area even as the state seeks to become a global leader in the renewable energy field.
The report adds that it is not just manufacturing jobs that are moving to China. "Advanced technology companies in the region that have been moving their manufacturing operations to China are now relocating their research, development and innovation operations there as well," it finds.
The commission also warned about increasing human and cyber espionage by China against the United States. Noting a "marked increase" in cyber intrusions originating in China, the report says this "malicious activity has the potential to destroy critical infrastructure, disrupt commerce and banking systems, and compromise sensitive defense and military data."