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95–873 PDF 2004

S. HRG. 108–609

U.S.–CHINA RELATIONS:

STATUS OF REFORMS IN CHINA

HEARING

BEFORE THE

SUBCOMMITTEE ON EAST ASIAN

AND PACIFIC AFFAIRS

OF THE

COMMITTEE ON FOREIGN RELATIONS

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 22, 2004

Printed for the use of the Committee on Foreign Relations

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate

COMMITTEE ON FOREIGN RELATIONS

RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska

LINCOLN CHAFEE, Rhode Island

GEORGE ALLEN, Virginia

SAM BROWNBACK, Kansas

MICHAEL B. ENZI, Wyoming

GEORGE V. VOINOVICH, Ohio

LAMAR ALEXANDER, Tennessee

NORM COLEMAN, Minnesota

JOHN E. SUNUNU, New Hampshire

JOSEPH R. BIDEN, JR., Delaware

PAUL S. SARBANES, Maryland

CHRISTOPHER J. DODD, Connecticut

JOHN F. KERRY, Massachusetts

RUSSELL D. FEINGOLD, Wisconsin

BARBARA BOXER, California

BILL NELSON, Florida

JOHN D. ROCKEFELLER IV, West Virginia

JON S. CORZINE, New Jersey

KENNETH A. MYERS, JR., Staff Director

ANTONY J. BLINKEN, Democratic Staff Director

SUBCOMMITTEE ON EAST ASIAN

AND PACIFIC AFFAIRS

SAM BROWNBACK, Kansas, Chairman

LAMAR ALEXANDER, Tennessee

CHUCK HAGEL, Nebraska

GEORGE ALLEN, Virginia

GEORGE V. VOINOVICH, Ohio

JOHN F. KERRY, Massachusetts

JOHN D. ROCKEFELLER IV, West Virginia

RUSSELL D. FEINGOLD, Wisconsin

JON S. CORZINE, New Jersey

(II)

CONTENTS

Page

Bottelier, Pieter, Johns Hopkins University (SAIS) ............................................. 43

Prepared statement .......................................................................................... 45

Brownback, Hon. Sam, U.S. Senator from Kansas, opening statement .............. 1

Craner, Lorne W., Assistant Secretary of State for Democracy, Human Rights

and Labor .............................................................................................................. 2

Prepared statement .......................................................................................... 4

Lawless, Richard P., Deputy Under Secretary of Defense, International Security Affairs-Asia Pacific ....................................................................................... 9

Lee, Thea M., chief international economist, American Federation of Labor

and Congress of Industrial Organizations (AFL-CIO) ...................................... 38

Prepared statement .......................................................................................... 40

Robinson, Roger W., Jr., chairman, U.S.-China Economic and Security Review

Commission; accompanied by C. Richard D’Amato, vice chairman, U.S.-

China Economic and Security Review Commission .......................................... 17

Prepared statement .......................................................................................... 20

Waldron, Arthur, Lauder Professor of International Relations, Department

of History, University of Pennsylvania .............................................................. 30

Prepared statement .......................................................................................... 33

APPENDIX

Responses to questions for the record submitted to Assistant Secretary Lorne

W. Craner by Senator Russell Feingold ............................................................. 55

Prepared statement of Senator Russell D. Feingold ............................................. 57

(III)

(1)

U.S.–CHINA RELATIONS:

STATUS OF REFORMS IN CHINA

Thursday, April 22, 2004

U.S. SENATE, SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS, COMMITTEE ON FOREIGN RELATIONS, Washington, D.C.

The committee met, pursuant to notice, at 2:25 p.m. in Room

SD–106, Dirksen Senate Office Building, Hon. Sam Brownback presiding.

Present: Senator Brownback.

OPENING STATEMENT OF HON. SAM BROWNBACK,

U.S. SENATOR FROM KANSAS

Senator BROWNBACK. I will call to order this hearing on China.

Since the passage of the bill granting Permanent Normal Trade

Relations (PNTR), in 2000, and China’s accession to the World

Trade Organization, the WTO, in 2001, a key issue has been

whether or not China has made any meaningful progress in the

kind of reforms that are expected of a country like China. Increasingly, China is becoming an aggressive and important player in

such areas as trade, geopolitical issues in Asia, and the global war

on terrorism. At the same time, internal social stability in the PRC

has become more problematic, including greater labor unrest, growing misallocation of resources tied to managed industrial policies,

and more assertive public dissatisfaction and discontent with official corruption and lack of basic freedoms. For this reason China’s

current policies, whether in trade and economics, human rights, or

geopolitical ambitions, demand close scrutiny because they impact

both U.S. national security policy and U.S. jobs.

Yesterday the United States and China held high level talks on

trade, a critical issue with high stakes for American business and

consumers alike. So, coming from a heavily agricultural state, I’m

aware of how important trade is to our economy, especially trade

with China. It’s one of the world’s fastest growing economies; China

has a growing market for U.S. exports, including from my own

state of Kansas. China is an important provider of imported products for U.S. manufacturers and consumers.

I want to note for Mr. Craner and those here—if we could get

order in the back of the room we’d appreciate that—this last week

I was traveling in Kansas and talking with a number of individuals

about what’s taking place in China, and the issue of outsourcing,

the issue of lack of labor rights, the issue of religious freedom, the

issue of China, China, China continues to come up on a very regVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 95873 SFRELA2 PsN: SFRELA2
2

ular basis. You just look at the statistics and you understand why

China’s total worldwide exports were about $438 billion in 2003.

The percentage of that export which ended up in our market was

about $163 billion, or 37 percent, over a third of all their exports.

By contrast, our exports from the U.S. were $714 billion, but our

percentage going to China was four percent. It’s no wonder our

trade deficit with China will likely top $130 billion this year. It is

a huge amount.

At the hearing later on today we will have the chief economist

for the AFL-CIO testifying about their Section 301 case and the

question of whether China is using labor in a trade disrupting, illegal fashion. We may want to, and I will try to express and we’ll

try to view the issue as well, of currency manipulation that’s taking

place in China and hear from other witnesses on that.

I welcome our two witnesses here today to testify about the important relationship and what’s taking place between the United

States and China. Our first witness is the Assistant Secretary of

Democracy, Human Rights and Labor at U.S. Department of State,

Mr. Lorne Craner.

Mr. Craner, before you begin I’d like to commend you for your

efforts to pass a resolution condemning China’s human rights practices and the U.N. Human Rights Commission. I think that sends

an important signal, and it’s a proper signal, that needs to be sent.

That’s not the easiest body to work within but your efforts have

had a great impact and I appreciate that very much.

Our next witness will be Mr. Richard Lawless. He’s the Deputy

Assistant Secretary for the Department of Defense. We will go to

him after Mr. Craner.

I want to welcome you to the committee, and I look forward to

your testimony.

STATEMENT OF LORNE W. CRANER, ASSISTANT SECRETARY

OF STATE FOR DEMOCRACY, HUMAN RIGHTS AND LABOR

Mr. CRANER. Thank you Senator, very much, for holding this important hearing. It’s an excellent time to take a look at our complex

relations with the People’s Republic of China and I’m pleased to be

here to answer your questions about human rights conditions and

the prospect for democracy there.

As the committee took note when it convened this hearing, U.S.-

China cooperation has improved steadily since early 2001. After

September 11, the Chinese government became an ally in the global war on terror. It’s been a key partner in discussions about North

Korea. But even as we find common ground with China on these

issues, we remain firm that there are areas on which we have different views, such as nonproliferation, and other areas such as Taiwan and Hong Kong that involve partly my areas of responsibility:

freedom and human rights. We have not compromised when confronting China on and pursuing a resolution of these issues.

June 4, less than two months from now, is the 15th anniversary

of the crackdown at Tiananmen Square. This will be a somber anniversary. Fifteen years ago Americans and others around the

world watched in horror as the PLA fired on peaceful students and

workers who had captured the world’s attention. Certainly everyone who watched those events hoped that 15 years hence China

3

would be a very different place. But China’s human rights record

remains poor. In the 15 years since, the Chinese economy has continued to expand, and constraints on where one can live and what

one can do for a living have been relaxed, but the freedom and

rights that Tiananmen protestors asked for still have not been realized.

In my tenure as Assistant Secretary of State for Democracy,

Human Rights and Labor we documented some progress in China

in 2002, but we also documented backsliding on human rights in

2003. This backsliding prompted President Bush, as you noted Senator, to authorize the State Department to pursue a resolution

criticizing China’s human rights practices at the Commission on

Human Rights. As you also know, the Chinese government was

successful in getting a sufficient number of members to vote in

favor of a no-action motion, preventing the commission from engaging in a healthy debate about the human rights situation in China.

But our work in Geneva is not in vain. In pursuing a resolution

at the commission during a time of backsliding, we made a strong

statement about our unwavering concern over the human rights

situation in China. Most important, those who fight courageously

every day to have their voices heard know that the United States

will not forsake them. We have an obligation to speak out against

the lack of freedom and for protection of human rights in China because we see the people of China doing it for themselves. And I believe we have a responsibility to support these efforts and to try to

expand the political and legal space inside China.

The State Department, and in particular my bureau, is currently administering $27.5 million in fiscal year 2002–2003 in core funding to support democracy, human rights and the rule of law in

China. At the end of the Clinton administration the State Department had begun to discuss the possibility of cooperating on legal

reform projects in China. When President Bush came to office we

decided to rethink that program and to craft a new approach to

supporting freedom in China. Legal reform, while important, is too

narrow a focus for a comprehensive China program. A U.S. program on China had to support liberty as well as law. Let me give

you a few examples of the kind of things we’re supporting.

Over the last five years, China’s village elections, in which nonCommunists can run and win local office, have received much publicity. We’re supporting work to expand the availability of those

elections and have gone beyond that to support those who want to

see elections expanded to higher levels.

Legal reform in China is an area where we see meaningful

change taking place. American NGOs continue to play an important role in catalyzing all kinds of legal development in China. The

U.S. is supporting a wide array of efforts in this area, including

programs that focus on drafting key pieces of legislation, a program

to strengthen the use of evidence and witness testimony in trials,

a program that works on helping villagers to challenge election

fraud and abuse in the courts, and programs that hone the advocacy skills of criminal defense lawyers.

As the legal system has developed, the Chinese people are becoming increasingly aware of their rights under the law, and we’re

also supporting them. American NGOs are working with Chinese

4

sponsors to strengthen women’s environmental and worker rights.

Americans and Chinese are conducting awareness and public education campaigns so that average Chinese know whom to go to

when they need legal assistance. We are also determining and

monitoring compliance with international labor standards through

such U.S.-sponsored activities as my bureau’s partnership to eliminate sweatshops program, designed specifically to address unacceptable working conditions in manufacturing facilities producing

for the U.S. market. And we’re supporting the expansion of and encouraging new ways to think about the role of the media in China,

as a provider of information and a watchdog.

These rights and freedoms are occurring with increasing frequency: Elections with independent candidates, activists challenging the government, reporters courageously reporting the

truth—even at the risk of losing their jobs or going to prison. Every

day now we see such steps being taken by Chinese in China. These

steps give us reason to be optimistic but the events that I described

in the first half of my testimony also make us realistic. We cannot

sit back and assume that because its economy is developing China

is on an unwavering path to democracy. If anything, the Chinese

leadership has given no indication that it might consider seriously

the prospect of following the path of South Korea, the Philippines,

or Taiwan in pursuing gradual reform toward full freedom of

speech and association, judicial independence, and free and fair

elections.

With that in mind, we continue to monitor closely the situation

in Hong Kong. We consistently urge Chinese and Hong Kong leaders to listen to the Hong Kong people and respond to their expressed aspirations for electoral reform and universal suffrage.

After all, as Vice President Cheney pointed out in his remarks in

China last week, China’s actions in Hong Kong do not affect only

Hong Kong. Many nations, the U.S. among them, have a significant

investment in Hong Kong. The region’s continued stability and

prosperity is predicated on its continued rule of law and high degree of autonomy.

In sum, I am optimistically realistic, or realistically optimistic,

about the prospects for freedom in China. I agree strongly with the

President, the Vice President, and Secretary Powell, all of whom

have spoken often about the importance of individual freedom and

respect for human rights. With regard to China, I believe our best

policy is to speak out against human rights abuses, as we did this

month in Geneva, and to encourage the reforms that are making

significant inroads there.

Mr. Chairman, I’m pleased to take your questions. Thank you.

[The prepared statement of Mr. Craner follows:]

PREPARED STATEMENT OF LORNE W. CRANER

I want to thank you, Senator Brownback, and the other members of the Senate

Foreign Relations Committee for holding this important hearing. This is an excellent time to take a look at our complex relationship with the People’s Republic of

China and I am pleased to be here today to answer your questions about human

rights conditions and the prospects for democracy in China. I am also glad to have

this opportunity to share with you the Administration’s assessment of these important issues and to tell you what we have been doing to confront the Chinese Government when it violates human rights in China and, as Vice President Cheney said

5

last week, to support the aspirations of all Chinese people for freedom and democracy.

As the committee took note when it convened this hearing, U.S.-China cooperation

has improved steadily since the first months after President Bush came to office and

we confronted each other over the mid-air collision of Chinese and American planes

near Hainan Island. After September 11, the Chinese Government became an ally

in the Global War on Terror. It has been a key partner in discussions about North

Korea. But even as we find common ground with China on these important issues

of national security, we remain firm that there are areas on where our views differ,

such as Hong Kong, Taiwan, proliferation, and my area of responsibility: freedom

and human rights. We have not compromised when confronting China on and pursuing resolution of these issues. As recently as last week, Vice President Cheney

stood firm in talking to China about these areas of disagreement and reminded his

counterparts in Beijing that ‘‘it would be a mistake for us to underestimate the extent of the differences’’ between us.

June 4—less that two months from now—is the 15th anniversary of the crackdown at Tiananmen Square. This will be a somber anniversary. It will be somber

not just because of the hundreds, if not thousands, of lives lost in Beijing on the

evening of June 3 and the morning of June 4. The June 4th anniversary is a somber

one because there will be no public mourning in China for the lives lost there 15

years ago. The family members of the students and citizens who died in and around

Tiananmen Square will not be able to gather there together to grieve their loss.

There will be no candles lit, no memorial wreathes laid, no touching eulogies spoken. These mourners will receive no condolences from their government. The Chinese nation will not be able to come together in any public way to commemorate

the lives that were lost on June 4. Even to discuss such a thing, as we have seen

recently in the last few weeks, is to risk detention and imprisonment.

Fifteen years ago, Americans and others around the world watched in collective

horror as the People’s Liberation Army fired on the peaceful students and workers

who had captured the world’s attention for six weeks. Certainly, everyone who

watched those events unfold hoped that 15 years hence China would be a different

place. We hoped that China, 15 years after Tiananmen, might be a country that was

free and open, a country where human rights are respected, a country where different points of view could be shared without any fear of reprisal, and a country

where religious adherents of all faiths could pray openly in whatever temple, church

or mosque they chose. Of course, China today is not such a country.

China’s human rights record remains poor. In the 15 years since 1989, the Chinese economy has continued to expand, and constraints on things like where one

can live and what one can do for a living have been relaxed. But the freedoms and

rights that the Tiananmen protestors asked for have still not been realized.

In fact, in my tenure as Assistant Secretary of State for Democracy, Human

Rights and Labor, my office has documented some progress in 2002, but backsliding

on human rights in 2003. The Chinese Government’s mistreatment of its citizens

is manifest. Most recently, we have noted increased surveillance of the Internet and

detention of those who express opinions about democracy. Democracy activists and

some spiritual or religious adherents, including Tibetan Buddists, Uighur Muslims,

Falun Gong practitioners, underground Protestants, and Catholics loyal to the Vatican, continue to suffer harsh treatment. We have received reports of religious adherents being mistreated or beaten in prison. We have regularly raised the need for

prison reform, the right of children to receive religious training, and our extreme

disappointment over egregious abuses against religious groups. Mr. Chairman, this

administration has repeatedly—and at the highest levels—expressed strong concern,

publicly and privately, over the detention of persons for the peaceful expression of

their faith or political views and over restrictions on religious freedom, and we will

continue to do so. We also continue to raise individual cases of concern such as

Uighur businesswoman Rebiya Kadeer, labor activists Yao Fuxin and Xiao Yunliang

and Tibetan monk Jigme Gyatso.

These concerns were deepened by the Chinese Government’s failure to carry out

commitments made to U.S. officials during the December 2002 Human Rights Dialogue to work with the UN Special Rapporteurs on torture and Religious Intolerance, the Working Group on Arbitrary Detention, and the U.S. Commission on

International Religious Freedom.

This backsliding prompted President Bush to authorize the State Department to

pursue a resolution criticizing China’s human rights practices at the meeting of the

UN Human Rights Commission in Geneva this month. Our resolution was carefully

considered. While acknowledging steps that China has taken that might result in

improved respect for the rights of its people, we urged members of the commission

to join us in expressing ‘‘concern about continuing reports of severe restrictions of

6

freedom of assembly, association, expression, conscience and religion, legal processes

that continue to fall short of international norms of due process and transparency,

and arrests and other severe sentences for those seeking to exercise their fundamental rights.’’

As the committee is aware, the Chinese Government was successful in getting a

sufficient number of members to vote in favor of a ‘‘no-action’’ motion, preventing

the commission from engaging in a healthy debate about the sssshuman rights situation in China. But our work in Geneva was not in vain. The UN Special

Rapporteur on Torture will indeed visit China at the end of June. And now the European Union is factoring China’s human rights situation more prominently in its

calculus of whether to lift its arms embargo against China. In pursuing a resolution

at the commission, we made a strong statement about our unwavering concern over

the human rights situation in China. Other countries and the Chinese Government

itself have been compelled to take notice of our concern. And those who fight courageously every day to have their voices heard know that the United States has not

forsaken and will not forsake them.

We have an obligation to speak out against the lack of freedom and protection

of human rights in China because we see the people of China doing this for themselves on a weekly basis. We see newspaper editors trying to push the boundaries

for freedom of the press. We see democracy activists speaking out for constitutional

protections and elections. We see lawyers who are fighting to make the legal system

live up to its own laws. We see workers trying to come together to demand fair compensation. We see rural dwellers writing letters and gathering at government offices

to demand that corrupt local officials step down. We see religious adherents risk

their freedom to gather to pray in house churches. We see Tibetans who maintain

their allegiance to the Dalai Lama and Catholics who maintains their allegiance to

the Pope.

In other words, we see individual, ordinary Chinese doing the extraordinary week

after week, month after month. And I believe that we have the responsibility to support these extraordinary efforts and try to expand the political and legal space so

that individual Chinese can keep pushing the boundaries.

The State Department and, in particular my bureau, is currently administering

$27.5 million to support democracy, human rights and the rule of law in China. At

the end of the Clinton administration, the State Department began to discuss the

possibility of cooperating on legal reform projects in China. When President Bush

came to office, the State Department and my bureau decided to rethink that program, and we crafted a new approach to supporting freedom in China. Legal reform,

while important, was too narrow a focus for a comprehensive China program. A U.S.

program on China had to support liberty as well as law.

Six years ago in 1998, when I was president of the International Republican Institute, I testified before the Asia and Pacific Subcommittee of the House International

Relations Committee on the value of promoting democracy and the rule of law in

China. At that time, the Congress was just considering democracy promotion as one

policy option to address human rights concerns in China. In that testimony, I described to the committee the work that IRI had been doing since 1993 to promote

electoral, legislative and legal reform in China. In five years of programming in

China, IRI had seen rapid expansion of village elections in China and a strong commitment to developing sound, democratic procedures that allowed for open candidate

selection and secret ballot voting. On the legal side, IRI had assisted the National

People’s Congress in developing more sophisticated legislative drafting capabilities

and had worked with China’s first legal aid service providers. I concluded:

I hope I have shown that electoral, legislative and legal reforms under

way in China are meaningful and are accelerating, and organizations such

as IRI can help catalyze them. Yet in the same period these reforms have

taken place, so too have the Tienanamen verdict, and all the legal reforms

to date haven’t gotten those dissidents out of jail.

I therefore come before you as an advocate, but not a zealot. I am an advocate of broader American efforts to catalyze Chinese reforms that are congruent with American values and interests. At the same time, only a zealot

would claim to know how China will change. Democatic development in

China may come through the kind of incremental reforms I have described

today. It may also come more suddenly. Of one thing we can be certain:

Given the stakes involved, we would be wise to encourage every possible

source of change for China, including the potential for change from within

China.

7

Six years later, I am proud to say that we are now encouraging ‘‘every possible

source for change in China’’ through the State Department’s China Democracy program.

The reforms that were under way in 1998 have definitely accelerated and expanded. In 1998, American NGOs were addressing a fairly narrow range of issues

related to democracy and legal reform in China. Elections at the village level were

developing and taking root in a meaningful way. Training on legislative drafting

showed promise as a means of strengthening China’s legislature so that could serve

as a modest, but still effective check on central government power. Legal aid was

just beginning in China. Today, these reform have significantly expanded and the

State Department is supporting the organizations that continue to work on these

issues. But we also support new organizations that are working to promote women’s rights, labor rights, media reform and host of other issues that show how the channels for promoting reform in China have grown exponentially over the last few

years.

In the area of direct elections, for example, we are now no longer working to promote elections just at the village level. Since 1998, the pressure to expand elections

to higher levels of government has increased significantly. In September 2003, a

local official in Sichuan Province received international attention when he tried to

organize a direct election for township magistrate despite a 2001 central government ban on such activities. Though his efforts were derailed, we believe that there

are many other local officials who are willing to keep pushing the envelope to expand direct election in China, and we are able to support research and training that

keep that mission alive.

Like elections, legal reform in China is another area where we see meaningful

change taking place. American NGOs and universities continue to play an important

role in catalyzing all kinds of legal developments in China. The United States is

supporting a wide array of efforts in this area, including programs that focus on the

drafting of key pieces of legislation, such as new administrative litigation laws that

enable Chinese to sue the government, a program to strengthen the use of evidence

and witness testimony in trails, a program that works on helping villagers to challenge election fraud and abuse in the courts, and programs that hone the advocacy

skills of criminal defense lawyers and that help them think about ways to protect

themselves from becoming targets of the government if they handle sensitive, politically-charged criminal cases.

As the legal system has developed, the Chinese people are becoming increasingly

aware of their rights under the law, and the United States is supporting projects

that increase this awareness. American NGOs are working with Chinese partners

to strengthen women’s rights in China, environmental rights and workers’ rights.

Americans and Chinese are working together to provide better legal services to

abused women and workers who are injured on the job. They are working together

to think about how to enforce China’s environmental protection laws in some of the

nation’s and the world’s most polluted cities.

Americans and Chinese are conducting awareness and public education campaigns so that average Chinese citizens know whom to call when they need legal

assistance. They are strategizing about how to use litigation and test cases to challenge the Chinese legal legal system to protect the rights that are on the books. And

Americans and Chinese are determining and monitoring compliance with international labor standards, through such U.S.-sponsored activities as the Partnership

to Eliminate Sweatshops Program, designed specifically to address unacceptable

working conditions in manufacturing facilities that produce for the U.S. market. For

example, one project in China is aimed at developing and testing an innovative

model for worker-manager relations through which up to 3,000 workers will be

trained in three to five factories in the toy and apparel industry; another focuses

on working to promote labor rights awareness in the Chinese business community

and Chinese business schools. I can’t announce to you today a final decision to deny

or accept the AFL-CIO’s section 301 petition alleging that China’s systemic failure

to protect workers’ human rights constitutes an ‘‘unreasonable’’ trade practice. But

I can assure you that for our part, we are committed to continuing programs that

actively support ongoing reform in China’s labor relations system, improve labor

conditions and protect worker rights, and strengthen the capacity of the Chinese

Government to develop laws and regulations to implement internationally-recognized workers’ rights and to promote greater awareness of labor law among Chinese

workers and employers.

As these rights awareness programs indicate, civil society is growing in China.

And the United States is supporting its expansion and encouraging new ways of

thinking about the role of the media as a provider of information and a watchdog.

Media reform was something that no one contemplated when I spoke before the

8

Congress in 1998 about democratic reform in China. Market competition is pushing

the news media to none their investigative skills and report on stories about which

the public wants to read. The Nanfang media group, which is based in media-savvy

Guangzhou and publishes Southern Metropolis Daily and Southern Weekend (China’s most popular news weekly), has developed a reputation as China’s most progressive media group for its reporting on corruption, HIV/AIDS and, most recently,

SARS. Two editors of the paper were recently tried on embezzlement charges. Many

believe that these cases are the result of the paper’s aggressive reporting on sensitive topics, and in an unprecedented move, a group of reporters and legal scholars

have filed an online petition asking the Government for a retrial.

This petition is one of several similar open documents that we have seen in recent

months written by Chinese asking the Government to reconsider its policy on a particular issue. Last spring, three young Beijing law professors wrote a letter to the

Government asking it to reconsider the use of ‘‘custody and repatriation’’ centers to

hold people without residency permits, vagrants, and others. There followed the

death of a young college graduate, Sun Zhigang, who was beaten by the police while

being held in such a center. His death was widely reported by the media. The Government executed a staff member of the state facility and sentenced 17 others to

long prison terms. At the same time, the Government also agreed to disband these

centers, marking an important step for systemic reform of rights of the accused. Incidentally, one of the drafters of this letter, Xu Zhiyong, campaigned as an independent candidate for local People’s Congress in Beijing’s Haidian district. He won

election in December.

Other petitions have also circulated recently. This winter, Chinese scholars and

activists circulated an online petition to seek the release of democracy activists who

posted their thoughts on the Internet. Also this past winter, another group of wellknown scholars wrote a letter to the Government asking it to clarify standards of

freedom of expression and what constitutes subversion under Chinese law. The Government frequently uses subversion accusations to silence democracy and human

rights activists. Finally, in March, Dr. Jiang Yanyong, whose name became public

last spring when he contacted Western news media to report that Beijing authorities were covering up the SARS epidemic in China’s capital, wrote a letter to the

legislature asking members to consider a review of the Tiananmen verdict.

These kinds of activities are taking place with increasingly frequency in China.

Elections with independent candidates, activists who are challenging the Government to protect people’s rights, reporters who are courageously reporting the truth,

even at the risk of losing their job or going to prison—every day we are seeing these

steps being taken in China.

These steps give us reason to be optimistic at the prospect for democracy in

China. But the events that I described in the first half of my testimony also remind

us to be realistic. We cannot sit back and assume that China is on an unwavering

path toward democracy. If anything, the Chinese leadership has given no indication

that it might consider seriously the prospect of following the path of South Korea,

the Philippines or Taiwan in pursuing gradual reform toward full freedom of speech

and association, religious freedom, judicial independence, and free and fair elections.

With that in mind, we continue to watch the situation in Hong Kong. We consistently urge Chinese and Hong Kong leaders to listen to the Hong Kong people and

respond to their expressed aspirations for electoral reform and universal suffrage.

After all, as the Vice President pointed out in his remarks in China last week, China’s actions in Hong Kong do not affect only Hong Kong. Many nations, the U.S.

among them, have a significant investment of people and resources in Hong Kong.

The region’s continued stability and prosperity is predicted on its continued rule of

law and high degree of autonomy.

In sum, I am optimistically realistic or realistically optimistic about the prospects

for freedom in China. I agree strongly with the President, the Vice President, and

Secretary Powell who have spoken often about the importance of individual freedom

and respect for human rights for a strong polity and society. With regard to China,

I believe our best policy is to speak out against human rights abuses, as we did this

month in Geneva, and to encourage the reforms that are making such significant

inroads there, as we are doing annually through the State Department’s Democracy,

Human Rights, and Rule of Law Program.

Mr. Chairman, members of the committee, I’m pleased to take your questions

now.

Senator BROWNBACK. Thank you very much, Mr. Craner.

We’ll go to our next witness first before doing questions.

9

Mr. Richard Lawless is Deputy Assistant Secretary of the Department of Defense. And I appreciate very much you coming to

the committee and we’re happy to receive your testimony.

STATEMENT OF RICHARD P. LAWLESS, DEPUTY UNDER SECRETARY OF DEFENSE, INTERNATIONAL SECURITY AFFAIRSASIA PACIFIC

Mr. LAWLESS. Thank you indeed, Senator Brownback. It is indeed a pleasure to appear at this hearing and have the opportunity

to address the important issue of PRC military reforms.

I have a prepared initial statement, largely drawn from our soonto-be released Report to Congress on China’s Military Power. I

would then be glad to answer any questions you may have.

China’s People’s Liberation Army, the PLA, has embarked on an

ambitious, long-term military modernization effort to develop capabilities to fight and win short duration, high intensity conflicts

along its periphery. China’s defense modernization encompasses

the transformation of virtually all aspects of its military establishment, to include weapons systems, operational doctrine, institution

building and personnel reforms. In recent years the PLA has accelerated reform and modernization so as to have at its disposal a variety of credible military options to deter moves by Taiwan toward

permanent separation or, if required, to compel by force the integration of Taiwan under mainland authority. A second set of objectives though, no less important, includes capabilities to deter, delay

or disrupt third party intervention in a cross-Strait military conflict.

The PLA has made progress in meeting these goals through acquiring and deploying new weapons systems, promulgating new

doctrine for modern welfare, reforming institutions and improving

training. The PLA’s determined focus on preparing for conflict in

the Taiwan Strait raises serious doubts over Beijing’s declared policy of seeking peaceful reunification under the one country-two systems model. The growth of China’s economy has allowed the PRC

to sustain annual double-digit increases in its budget, with one exception, since 1990. The officially announced budget in 2004 is

more than $25 billion. However, when off-budget funding for foreign weapons systems procurement in particular is included, we estimate total defense-related expenditures this year would be between $50 and $70 billion, ranking China third in defense spending

after the United States and Russia.

China’s military reform has also benefited from observing U.S.

operations; that is, combat operations. The PLA first observed the

revolution in military affairs from the 1991 Operation Desert

Storm and studied how a technologically inferior force could defend

itself against a superior opponent during Operation Allied Force

over Kosovo. The PLA has likewise studied operations Enduring

Freedom and Iraqi Freedom. The PLA, we believe, likely learned

lessons on the application of unmanned aerial vehicles for reconnaissance and strike operations, the role of modern, well-trained

special forces in precision targeting and the importance of speed in

modern warfare. There are several key areas of reform within the

PLA which I’d like to emphasize today.

10

Joint Operations: PLA theorists and planners believe that future

campaigns will be conducted simultaneously on land, at sea and in

the air, space and electronic sphere. Therefore, the PLA is improving its joint operations capabilities by developing an integrated

C4ISR network, a new command structure and a joint logistics system.

Air Operations: The PLA Air Force is transitioning from a defensive force to one with a modern offensive strike capability. China’s

forced modernization plan and acquisition strategy for its air forces

have been aimed mainly at defeating regional air forces, defending

against aircraft operating at long ranges from China’s coast, denying U.S. Naval operations and striking regional targets such as air

bases and air defense sites.

Missile Operations: In the area of conventional missile operations, Beijing’s growing conventional missile force provides a strategic capability without the political and practical constraints associated with nuclear-armed missiles. The PLA’s short-range ballistic

missile, SRBM, force provides a survivable and effective conventional strike force and represents a real-time coercive option in the

hands of the PRC military.

China continues to improve quantitatively and qualitatively the

capabilities of its conventionally armed SRBM force. The deployed

inventory number is between 500 and 550 SRBMs, all deployed opposite Taiwan. And this deployment is increasing at the rate of 75

missiles per year. The accuracy and lethality of this force also are

expected to increase through the use of satellite-aided guidance

systems.

Naval Operations: In the area of naval operations, Beijing realizes it must have forces available to respond rapidly to a range of

regional contingencies, and it is seeking to build a balanced naval

force for surface, anti-submarine, submarine, air defense, mine and

amphibious warfare.

In the area of C4ISR, China requires a survivable, robust, reliable and sophisticated Command, Control, Communications, Computer, Intelligence, Surveillance and Reconnaissance, that is

C4ISR, system. This will allow it to collect, collate, integrate, manage and share access across a network of all battle space information. The PLA is continuing to upgrade its communication capabilities, which will rival the most modern civil networks.

In the area of space, acquiring modern ISR systems remains critical to Beijing’s military modernization program. And it supports

the PLA’s local war doctrine. Ongoing space-based systems, with

potential military applications include two new remote sensing satellites, advanced imagery, reconnaissance and earth resource systems with military applications, as well as electronic intelligence,

ELINT, or signals intelligence, SIGINT, reconnaissance satellites.

China is conducting extensive studies and is seeking foreign assistance on small satellites and micro satellites weighing less than 100

kilograms, for missions that include remote sensing and networks

of electro-optical and radar satellites.

In the area of counterspace developments, China is expected to

continue to enhance its satellite tracking and identification network. According to press accounts, China can use probably low-energy lasers to blind sensors on low Earth-orbiting satellites, alVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 95873 SFRELA2 PsN: SFRELA2
11

though whether this claim extends to actual facilities at this point

is unclear. China has reportedly begun testing an anti-satellite,

that is an ASAT, system.

China’s defense industrial base deserves special mention, I believe. And I would like to conclude with some remarks about that

industry. China’s defense industrial base, also known as the National Defense Science, Technology and Industry, is a redundant

structure consisting of factories, institutes and academies subordinate to the organizations that represent the nuclear, aeronautics,

electronics, ordnance, shipbuilding and astronautics industries. The

production factors are represented, for export/import practices, by

trading corporations, with well-known names such as China Aerospace Technology Import/Export Corporation (CATIC) and China

North Industries Corporation (NORINCO).

The export/import corporations are entities which aggressively

pursue contracts to sell PRC equipment overseas as well as involve

foreign companies in joint ventures in China. The corporations are

closely monitored by the State Department for proliferation concerns. For example, CATIC was recently sanctioned pursuant to

the Iran Nonproliferation Act.

Mr. Chairman, this concludes my initial testimony, and I would

be glad to answer any questions you may have.

Senator BROWNBACK. Thank you very much, Mr. Lawless. I’ll

have questions for both you gentlemen.

We have a vote that’s on right now, and I’ve got about four minutes left in the vote. With your permission I’d like to put us in recess while I run over and vote and then come back, if you’d be willing to stay around for that period of time to answer some questions. I would appreciate that.

This committee will be in recess for probably about ten to 15

minutes and I’ll be right back.

[Whereupon, at 2:42 p.m. the hearing was recessed.]

[RECESS]

[The hearing resumed at 2:55 p.m.]

Senator BROWNBACK. Gentlemen, thank you very much. Sorry for

the inconvenience.

Mr. Craner, let me start with you if I could. In the next panel

we’ll have one of the chief economists for the AFL-CIO who’s filed

a Section 301 case based on labor practices in China and saying

that those are an illegal trade advantage that is being expressed

or used by China. The administration will have to make a decision

whether or not to take this 301 case. Have you, can you articulate

a position or where you are in the appraisal process of whether you

will be making any recommendations regarding this 301 case?

Mr. CRANER. We’re working with other agencies to come up with

a recommendation. As you know, the office of the United States

Trade Representative (USTR) has to announce a decision by April

30, and so the right response is under discussion between the State

Department and other agencies. Clearly the petition itself refers

numerous times to the human rights report that we put out. That

report outlines that genuine freedom of association and collective

bargaining do not exist. We all know that most workplaces have

12

substandard conditions and a high rate of accidents, and that

wages, hours and safety laws and regulations are generally not enforced.

Senator BROWNBACK. When I first saw that suit was filed I

looked at it, and I thought about it, and then I read about it again,

and then I read about it again, and the more I read about it, it

seemed as if a number of things that were being alleged were items

that I’d been pushing on issues of human rights, on issues of a lack

of any sort of democracy in the workplace, of any sort of rights in

the workplace, and I thought that while this was a different angle

than I would have taken at it, it seemed to me to be a very interesting angle, one that hit at much of the same issues that I’ve been

running in against China for some period of time. I’ve been saying

that China’s economic system is rampant capitalism without a legitimate means for workers to be able to express themselves in a

system without balance, without morality. So I was looking at that

and that’s why I was pleased to see that we’ll have that on the next

panel. I know the administration has to make a decision sometime

soon; it will be a tough decision to make.

In addition, the currency case that the administration is bringing

against China seems to me to be a clearer, perhaps easier, case to

make. China’s manipulating its currency, and by that impacting

the global marketplace, impacting us, but more—it may have more

of an impact on other countries that sell into this market (Mexico

and Central American for example) than it does directly here. Because by the Chinese underpricing or devaluing their currency, a

baseball cap that comes in here relative to Mexico appears to be

cheaper. But that’s not the issue that would be assessed by your

agency or department. I would hope you could spend a great deal

of time giving a lot of thought about how bringing this 301 case forward could have positive impacts in the field that you’re concerned

about, and have done a very good job.

Mr. CRANER. I can assure you myself and my staff and others at

the State Department have been spending a great deal of time on

this, including Secretary Powell. There’s not a lot in the petition

that I don’t find factually accurate. I have a difference with one of

the categories that they address, but as I said, a lot of it has been

drawn from documents that we ourselves have put together. I

think the issue is whether it meets the 301 test and what remedies

could be applied through that process. We have been trying up to

now, and we intended even before this came up, to try and intensify the kind of activities in China, both at the corporate level but

also down at the factory level, to try and improve conditions in

China. The Department of Labor has also been pursuing a pretty

wide program. I met with Secretary Chao about it just a few weeks

ago, especially in the area of mining safety, which clearly in China

is way substandard from what you see in almost any other country

in the world.

Senator BROWNBACK. Are there other routes or remedies—you

brought cases in front of the U.N. Human Rights Commission, had

difficulty there; are there other avenues or venues that we can pursue more aggressively, given the case we know that exists currently, against the Chinese? You mentioned that the 301 would be

a bit of a novel way of putting this forward. There’s a set of remVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 95873 SFRELA2 PsN: SFRELA2
13

edies that are available there that is not available in other fields.

Are there other fields we can pursue?

Mr. CRANER. Well, the areas I talked about in the last half of my

testimony are essentially new. Those are things that we have been

doing over the last two years and, though modest, at a total of

$27.5 million over three years, I would argue they’re already having a good effect in terms of getting people in China to think a little more broadly. We encourage people in China to think a little

more broadly about what kind of society they should live in, about

their access to information, about whether or not they should be

able to organize, at least at the factory level, about what their government ought to be doing for them, and ultimately about the possibilities of electing their own government. Those are all new questions that people in China are starting to ask, and they are very

good questions to be asking. As a result of our doing the resolution,

the Chinese threatened to, and did indeed, cut off our human

rights dialogue, which was a formal, almost annual exercise that

we had been through. I made clear to them that if we were going

to have a dialogue it had to be based on results. In part because

of the fact that we had not been seeing results from that dialogue,

we hadn’t had one in over a year. The President and the National

Security Advisor, Secretary of State Colin Powell, Under Secretary

Paula Dobriansky, and other officials in this government not traditionally concerned with human rights, they push these particular

issues whenever they meet with the Chinese. And I think over time

we’re beginning to have an effect, partly because I think the Chinese are starting to understand that at least in a public way they

need to be starting to get interested in these issues.

What do I mean by that? I mean that China, as you’ve heard,

wants to be a great power. And in today’s world you cannot be a

great power without having an open society. It was fine 20 or 30

years ago to not have an open society and to try to be a great

power. The Soviet Union managed to do it. But to be accepted as

part of the club in today’s world you cannot do that and be repressive with your people. And I think they are beginning to understand that.

Senator BROWNBACK. One final thought on this and then I would

like to go to you, Mr. Lawless, if I could, is that, if China sets and

gets away with a low bar on how it treats its own people in labor

situations, in human rights situations—now particularly I’m thinking in labor situations now—it drives the rest of the world’s bar

down, and it has an impact on workers in Honduras, it has an impact on workers all over the world that are impacted having to

compete with labor that’s put in very difficult situations in China.

So the degree that we can press on the Chinese aggressively here,

and try to get more rights and more opportunities for them, I think

it will have, I know it will have, a global impact. To the degree that

we’re not successful will have a global impact as well.

Mr. CRANER. I think you’re right, and that’s part of the reason

we press it, especially as we get closer to 2005 and the end of

quotas in places like a Bangladesh or a Guatemala or a Haiti that

have been able to export goods into the U.S. under their quota.

When I talk to corporations that operate in Guatemala or Bangladesh or Honduras, and I say where are you going in 2005, they

14

all say China because that’s where the cheap labor is going to be.

But I would tell you one other thing that a lot of these corporations

tell me, which is a little counter-intuitive, which is that they’re

looking for countries—remember, a lot of these corporations have

been through scandals over the last five or ten years about the

kind of places their clothing or sneakers or whatever are manufactured—and what they tell me is they’re actually starting to look for

places that want to make an issue out of better conditions for workers. Granted, these are name brand firms like Patagonia or

Reebok. But they’re actually looking for countries where the government is making an effort to jack the standards up because they

don’t want to get caught in a scandal two or three years from now

about a rotten factory that they’re making their goods in. That’s a

good thing, that these high end manufacturers are doing it. They

are beginning to drag along some of the lower end manufacturers.

But, a lot of no-name manufacturers, that doesn’t really matter to

them because it’s not going to hurt their brand name. So, we can

encourage better conditions in the factories, and we’ve also got to

encourage corporations to understand that better factory conditions

are good of their own name, because they don’t want to go through

the kind of boycotts that some of these firms have seen over the

years because of the poor conditions in which they manufacture.

Many of them are beginning to understand that.

Senator BROWNBACK. It’s a good point.

Mr. Lawless, you point to a defense industry in China, doubling,

I think you said, annual double-digit growth, and it’s defense

spending on an annual basis, all but one year over the last ten, I

believe was your number, up to $50 to $70 billion in defense spending this year in China. Where are they going with all of this defense spending? And do you see it capping out any time soon?

Mr. LAWLESS. I guess really that is really the 64-thousand-dollar

question, Mr. Chairman. I think that the credible breadth of the

economic base that’s being established there and the growth in

GDP and its ability to develop and acquire and integrate advance

technologies into this society and into this economy gives us great

pause for a concern as to where they can take their industrial base

for defense. So I don’t know that we see a capping out. They have

simply the potential to devote an increasingly greater amount of

net resources to their defense spending. They’ve shown the ability

to spend hard currency very aggressively when they want to acquire a given system or technology. I think the combination of their

ability to spend hard currency in ever-increasing amounts, for example in their weapons shopping excursions, the Soviet Union and

other sources of technology and weapons systems, coupled with the

base that now exists, gives us great pause for concern in the future

in what they’re going to be able to do with that industrial base and

that economic base.

Senator BROWNBACK. You were talking in your testimony about

it being a regional offensive projection, no longer a defensive orientation, as I gather, but only a regional orientation. Do you believe that’s where it stops? Is it a regional offensive projection or

does it move on from that point? Or do we really even know?

Mr. LAWLESS. I don’t think we know the answer to that. We do

see clearly that the intention is to very rapidly, in most cases more

15

rapidly than we had originally projected, develop the ability to

flesh out that regional capability and particularly the ability to

project power offshore. The ability to evolve from an essentially defensive system that would wage a defensive war on one’s own territory and the ability to project force out, even regionally, is a very

big step that requires development of not only systems themselves

but doctrine and, as I mentioned, ideals and concepts of jointness,

ever increasing sophistication of the systems they bring to bear. So

I think for the near-term, as we watch the development of this regional projection capability, that is in and of itself a pause for concern.

Senator BROWNBACK. If Chinese leadership does not change, if it

remains held in the small Communist party over the foreseeable

future, is China our most likely competitor militarily that we see

growing in the world today, if it remains on the path that it’s projecting today, with the doctrinal change, with the shift in investment, with the ability to integrate technology rapidly?

Mr. LAWLESS. It certainly would be working from the most robust

base in the world to do that. And so, I think the combination of

where they’ve grown their military today and the economic and industrial base which they’ll have to grow it out in the future suggests that they would indeed become the main competitor, both regionally and possibly globally.

Senator BROWNBACK. So let’s put the question another way. In

other words, is there anybody else who has the same set of factors

out there that would concern you as part of the Department of Defense here?

Mr. LAWLESS. Not really in terms of projecting into the future,

no.

Senator BROWNBACK. They’re it.

Mr. LAWLESS. Pardon me?

Senator BROWNBACK. They’re it.

Mr. LAWLESS. Again, the combination of the growth of the economy, which is truly impressive, and the ability to integrate advanced technologies into that economy is something that we

haven’t seen perhaps in recent history. I’m not attempting to make

a direct comparison to the former Soviet Union, but the fact remains that this is a very robust economy that is growing and establishing a very sophisticated industrial base. I’m not sure that the

Soviet Union is working from the same basis at all. I think that’s

what gives folks most pause for concern.

Senator BROWNBACK. So that if they really wanted to turn it on

and aggressively turn on, even more aggressively turn on this defense military—or this military industrial complex—they could

really move it rapidly?

Mr. LAWLESS. I think it’s a question of where they elect, where

they decide to invest their resources. When you work from an economy of this size, with this growth rate, you perhaps don’t need to

invest as, say, a North Korea or another country would have to invest very high levels of GNP—GDP—to their defense budget. You

can still grow your military at very strong rates over a period of

ten or twenty years. So again, I concur with what you just said.

Senator BROWNBACK. I chair the Science, Space, Technology subcommittee and, you know, we’re looking at adjustments in our

16

space program. One of the things that we’re going to hold a hearing

on in the future is other competitors in the space field, and China’s

the one that really steps forward, and there are others but China

is a key one. What are they looking to do, can you determine from

a defense or military perspective in the space program—other than

what you were saying about imagery targeting—are there other designs that you’ve been able to determine from a military aspect of

their space program?

Mr. LAWLESS. Well quite obviously they have a very aggressive

manned space program. They’ve made no doubt about the fact that

they intend to work and live in space. So I believe that the combination of the resources they’re devoting right now, the fact that

they’re able to induce reasonably sophisticated technologies where

they can’t home grow them and the fact that they’re devoting a lot

of resources to development of space capabilities, suggests that

they see space as an important area for security policy in the future.

Senator BROWNBACK. For me, this wouldn’t be much of particular

concern if it were a democracy, if it were an open society, you’d

look at it and you’d go, great, here’s a competitor and we will compete vigorously as well. It’s when it comes from a leadership that’s

very narrow and self-selected and can move aggressively and—I

don’t want to say whimsically but cavalierly—easily, that’s when,

you know, as a policy maker I look at it and I just grow concerned.

If it were a democratic society, if it were an open society, I’d say,

fine, we’ll compete. But this is what draws my greater concern.

Mr. LAWLESS. I would say in this year’s China Military Power

Report, which is in the final stages of preparation, and in fact I

think we’ll be able to deliver that in an early June time frame this

year, some larger relative portion is devoted to the area of space

and military use of space. And we make some judgements in there

as to where we think the Chinese plan to take their programs,

their security programs in space. So we’ve anticipated that and

have addressed that in this year’s report.

Senator BROWNBACK. As almost a final question, it’s one that I

want to put in the record, a Business Week article, March 26, 2004,

and this is regarding the pending government contract to build Marine One. It’s a helicopter for the White House. And according to

the article, one of the company’s that’s vying for this contract had,

as one of its development partners, a Chinese company that helped

design and assemble some tail parts for its fleet of helicopters.

That’s no problem. But the problem is that the development partner, the China National Aerotechnology Import and Export Corporation, was indicted by the U.S. Government in 1999 for illegally

buying and transferring machine tools to the Chinese military.

Now, this company is also barred by the State Department for two

years from any U.S. Government contract for technology sales to

Iran. I’ve got questions about that, but I wonder, could you comment about the possibility of this group getting a U.S. Government

contract while it’s working with this Chinese company, or is this

article inaccurate? If you could clarify that I would appreciate it.

Mr. LAWLESS. I’m quite familiar with the procurement itself. I’m

not familiar with this aspect of it, and what I’d like to do is take

17

this under advisement and come back to you with a more detailed

response.

Senator BROWNBACK. I would appreciate it if you would do that

because it caught my eye that this was sitting out there. And

again, you’d look at it one, I don’t like it period, but it also seems

to come on the heel of several instances where we’ve had trouble

with technology transfers getting to China. And, you know, we

hope no scenario that’s a military one ever develops, but you just

hate to see this continued violation in technology transfer happening, particularly if we’re involved in funding any of it; we don’t

want to see that. So if you could get back to me on that in more

detail I would appreciate that.

Mr. LAWLESS. I would do that, and if I could make one final comment on this, I do agree with you in that technology leakage and

technology transfer becomes exponentially more dangerous to us in

the Chinese context when you do have an industry, particularly a

microtechnology industry and other aspects of this commercial industry which are growing apace and are able to induce and use this

cream skimming technology, if you will. So it’s a very important

problem for us and I think it’s one we’re paying increasing attention to.

Senator BROWNBACK. Thank you.

Gentlemen, thank you very much for joining me today. And I appreciate very much your insights.

We have a second panel I’d like to call forward. Dr. Arthur

Waldron, Lauder Professor of International Relations, University of

Pennsylvania out of Philadelphia. Thea Lee, Chief International

Economist for the AFL-CIO. Mr. Pieter Bottelier, Adjunct Professor

of China Studies at Johns Hopkins. And Mr. Roger W. Robinson,

Jr., Chairman, U.S.-China Economic and Security Review Commission out of Washington. He will be accompanied by Mr. C. Richard

D’Amato, Vice Chairman, U.S.-China Economic and Security Review Commission.

I want to thank you all for joining us today. And I appreciate

very much you staying in here while the hour’s gotten late. Mr.

Robinson, let’s start off with you as Chairman of the U.S.-China

Economic and Security Review Commission, if you wouldn’t mind.

We will put your complete statements in the record, so you can

summarize if you would choose to, that would be just fine; then

we’ll have some questions afterwards.

Mr. Robinson.

STATEMENT OF ROGER W. ROBINSON, JR., CHAIRMAN, U.S.-

CHINA ECONOMIC AND SECURITY REVIEW COMMISSION; ACCOMPANIED BY C. RICHARD D’AMATO, VICE CHAIRMAN, U.S.-

CHINA ECONOMIC AND SECURITY REVIEW COMMISSION

Mr. ROBINSON. Thank you very much, Mr. Chairman. We appreciate this opportunity to testify on the work of the commission and

our assessment for the Congress of the priority areas in U.S.-China

relations. I’m joined at the table by commission Vice Chairman

Richard D’Amato, demonstrating the strongly bipartisan nature of

our views and the work of the commission. I should also note at

the outset that the views expressed in this testimony are those of

the commission’s Chairman and Vice Chairman and, except where

18

specifically stated, do not necessarily reflect the views of other commissioners. The commission will be delivering its 2004 report to

Congress next month, which will present the full commission’s consensus, findings, and recommendations in fulfillment of our legislative mandate.

Today we want to highlight for the committee our preliminary

assessment of the priority areas of concern in U.S.-China relations,

those requiring the most immediate attention of the Congress, and

reinforce some of the recommendations we’ve made to Congress on

these topics over the past year. We see the priority areas as follows: (1) effective management of U.S.-China trade and investment;

(2) the changing dynamics of the cross-Strait relationship; (3) holding China to its commitments on Hong Kong; and (4) China’s pivotal role in the North Korean nuclear crisis.

Before we address these specific areas, we would like to offer our

summary assessment of the current direction of U.S.-China relations, at least with regard to the broad areas covered by our mandate. In short, we believe that a number of the current trends in

U.S.-China relations have potential negative implications for our

long-term economic and national security interests, and therefore

that U.S. policies in these areas are in need of urgent attention and

course corrections. We believe that the time is ripe for putting the

U.S.-China relationship on a more solid, sustainable footing from

the perspective of long-term U.S. interests. The U.S.-China relationship is still in the relatively early stages of its development and

is marked by a fluid, rather than a static, environment. The United

States has played and continues to plan an enormous role in the

economic and technological development of China. As we’ve documented through our hearings and reports, U.S. trade investment

and technology flows have been the critical factor in China’s rise

as an economic power. We need to employ the substantial leverage

this provides to develop an architecture that advances both country’s long-term interests. We have leverage now, and perhaps for

the next decade, but this may not always be the case. Within this

framework, let me turn to a discussion of the key near-term areas

of concern and our thinking on possible U.S. policy responses.

I’d like to begin with effective management of U.S.-China trade

and investment. First, our trade and investment relationship with

China, with current trends continuing and the deficit expanding, is

not just a trade issue for the United States but a matter of our

long-term economic health and national security. Beyond these immediate challenges are the implications for globalization writ large.

The commission believes that the U.S.-China economic relation is

of such large dimension that the future trends of globalization will

depend to a substantial degree on how we manage our economic relations with China and shape the rules of the road, if you will, for

broader global trade relations. Our written testimony contains numerous specific recommendations the commission has made to the

Congress on actions to right the imbalance in U.S.-China trade. We

meet today during the same week that a high level trade dialogue

took place in Washington between U.S. and Chinese officials. As we

understand, the Chinese side made commitments to significantly

improve their poor record of protecting intellectual property rights

and not to move forward with a restrictive standard that would

19

have been a barrier to U.S. wireless goods. Time will tell whether

these commitments will be fulfilled. We’ve often seen China’s trade

promises, particularly on IPR, be worth no more than the paper

they’re written on. We also are concerned—— Senator BROWNBACK. Sir, I’ve got to jump in. I think this is the

third or forth time around I’ve heard them commit to protecting intellectual property rights more. I was in Bush I of the trade rep’s

field; they promised then. I was here during the Clinton years; they

promised then. They’re promising now. You know what? At some

point in time, you know, and that’s what you’re saying but this is

personally, for me, seeing this song over a decade period of time

and nothing has happened yet. Please proceed.

Mr. ROBINSON. I don’t disagree. We’re also concerned that several

vital issues in U.S.-China trade, including China’s currency and

subsidies policies were not on the table during these talks.

Second, the changing dynamics of the cross-Strait relationship.

The committee’s well aware of the significant events in the Taiwan

Strait over the past few months and the growing tensions between

the two sides, particularly following President Chen’s re-election

last month. The state of cross-Strait relations appears to be entering a new era, one that will require new thinking by the administration and the Congress. The Taiwan Relations Act has served

U.S. interests well over its 25-year history, and we as a government and nation need to remain faithful to it, especially now when

the cross-Strait situation is as complex as it’s ever been. In sum,

given the current economic and political trends in the Strait that

we’ve identified in our written testimony, developments that call

into question the status quo in cross-Strait relations, we believe

there’s an immediate need for Congress and the administration to

review our policies toward Taiwan and cross-Strait relations, and

to determine an appropriate role for the United States in reinvigorating the cross-Strait dialogue.

Third, holding China to its commitments on Hong Kong. The recent events in Hong Kong point to troubling signs of an erosion of

the autonomy promised Hong Kong by the mainland under the One

Country, Two Systems formula. These events have no doubt played

into developments in Taiwan, where such a formula for any eventual unification has become a non-starter. We know this committee

is deeply concerned, as is the commission, about the maintenance

of Hong Kong’s basic freedoms. We urge the Congress and Administration to let the Chinese leadership know that Beijing’s moves to

limit Hong Kong’s autonomy and democratic aspirations are not in

any party’s long-term interest, and that U.S.-China relations will

be adversely affected by a continuation of Beijing’s current course.

And fourth, China’s pivotal role in the North Korean nuclear crisis. In the post-9/11 world there can be no doubt that stemming the

tide of the proliferation of weapons of mass destruction and ballistic missiles is the highest national priority for the United States.

The commission’s charge to examine China’s role in WMD proliferation is part of this effort. North Korea is heavily dependent

on Chinese assistance in the form of fuel, financial aid, militaryto-military ties, and food. These facts clearly indicate that the considerable leverage Beijing could exert over Pyongyong is evident, if

it chooses to use it. To date, however, China has been playing more

20

1The views expressed in this testimony are those of the commission’s Chairman and Vice

Chairman and, except where specifically stated, do not necessarily reflect the views of other

commissioners.

of a host than intermediary role in the Six-Party Talks and does

not appear to be pressing for its expeditious resolution. Time is not

on our side in confronting this crisis. As the Six-Party Talks drag

on, North Korea’s nuclear weapons and ballistic missile programs

keep moving apace. As these capabilities are attained, the prospects for achieving a complete, verifiable and irreversible dismantlement by North Korea are dimming substantially. In our

view, the U.S. government must make clear to China that its efforts in this crisis are a key, if not the key, test of the U.S.-China

relationship. China’s efforts in getting the Six-Party Talks underway must be followed up by the active use of its substantial leverage. In the event of continued stalemate and lack of Chinese success in persuading North Korea to accept these requirements, we

believe the United States must develop other policy options with

our partners in the region to resolve this highly critical situation

in the near-term.

Mr. Chairman, we thank you for this opportunity to testify.

Through an appropriate mix of U.S. policies we’re optimistic that

this complex relationship can be managed in such a way as to minimize the downside risks and enhance the prospects of moving

China toward a more democratic and market-oriented society to the

benefit of both of our economic and national security interests. Vice

Chairman D’Amato and I will be pleased to take your questions.

Thank you.

[The joint statement of Mr. Robinson and Mr. D’Amato follows:]

PREPARED STATEMENT OF ROGER W. ROBINSON, JR., CHAIRMAN; AND C. RICHARD

D’AMATO, VICE CHAIRMAN, U.S.-CHINA ECONOMIC & SECURITY REVIEW COMMISSION

Mr. Chairman and members of the committee:

Thank you for this opportunity to testify on the work of the commission and our

assessment for the Congress of the priority areas in U.S.-China relations. We are

submitting this as a joint statement by the Chairman and Vice Chairman of the

commission, as an expression of the bipartisan nature of our views and the work

of the commission.1

The commission was established in the Fall of 2000 to ‘‘monitor, investigate, and

report to Congress on the national security implications of the bilateral trade and

economic relationship between the United States and the People’s Republic of China

(PRC).’’ We were, to a large extent, a result of the decision by Congress earlier that

year to grant Permanent Normal Trade Relations (PNTR) to China. The annual

NTR debate in Congress had been the forum by which Congress took stock of yearto-year developments in U.S.-China relations, and ventilated concerns regarding

areas where the relationship might be off track. With the approval of PNTR, the

House and Senate properly recognized the importance of continuing Congress’ annual assessment of key areas of U.S.-China relations, given the growing stature of

this bilateral relationship.

Following the commission’s first Report to Congress in July 2002, Congress revised the commission’s charter to focus our work on the following areas: China’s proliferation practices, China’s economic reforms and U.S. economic transfers to China,

China’s escalating energy needs, Chinese firms’ listing or trading in the U.S. capital

markets, U.S. investments into China, the regional economic and security impacts

of China’s growing economic, military, and political clout, U.S.-China bilateral programs on science and technology cooperation and agreements on intellectual property rights and prison labor imports, China’s record of compliance with its World

Trade Organization (WTO) commitments, and the Chinese Government’s efforts to

control the media and, through that, perceptions of the United States within China.

This extensive mandate reflects the complexity of U.S.-China relations, and highVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 95873 SFRELA2 PsN: SFRELA2
21

lights the continuing need for the United States to carefully manage this relationship.

The commission will deliver its 2004 report to Congress next month, which will

present its findings and recommendations in the issue areas specified by Congress.

We will also be answering the central theme of our mandate to provide Congress

with an overall assessment of ‘‘the national security implications of the bilateral

trade and economic relationship.’’ We hope this analysis will prove useful for the

committee’s and Congress’s important deliberations on U.S.-China policy. We would

be pleased to come back to the committee to present the full findings and recommendations of our report once it is complete.

Today, we want to highlight for the committee our preliminary assessment of the

priority areas of concern in U.S.-China relations—those requiring the most immediate attention of the Congress—and reinforce some of the recommendations we

have made to Congress on these topics over the past year.

In sum, we see the priority areas as the following:

• Effective management of U.S.-China trade and investment

• The changing dynamics of the cross-Strait relationship

• Holding China to its commitments on Hong Kong

• China’s pivotal role in the North Korean nuclear crisis

Before we address our specific concerns and recommendations in these areas, we

would like to offer our assessment of the current direction of U.S.-China relations,

at least with regard to the broad areas covered by our mandate. In sum, we believe

that a number of the current trends in U.S.-China relations have potential negative

implications for our long-term economic and national security interests, and therefore that U.S. policies in these areas are in need of urgent attention and course corrections.

This assessment is somewhat counter to much of the conventional wisdom in the

United States today that characterizes U.S.-China relations as having reached a

positive new echelon in light of the apparent cooperation between the two countries

on anti-terrorism initiatives and, in particular, confronting the North Korea nuclear

crisis. We recognize the importance of these developments and do not dismiss their

significance. Rather, we believe that there are long-term trends in the relationship

that give us cause for concern, but which can be corrected given timely and sustained U.S. attention and effort.

In light of this assessment, we believe that the time is ripe for putting the U.S.-

China relationship on a more solid, sustainable footing from the perspective of longterm U.S. interests. The U.S.-China relationship is still in the relatively early stages

of its development and is marked by a fluid rather than static environment. To use

an analogy—the relationship is like a building where not only has the paint not

dried in any room, but the architectural plans are still being revised. The United

States has played—and continues to play—an enormous role in the economic and

technological development of China. As we have documented through our hearings

and reports, U.S. trade, investment, and technology flows have been the critical factor in China’s rise as an economic power. We need to use the substantial leverage

this provides us to develop an architecture that advances both countries’ long-term

interests. We have the leverage now and perhaps for the next decade, but this may

not always be the case.

When the Congress approved PNTR for China, the guiding premise was that it

would expand market access for U.S. goods and services and, more fundamentally,

would lead to economic reform in China and, eventually, political reform. In this

context, it was characterized as in our ‘‘national security interest’’ to support China’s accession to the WTO. Having taken this significant step, the United States

cannot lose sight of these important assumptions, and we must configure our policies toward China to help make these assumptions materialize—from expanded

trade opportunities for U.S. exporters and a mutually beneficial trade relationship

that sets global standards for fair trade, to an open, more democratic society that

can be an important partner in addressing global. security challenges, including

weapons proliferation, terrorism, and, of course, a peaceful resolution of the crossStrait situation.

If we falter in the use of our economic and political influence now to effect positive

change in China, we will have squandered an historic opportunity. We believe China

demonstrated a willingness to move in a positive direction, and to take substantial

risks to do so, when it entered the global economy. And there has been substantial

market liberalization in China as well as new laws improving property rights for

citizens. But China will likely not initiate the decisive measures toward more meanVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 95873 SFRELA2 PsN: SFRELA2
22

ingful economic and political reform without substantial and sustained pressure

from a United States willing to utilize its tools of leverage and persuasion.

The Congress gave our commission an important and unique task—to identify the

scope of problems and shortcomings in key areas of the U.S.-China relationship, and

to make recommendations to Congress concerning how to address these concerns.

In this pursuit, the commission can serve as an effective early warning mechanism

to surface economic and national security concerns before they become unmanageable, and to recommend policy changes that can affect mid-course corrections in U.S.

policy where necessary.

Within this framework, we will now turn to a more detailed discussion of the key

areas of concern we see at the present time in U.S.-China relations, and our thinking on possible U.S. policy responses.

EFFECTIVE MANAGEMENT OF U.S.-CHINA TRADE AND INVESTMENT

Trade and investment flows constitute the core of U.S.-China economic relations.

Bringing these flows into proper balance will significantly determine the benefits to

the United States of this important relationship. The challenge facing U.S. policymakers operates at two levels. On one level there are the immediate problems associated with the enormous trade deficit that the United States has with China and

the resulting consequences for the U.S. economy, particularly the manufacturing

sector. This requires attention to the issues of exchange rates and currency manipulation, and addressing China’s mercantilist trade and industrial policies through

vigorous enforcement of WTO and U.S. trade laws.

But beyond these immediate challenges are the implications associated with

‘‘globalization.’’ The commission believes that the U.S.-China economic relationship

is of such large dimensions that the future trends of globalization will depend to

a substantial degree on how we manage our economic relations with China. It is

reasonable to believe that U.S.-China economic relations will shape ‘‘the rules of the

road’’ for broader global trade relations. If current failings are remedied and the relationship is developed so as to provide broad-based benefits for both sides,

globalization will likely be affected in a positive manner on a worldwide scale. If

trade commitments and the rule of law are honored, and trade is conducted with

respect for labor rights and environmental protection, the direction of globalization

will probably take a turn for the better worldwide. If not, the opposite will likely

eventuate.

The dominant feature of U.S.-China economic relations is the U.S. goods trade

deficit, which rose by more than 20 percent in 2003 to a record $124 billion. The

deficit with China now constitutes 23 percent of the total U.S. goods trade deficit,

and China is by far the largest country component of the deficit. Moreover, U.S.

trade with China—with $28 billion in exports to China in 2003 as compared with

$152 billion in imports—is by far the United States’ most lopsided trade relationship

as measured by the ratio of imports to exports. This trade deficit is of major concern

because (i) it has contributed to the erosion of manufacturing jobs and the current

jobless recovery in the United States, and (ii) manufacturing is critical for the nation’s economic and national security.

Therefore, our trade and investment relationship with China—with current trends

continuing and the deficit expanding—is not just a trade issue for the United States,

but a matter of our long-term economic health, and national security.

A key factor contributing to the deficit is the undervaluation of the Chinese yuan

against the U.S. dollar. This gives Chinese producers a competitive advantage by

making Chinese imports relatively less expensive, and U.S. exports relatively more

expensive. It also undermines the profitability of U.S. manufacturers, thereby reducing their investment spending while also giving them an incentive to shift production to China. Economic fundamentals suggest that the Chinese yuan is undervalued, with a growing consensus of economists estimating the level of undervaluation to be anywhere from 15 to 40 percent. However, China persistently intervenes

in the foreign exchange market to maintain the de facto peg of 8.28 yuan per dollar.

The 1988 Omnibus Trade and Competitiveness Act requires the Secretary of the

Treasury to report to the Senate Banking Committee twice each year with an assessment of currency manipulation by trading partners. The commission is greatly

concerned that the Treasury Department has repeatedly sidestepped a finding that

China is manipulating its currency, despite the mounting evidence to the contrary.

To address this, the commission has recommended to Congress that if the Treasury Department’s efforts to effect an upward revaluation of China’s currency prove

ineffective, Congress should use its legislative powers to force action by the U.S. and

Chinese Governments to address this unfair and mercantilist trade practice. For the

near future, continued vigorous development of such legislative initiatives as were

23

outlined by members of Congress during our hearing, linking China’s performance

on its exchange rate policies to its continued full access to the U.S. market, appears

essential to ensure the appropriate level of effort by both governments to this matter.

A second factor contributing to imbalances in U.S.-China trade are China’s mer- cantilist industrial and foreign direct investment policies, the purpose of which appears to be to enhance the power of the Chinese state. China has pursued industrial

policies that involve a wide range of measures including technology transfer requirements, government subsidies, discriminatory tax relief, and limitations on market

access for foreign companies. The Chinese Government is currently targeting the

high tech, auto, and auto parts industries. The textile sector is another industry of

great concern as the ending of the multi-fiber agreement (MFA) on January 1, 2005

promises to spur a massive shift of textile production to China, which will likely

decimate what remains of the U.S. textile industry (which still employs 630,000 people), as well as textile industries from Mexico to Bangladesh.

To counter these practices, the commission has recommended to Congress that:

• The United States Trade Representative and Department of Commerce immediately undertake a comprehensive investigation of China’s system of government subsidies for manufacturing, including tax incentives, preferential access

to credit and capital, subsidized utilities, and investment conditions requiring

technology transfers. USTR and Commerce should provide the results of this investigation in a report that lays out specific steps the U.S. Government can take

to address these practices through U.S. trade laws, WTO rights, and by utilizing

special safeguards China agreed to as part of its WTO accession commitments.

• The U.S. tax code be restructured to eliminate incentives for U.S. business, particularly manufacturing, but also services and high technology companies, to

shift production, services, research and technology off-shore.

• Congress amend U.S. countervailing duty laws to make them applicable to nonmarket economies, such as China.

• The U.S. Government work with other interested WTO members to convene an

emergency session of the WTO to extend the Mult-fiber Arrangement at least

through 2008.

An essential part of our mandate—as well as U.S.-China trade relations—is to assess China’s progress in meeting its commitments as a member of the WTO. China

joined the WTO in December 2001. Its accession agreement is extremely complex,

reflecting the need for special arrangements to address the fact that China joined

the WTO without having met the requirements of a market economy. To protect

against trade distortions and unfair trade practices resulting from China’s non-market status, China’s WTO agreement includes a special review mechanism to monitor

China’s compliance and special safeguard provisions giving WTO members the right

to protect themselves against sudden surges of Chinese imports. It is critical that

these agreements be properly and vigorously implemented and enforced.

China has made progress in reducing tariffs and otherwise formally meeting a

large number of its WTO accession commitments, but significant compliance shortfalls persist in a number of areas of key importance to U.S. trade. In particular,

China continues to provide direct and indirect subsidies to Chinese producers, there

is rampant abuse and lax enforcement of intellectual property rights, foreign firms

face discriminatory tax treatment, there is poor transparency in the adoption and

application of regulations, and China uses unjustified technical and safety standards

to exclude foreign products.

We are also particularly dismayed with China’s level of cooperation with the

WTO’s Transitional Review Mechanism (TRM) for reviewing China’s WTO progress.

As part of its accession agreement, China agreed to be subject to this multilateral

annual review of its compliance record for the first eight years of its WTO membership, with a final review after the tenth year. The TRM was an important provision

of China’s accession agreement—one that U.S. negotiators strenuously pressed for—

because it was seen as a robust mechanism for both monitoring China’s compliance

progress and for applying multilateral pressure on China to correct deficiencies. Instead, however, China has undermined the TRM during its first two years by refusing to fully cooperate with and address WTO member questions and other efforts

to engage China in a dialogue on compliance shortfalls. It has simply not served as

the intended robust mechanism for combating China’s compliance shortfalls.

Therefore, the commission has recommended to Congress that USTR and other

appropriate U.S. Government officials undertake strenuous efforts to reform the

TRM process into a meaningful multilateral review and measurement of China’s

compliance with its WTO commitments. If this is unsuccessful, the U.S. Government

24

should initiate a parallel process with the EU, Japan, and other major trading partners to produce a unified annual report by which to measure and record China’s

progress toward compliance, which report should be provided to Congress as part

of USTR’s annual report to Congress on this matter.

Though aware of these failings and problems, the U.S. Government has not been

sufficiently vigorous in enforcing U.S. trading rights under either U.S. law or

through the WTO. This is exemplified by the administration’s failure to use the

China-specific safeguards available to WTO members that protect against market

disruptions by Chinese imports. The International Trade Commission has conducted

five Section 421 safeguard investigations against Chinese products, and in three

cases it found for the plaintiffs. Yet, in all three cases the President refused to take

action. These developments risk undermining the Section 421 process, as companies

may cease filing legitimate petitions if, given the significant legal costs, they come

to believe the administration will not act. Moreover, the administration was slow

in implementing procedures for U.S. use of the WTO China-specific textile safeguard, and first imposed the safeguard in December 2003 on a select few categories

of textiles, despite the enormous detrimental impact of imports from China on the

U.S. textile industry.

Overall, we are troubled by what we see as a general hesitancy among WTO

members with substantial trade relations with China to raise legitimate trade disputes with China for fear of economic retaliation. The United States finally broke

the ice by bringing the first WTO trade dispute against China on its preferential

value-added tax (VAT) treatment for domestically designed and produced semiconductors. We hope this will open the door to other WTO members exercising their

rights under the WTO to address unfair Chinese trade practices. In fact, the United

States should be actively coordinating with its major trading partners on areas of

mutual concern regarding China’s trade practices.

In light of the above, the commission has recommended to Congress that:

• The Congress should press the administration to use the WTO dispute settlement mechanism and/or U.S. trade laws, including Section 301 provisions, to

seek redress for China’s practices in the areas of exchange rate manipulation,

denial of trading and distribution rights, massive violations of intellectual property rights (IPR) that have cost U.S. firms billions of dollars, and government

subsidies to export industries that harm the competitiveness of U.S.-based manufacturing firms.

• The U.S. Government should make optimum use of the special Section 421 and

textile safeguards negotiated as part of China’s WTO accession agreement.

These important safeguards were designed to prevent our domestic industries

from being injured by surges of Chinese exports.

We note that the commission has reported on the scope of intellectual property

rights abuses in China and the lack of improvement in Chinese enforcement of IPR

protections for the past two years, and recommended WTO action. We strongly reiterate the need for the U.S. Government to take more aggressive action in addressing this vital trade issue.

In addition to addressing the problems of China’s exchange rate manipulation and

its mercantilist trade and investment policies, U.S. policymakers must turn their attention to China’s impact on globalization. In our eagerness to expand trade and investment, too little attention has been given to this critical matter.

Trade and investment are not the ends of policy, but rather the means by which

we enhance our national well-being. It is not the size per se of these flows that matters, but rather their impact. Just as intellectual property rights are not self-organizing, it is time to recognize that trade and investment rules must be placed in

a framework designed to deliver maximum well-being. Trade must be standards

based, and trade agreements with China and other countries must incorporate labor

rights and environmental standards. We note that the U.S. Trade Representative,

Ambassador Zoellick, vigorously embraced these concepts in a recent editorial in the

Washington Post (April 19, 2004).

Economic action must conform to the fundamental values that guide us as a nation. To date, our policy toward globalization has tilted toward letting the market

determine our values, rather than having the market conform to our standards and

values.

We take note of the high-level trade dialogue taking place in Washington this

week between U.S. and Chinese officials, and are hopeful it may result in a breakthrough. We are concerned, however, that certain key issues—including China’s currency and subsidies policies—appear not to be on the table.

25

THE CHANGING DYNAMICS OF THE CROSS-STRAIT RELATIONSHIP

The committee is well aware of the significant events in the Taiwan Strait over

the past few months, and the growing tensions between the two sides. Beginning

with Taiwan President Chen Shui-bian’s announcement late last year that Taiwan

would hold a national referendum as part of its March 2004 presidential balloting,

and culminating in the dramatic reelection of President Chen last month, the state

of cross-Strait relations appears to be entering a new era, one that will require new

thinking by the administration and the Congress.

This past December and February we held public hearings that explored both the

economic and security aspects of cross-Strait relations and China’s military modernization efforts. Members of our commission traveled to the region last month and

had a chance to talk with high-level observers of the cross-Strait situation in Tokyo,

Hong Kong and Taipei. We also commissioned a study of China’s acquisition and

integration of foreign weapons systems, which is published on our website. The annual Department of Defense report on the cross-Strait military balance, the 2003

Council on Foreign Relations Study of China’s Military Capabilities, and published

reports of the U.S. Naval War College on China’s growing submarine warfare capability offer additional useful perspectives.

China’s modern arsenal includes a small but increasingly sophisticated missile

force that is of direct strategic concern. In the Western Pacific theater, it is estimated that China has deployed some five hundred short-range ballistic missiles that

directly threaten Taiwan and longer-range conventional missiles that could threaten

Japan and our forces deployed in the region. China’s advanced naval and air weapons systems—including surface ships, submarines, anti-ship missiles, and advanced

fighter aircraft—have been significantly enhanced by infusions of foreign military

technology, co-production assistance and direct purchases, mainly from Russia. China’s military capabilities increasingly appear to be shaped to fit a Taiwan conflict

scenario and to target U.S. air and naval forces that could become involved.

We conclude that China is steadily building its capacity to deter Taiwan from taking steps that the PRC deems unacceptable movements toward independence or consolidation of Taiwan’s separate existence, to coerce Taiwan into an accommodation,

and, ultimately, to have a viable option to settle the Taiwan issue by force of arms

if necessary. A significant component of its military modernization strategy is to develop sufficient capabilities to deter U.S. military involvement in any cross-Strait

conflict.

The United States cannot wish away this capacity. We cannot assume China will

stay its hand because it has too much at stake economically to risk military conflict

over Taiwan. In our view, we should not think of the 2008 Beijing Olympics as an

insurance policy against Chinese coercion of Taiwan.

We can certainly hope that the economic benefits China gains from Taiwan investment and trade; the growing production and supply linkages among China, Japan,

other Asian economies and the United States; the significant value to China of

strong economic relations with the United States; and China’s own desire to be seen

by the world as a power that is ‘‘peacefully rising’’ will constrain China from using

military force. Hopes, or even reasonable expectations, do not, however, provide a

defense of vital U.S. interests. This is why it is more important now than ever before for the United States to uphold its key obligations under the Taiwan Relations

Act (TRA) [22 USC 48], notably ‘‘to maintain the capacity to resist any resort to

force or other forms of coercion that would jeopardize the security, or the social or

economic system, of the people on Taiwan.’’

Under the TRA, the additional U.S. responsibility to assist Taiwan’s military preparedness is set out clearly. The law requires the United States to ‘‘make available

to Taiwan such defense articles and defense services in such quantity as may be

necessary to enable Taiwan to maintain a sufficient self-defense capability.’’ Notably, it further requires that both ‘‘[t]he President and the Congress shall determine

the nature and quantity of such defense articles and services based solely upon their

judgment of the needs of Taiwan.’’ Thus, the TRA sets out a unique joint role in

the formulation of Taiwan policy for the Congress and administration, including on

arms transfers decisions, demonstrating Congress’ deep and abiding concerns regarding U.S. policy in this area.

Despite the TRA’s provisions, we believe that the Congress and administration

are not adequately coordinating in this area and that there are other operational

impediments to the United States’ ability to fulfill its important obligations to Taiwan.

In addition to providing vital defense support for Taiwan against PRC military

threats, the TRA further requires U.S. policy to support the ‘‘social’’ and ‘‘economic’’

26

2FBIS Translation of ‘‘Text of Taiwan Affairs Office News Conference on Taiwan Election,

More,’’ CPP20040414000027 Beijing CCTV–4, in Mandarin, 14 April 2004.

system of Taiwan. This is an area of commitment the United States needs to be

more alert to given current developments.

There are a number of key trends developing across the Strait that call for a reevaluation of how we implement our Taiwan policy. First, there are two paradoxical

trends: on the one hand, indirect cross-Strait economic ties continue to grow with

large flows of investment in the mainland by Taiwan businesses and a stream of

exports from Taiwan to feed production platforms. On the other hand we see a deterioration in the cross-Strait political situation, with both Beijing and Taipei hardening in their positions.

There is also the PRC’s coordinated campaign to continue to ‘‘marginalize’’ Taiwan

in the region, both politically and economically. Taiwan is being shut out of regional

groupings such as the ASEAN Plus One or ASEAN Plus Three (China-Japan-South

Korea) forums and unable to participate in regional trade arrangements like the

Bangkok Agreement or the China-ASEAN framework agreement on a free trade

area. Further, Taiwan has been unable to find regional economies willing to engage

in bilateral free trade arrangements, due largely to PRC political pressure.

Moreover, there has been a gradual de-coupling of Taiwan’s large and growing investments in China from Taiwan, due to the lack of direct transportation links

across the Strait. Investors’ interests are more concentrated in the mainland and

less in Taiwan—to the point where some observers are asking whether Taiwan is

becoming a ‘‘portfolio economy’’ instead of a ‘‘production economy.’’ This has proven

true for foreign corporations in Taiwan as well as native Taiwan firms. We have

learned that in recent years the number of U.S. regional operational headquarters

in Taiwan has declined and offices downgraded to local units.

The key political trend in Taiwan over the past 15 years has been the development of a vibrant democracy with new institutional bases. This is a valuable product of steady U.S. support for Taiwan, giving it the space it needed to develop its

social and economic system without coercion from the PRC. The proof of the fundamental strength of that democratic development was last month’s Presidential election in Taiwan, which we were privileged to monitor as part of our trip to the region. The system was sorely tested but appears to have emerged intact and resilient.

Should Chen Shui-bian’s narrow victory—one in which he nevertheless received an

absolute majority of the votes cast in an election with heavy voter turnout—withstand its legal challenge, it will appear to be vindication for Chen’s campaign that

stressed Taiwan’s separate identity and a mandate for his plans for constitutional

reform.

While the United States should be proud of its role in helping to develop strong

democratic institutions in Taiwan, Beijing appears threatened by these developments. The State Council Taiwan Affairs Office (TAO) has issued stern warnings

that the path Chen Shui-bian is laying out for constitutional reform—a referendum

in 2006 and a new or amended constitution in 2008—is tantamount to a ‘‘timetable

for Taiwan independence.’’ The TAO reiterated that no progress on cross-Strait

issues could be achieved unless and until Taiwan accepted Beijing’s ‘‘One China

Principle.’’ 2 The prospects for China letting up on its strategy of isolating Taiwan— by, for example, allowing Taiwan observer status in the World Health Organization,

where Taiwan’s active participation is clearly in the greater interest of China and

the East Asian region—are dim.

The lack of trust across the Strait is palpable, and it goes both ways. Aside from

its campaign of isolating Taiwan, China’s heavy-handed interference in the political

process in Hong Kong—discussed later in this testimony—has only reinforced Chen

Shui-bian’s argument that the ‘‘one country, two systems’’ formula Beijing employed

in Hong Kong and has proposed for cross-Strait unification is totally unacceptable

for Taiwan. Chen said in his first inaugural speech in 2000 that he is willing to

talk with Beijing about a ‘‘future one China.’’ Beijing has steadfastly rejected the

implied premise of Chen’s approach, taking the position that it will only accept

cross-Strait talks if Chen agrees as a precondition that there is only ‘‘one China’’ now and that Taiwan is part of it.

Mr. Chairman, in the face of these current difficulties in the Taiwan Strait, we

believe the U.S. ‘‘One China Policy’’—based on the three Sino-U.S. communique ́s and the Taiwan Relations Act—is the historic framework for conducting our official

relations with Beijing and our unofficial relations with Taiwan. We must remember

that this policy is U.S. policy, not Taiwan’s, not China’s. Our policy is emphatically

not the same thing as the PRC’s ‘‘One China Principle.’’ The United States has not

taken a position on the legal status of Taiwan. The United States acknowledges Beijing’s formulation but does not necessarily embrace—or reject—the PRC’s concept

27

that ‘‘there is but one China in the world and Taiwan is part of China.’’ It is also

true that the United States has stated it does not support Taiwan independence,

or two Chinas, or one China-one Taiwan—as President Clinton reiterated in Shanghai during his visit there in 1998.

The Taiwan Relations Act has served U.S. interests well over its 25-year history,

and we as a government and nation need to remain faithful to it, especially now,

when the cross-Strait situation is as complex as it has ever been. The fundamentals

must be remembered: our decision to establish diplomatic relations with the PRC

‘‘rests upon the expectation that the future of Taiwan will be determined by peaceful

means.’’ This expectation must be declared at every turn.

Given the current economic and political trends in the Strait that we have outlined above—developments that call into question the state of the ‘‘status quo’’ in

cross-Strait relations—we believe there is an immediate need for Congress and the

Administration to review our policies toward Taiwan and cross-Strait relations and

to determine an appropriate role for the United States in reinvigorating cross-Strait

dialogue.

Accordingly, we have recommended that Congress enhance its oversight role in

the implementation of the TRA. Executive Branch officials should be invited to consult on intentions and report on actions taken to implement the TRA through the

regular committee hearing process of the Congress, thereby allowing for appropriate

public debate on these important matters. This should include, at a minimum, an

annual report on Taiwan’s request for any military aid and a review of U.S.-Taiwan

policy in light of the growing importance of this issue in U S.-China relations.

We believe Congress should consider conducting a fresh assessment of existing

U.S. policy toward Taiwan, with particular attention to whether all elements of the

TRA are being effectively pursued. This should include the coordination of our defense assistance to Taiwan, how U.S. policy can better support Taiwan breaking out

of the international isolation the PRC seeks to impose on it, and examine what steps

can be taken to help ameliorate Taiwan’s marginalization in the Asian regional

economy.

Further, we suggest that Congress consult with the administration on whether

the United States should become more directly engaged in facilitating talks across

the Taiwan Strait that could lead to direct trade and transport links and/or other

cross-Strait confidence building measures. We will be providing more detailed recommendations on this to Congress in our upcoming report.

HOLDING CHINA TO ITS COMMITMENTS ON HONG KONG

Mr. Chairman, more than 50,000 American citizens live and work in Hong Kong.

Over 1,100 American firms operate there, and the United States has more than

$38.5 billion in investments in the city. These direct interests alone demand that

the U.S. Government keep a close eye on developments in Hong Kong; but there is

much more at stake.

How Beijing lives up to the promise of the Sino-British Joint Declaration of 1984

and the Hong Kong Basic Law of 1990 tells us much about China’s direction. We

need to look at Hong Kong to gauge whether China is evolving into the more open

and tolerant power that China’s leadership would like us to believe isunfolding. Alternatively, are China’s leaders bent on ‘‘nipping in the bud’’ any domestic call for

democratic change—even in highly autonomous Hong Kong where such change is

anticipated under China’s own laws—that is not of their own making.

In response to popular calls for direct elections in 2007 for the Chief Executive

and 2008 for all of the Legislative Council, as allowed under the Basic Law, the

PRC’s National People’s Congress Standing Committee has made some telling and

worrisome moves in recent weeks. First, on March 26, the Standing Committee decided on its own to intervene in the question of whether and how changes to the

methods of selecting the Hong Kong Chief Executive and forming the Legislative

Council could be made. The decision of the Standing Committee to self-initiate an

interpretation of the Basic Law was itself a blow to Hong Kong’s separate legal and

political systems.

The interpretation issued on April 6 was an additional setback for Hong Kong

democratic aspirations. It reinforced the message that no changes would be made

without the central authorities’ approval, at the beginning and the end of the process. A report by the Chief Executive to the Standing Committee would have to start

any process of change, and the Standing Committee would then give direction as

to whether and how changes should be made. No initiative would be allowed to rest

in the hands of Hong Kong’s legislature, which was ruled ineligible to present any

draft bill, even on implementing changes decided by Beijing.

28

The Chief Executive’s immediate action to submit a report to the Standing Committee, on April 15, stating there is indeed a need for change, has not been taken

as a sign of progress among advocates of greater democracy in Hong Kong. Rather,

the principles laid down in the report—reiterating the absolute authority of the

Standing Committee in all decisions relating to Hong Kong’s Basic Law and elections; emphasizing the need for a strong ‘‘executive-led’’ government—suggest that

the fix is in.

We hope we are wrong. We hope Beijing will recognize that its own reputation

as a modernizing power is at stake in Hong Kong; that not just a handful of local

democratic activists and ‘‘troublemakers’’ care about what happens, but that the

United States cares, and is paying attention.

Under the Hong Kong Policy Act of 1992 [22 USC 66], the U.S. Goverment has

an obligation to assess whether Hong Kong’s ‘‘high degree of autonomy’’ and the solemn promise by Beijing to respect Hong Kong’s governing under the ‘‘one country,

two systems’’ formula is genuine or a charade. Hong Kong’s future autonomy was

set out in an international agreement, the Sino-British Joint Declaration; granted

by China’s National People’s Congress; and legislated in the Basic Law. It may be

true that what the PRC Government giveth, they may taketh away. But when Hong

Kong’s autonomy is diminished by the direct action of the central authorities, the

United States is obliged to take notice and consider its policy options.

Directly invoking provisions of the Hong Kong Policy Act to suspend certain aspects of U.S.-Hong Kong bilateral relations is an option which may be considered.

If the United States were to end its special treatment of Hong Kong in some important areas—such as air services, customs treatment, immigration quotas, visa

issuance, export controls—the principal pain would be felt in Hong Kong, however,

not in Beijing.

The Congress and administration should continue to let the Chinese leadership

know that Beijing’s moves to limit Hong Kong’s autonomy and democratic aspirations are not in any party’s long-term interest. And that U.S.-China relations will

be adversely affected.

CHINA’S PIVOTAL ROLE IN THE NORTH KOREAN NUCLEAR CRISIS

The commission’s charter calls on us to ‘‘analyze and assess the Chinese role in

the proliferation of weapons of mass destruction (WMD) and other weapons (including dual use technologies) to terrorist-sponsoring states, and suggest possible steps

which the United States might take, including economic sanctions, to encourage the

Chinese to stop such practices.’’ In the post-9/11 world, there can be no doubt that

stemming the tide of WMD proliferation is of the highest national priority for the

United States. The commission’s charge to examine China’s role in WMD proliferation is part of this effort.

China has a checkered record at best on controlling its own transfers of WMDrelated technologies to states of proliferation concern, including Iran, North Korea,

and Pakistan, something we will document in detail in our 2004 Report to Congress.

But this past year has been marked by a proliferation crisis in which China is now

playing the role of an intermediary—the North Korea nuclear crisis. Given the gravity of the events unfolding in North Korea, the commission felt it imperative to examine closely China’s participation in efforts to resolve this crisis. The key focus of

our examination has been: What are the U.S. goals for resolving this impasse? What

leverage can China wield to help bring about that outcome? Can we reasonably expect China to be an effective partner? For the commission, the role China plays in

this crisis is a key, if not the key, test of the U.S.-China relationship and pivotal

to the future of global non-proliferation policies.

The United States has clearly articulated that it seeks the complete, verifiable,

and irreversible dismantlement of North Korea’s nuclear programs. To achieve this

proper outcome will require that the parties to the Six Party Talks underway with

North Korea—the United States, Russia, Japan, South Korea, and China—present

a strong and unified position that this is the only acceptable outcome to ensure the

region’s stability. But it is also necessary that China, North Korea’s principal ally

and financial supporter, demonstrate a willingness to exert its considerable leverage

over North Korea to bring about this outcome. At the present time, we have not witnessed the appropriate level of effort from China that the situation warrants.

North Korea is heavily dependent on Chinese assistance in the form of food and

fuel. Our research indicates that China provides upwards of 90 percent of North Korea’s oil and 40 percent of its food. Since 1996, China has allocated somewhere between 25 to 33 percent of its foreign assistance outlays to North Korea. Moreover,

the North Korean and Chinese militaries have long maintained close ties. These

29

3 Catherine Armitage, ‘‘China condemns intercept plan,’’ The Weekend Australian, 12 July

2003, sec. LOCAL, 6.

facts clearly indicate the considerable leverage Beijing could exert over Pyongyang,

were it to choose to do so.

To date, however, China has been playing more of a host and intermediary role

in the Six Party Talks, and does not appear to be pressing for its expeditious resolution. We certainly recognize the key role China has played in getting the talks started, and U.S. officials have on many occasions lauded China for this accomplishment.

At the same time, it has become increasingly evident that the current impasse may

not be broken without a considerably more forceful posture by the Chinese.

To date, China has been opposed to sanctions in this case, and to bringing the

North Korea nuclear issue to the United Nations. Moreover, China issued a cautionary statement regarding any decisive moves by the United States and its allies

in the context of the U.S.-led Proliferation Security Initiative (PSI) that might provoke Pyongyang’s ire. In a telling statement, the Chinese Foreign Ministry has indicated that China ‘‘does not approve of sanctions, blockages and other measures

which are aimed at putting pressure on (North Korea) . . . Doing so will not only

be useless to solve the problem, but will escalate antagonism and tension.’’ 3

Time is not on our side in confronting this crisis. As the Six Party Talks drag

on, North Korea’s nuclear weapons and ballistic missile programs keep moving

apace. While we cannot be sure just how far North Korea has progressed, there

seems to be a growing consensus that it already posses significant capabilities in

this regard and will advance considerably further within a matter of months. As

these capabilities are attained, the prospects for achieving a complete, verifiable,

and irreversible dismantlement by North Korea are dimming substantially. The Six

Party Talks must move forward with renewed urgency, and with China playing a

far more significant role—including demonstrating a willingness to exert its considerable leverage with North Korea—in obtaining an acceptable outcome.

The key question is not only whether China will be willing to exert leverage in

a meaningful way on North Korea, but whether China is prepared to press the

North Koreans to accept a robust and intrusive dismantlement verification regime,

an essential component of a complete, verifiable, and irreversible dismantlement

scenario. North Korea’s failure to comply with the 1994 Agreed Framework underscores the absolute requirement for on-site inspections and verification. Given China’s posture to date on the PSI, not to mention its own continuing proliferation

problems, it is certainly a questionable proposition. In fact, recent news reports indicate that Chinese officials, following a meeting between the Chinese foreign minister

and North Korean leader Kim Jong Ii, informed a U.S. envoy that the onus was on

the United States to show more flexibility in resolving the crisis.

In our view, the U.S. Government must make clear to China that its efforts in

this crisis are a key, if not the key, test of the U.S.-China relationship. China’s efforts in getting the Six Party Talks underway must be followed up by the active

use of its substantial leverage to persuade North Korea to freeze its reprocessing

efforts and verflably dismantle its nuclear weapons and ballistic missile programs,

and to accommodate an intrusive international verification regime, to ensure effective implementation of any agreement that is ultimately reached. In the event of

continued stalemate and lack of Chinese success in persuading North Korea to accept these requirements, we believe the United States must develop other policy options with our partners in the region to resolve this highly critical situation.

CONCLUSION

Mr. Chairman and members of the committee, thank you again for this opportunity to testify. It is now commonplace to assert that the U.S.-China relationship

will be our most significant bilateral relationship during the 21st century. Our trade

relations with China already have an enormous impact on the U.S. economy, and

the security challenges before us are of the highest order. Through an appropriate

mix of U.S. policies, this complex relationship can be managed in such a way as to

minimize the downside risks, and enhance the prospects of moving China toward

a more democratic and marketoriented society, to the benefit of both our economic

and national security interests. If mismanaged, bilateral tensions and the potential

for conflict will surely grow.

As we stated at the outset, we have concluded that a number of the current

trends in U.S.-China relations are presently moving in a troublesome direction.

With a renewed and candid focus on the relationship by the Congress, we are optimistic that U.S. policy toward China can be put on a more solid, productive footing

to tackle the long-term challenges that lie ahead.

30

Senator BROWNBACK. Well, I think you put your finger on the

right button on the right set of issues. Now, whether we will see

progress made is yet to be determined.

Mr. ROBINSON. You bet.

Senator BROWNBACK. Let’s see, let’s go back up to the top of the

list. Dr. Waldron, delighted to have you here today. Thank you for

being here to testify. We’ll run the clock at about six minutes,

that’ll give you an idea, and if we can kind of keep close to around

that that will give us the chance to have more active questions.

STATEMENT OF ARTHUR WALDRON, LAUDER PROFESSOR OF

INTERNATIONAL RELATIONS, DEPARTMENT OF HISTORY,

UNIVERSITY OF PENNSYLVANIA

Mr. WALDRON. Mr. Chairman, I will do my best. I prepared these

remarks yesterday; this morning I learned of the testimony of Assistant Secretary of State James Kelly, one of our best diplomats,

to the House International Relations Committee yesterday, and I

wanted to quickly, and I have inserted my additional remarks into

my printed testimony and on the disk, just say a things about this;

this is specifically about Taiwan.

In connection to what Mr. Robinson mentioned—the growing desire of the people of Taiwan to assert their own identity—Assistant

Secretary Kelly said that this must be stopped; these were his

strong words. On the other hand, when it came to the Chinese

threats of use of force against the island, he stated only that we

strongly disagree with this approach. He did not say that it must

be stopped. And let me just quickly make a few points.

The first is that under international law the United States has

never recognized Chinese sovereignty over Taiwan. That continues

to be our position, which is that the status of Taiwan under international law remains to be determined. Therefore, the question of

independence seems rather odd. If we don’t recognize that it’s part

of China, what is it becoming independent of?

The second point is that we have always insisted on only a peaceful resolution of the issue. Period. And I would say, from my background as a professor of strategy, that we must be absolutely crystal clear on that point, there must be no wiggle room.

The third point is that we must never allow Beijing to believe

that they are intimidating or manipulating us. My own sense is

that there is some intimidation going on. I would note that I have

learned informally that members of our American Institute in Taiwan have privately been telling people that there’s going to be a

war next year in the Taiwan Strait unless President Chen is somehow reigned in, which I think is unprofessional and probably inaccurate.

Fourth, I think the origin of this problem goes back to some

faulty diplomacy. Mr. Robinson mentioned the need to re-examine

the 1979 to 1982 framework, and I think that that is correct. We’ve

had a policy that expected one thing to happen: We expected Taiwan to join China shortly after we broke relations. She didn’t do

that; she democratized instead, and we have a series of institutions

that are simply incapable of dealing with the current reality. Or,

another way of putting that would be to say that all we have now

31

is a military policy, and, oddly enough, we don’t have a political

policy with respect to the island.

Now, having spoken about that very specifically—I felt I couldn’t

let this pass without commenting on it—let me say a little bit

about the situation in China today. I think it’s more volatile than

most people understand. Your chosen title was ‘‘Reform.’’ Well

frankly, I don’t think reform is the word to apply. I think something more like ‘‘major change in several dimensions but without

any goal specified,’’ or ‘‘unplanned change,’’ is more appropriate.

Clearly, all sorts of dynamic forces have been released in China: intellectual, political, economic, travel, all of these things. Yet if you

ask a Chinese, where are these going to lead, what is the end state

that we’re trying to achieve, there’s absolutely no clarity about that

at all. Are we aiming for a private, free enterprise economy or not?

Are we aiming for democratization or not? There’s complete, sort

of agnosticism about the future, even as the future is being created

by these forces that are unleashed.

Now, let me speak briefly about political reform. Here I think it’s

important to point out that one lesson of the end of the Cold War

is that regime type is critical. It’s not the case that it doesn’t matter whether a country is a dictatorship or not and that one can

somehow deal with them economically and militarily regardless of

whether their people participate in politics. The reason that we are

no longer aiming thousands of warheads at the Soviet Union and

they not aiming them at us, it doesn’t have to do with SALT treaties, it doesn’t have to do with summits, it doesn’t have to do with

people-to-people exchanges, although all of those things were important. The reason is that the Soviet Union gave up communism,

allowed people to vote, made its currency convertible, established

a parliament, freed the press, and allowed political parties to form.

It transformed itself. And the result of that was peace in a Eurasian continent which had previously been threatened by massive

destruction.

Now, China continues to be an extremely repressive regime. And

let me just mention one fact, which is the assistance that American

companies have given to the Chinese secret police in creating a

very, very sophisticated network for monitoring the Internet, tracking individual users, blocking web sites; they can even monitor cell

phone conversations and text messaging, store this material,

search it with high-speed computers and obtain profiles of what individuals do. Now, not all Chinese are happy with this. According

to Radio Free Asia there were some 10 million people who participated in demonstrations, thousands of demonstrations, at various

places in China last year. So my own feeling is that politically the

situation is rather challenging and that an enlightened government

would, at this point, have begun to make changes. But they have

not done that which implies that the change will come in a rather

surprising way.

Let me now turn quickly to the economy. First of all, it’s not a

market economy, despite what the administration said yesterday

within their economic negotiations. There’s no way that China is a

market economy. It’s growing fast, but the growth is based on exports, foreign investment, and massive borrowing. In my written

testimony I go into some detail about the unsustainable levels of

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borrowing and debt that are being created. I think that it is the

consensus of experts on the Chinese economy that it’s headed for

some kind of landing, hard or soft. A crunch is going to come.

Now let me briefly say something about the military buildup. I

thought Mr. Lawless’s testimony was excellent, although, as he

said to me in the break, it’s just the tip of the iceberg. The military

is now the king-maker in China. Politicians, those who want to advance, lavish money on the military, create generals and so forth.

The Chinese buildup is substantial, and it does not affect just, for

instance, say Taiwan; it directly affects Japan, Korea, India, Indonesia, you name it, even Russia. I always wonder why the Russians

are selling all of this stuff to China; they are, but it makes no

sense. And if this military rearmament were to continue without

some kind of countervailing rebalancing, we would have a very,

very serious situation in East Asia. Two specific points on this:

First, Americans should understand that the Chinese military is

the only one in the world that is being developed specifically to

fight the United States. If you look at, for instance, the purchases

of missiles from the former Soviet Union, many of these have only

one use, and that is to destroy aircraft carriers, which they can do;

we have no defense against these supersonic missiles. Now, you

might say that their target was the aircraft carrier Charles de

Gaulle, but I don’t think so. I think that they have the great American carrier battle groups in mind, and, as I say, we have no defense against this. This is certainly not a cause for complacency.

The second point, and I thought your questioning of Mr. Lawless

brought this out, is that although many people will say that China

seeks only minimal deterrence and has no great power ambitions,

my own view is that there is no objective reason that if the present

regime stays in power—this is why regime change is so important,

or change of regime type—there’s no reason that China should not

become every bit as strong and threatening as the Soviet Union

was at its height. Because, as Mr. Lawless pointed out, the conditions that constrained the Soviet Union, economic conditions and so

forth, don’t apply in the case of China.

To conclude, received opinion in Washington troubles me a bit

because the opinion seems to be that, in spite of all of these worrying indicators, change is going on, and the democratization is

eventually, she’s going to come right in the end and we’ll all be

friends. Let’s say that I hope that happens. However, the only way

that China can be a positive player in the region and in the world

and be a real friend to the United States is for her to abandon the

Communist dictatorship, as the USSR and the former satellites

did, introduce freedom and democracy, and redirect spending away

from things like the military and prestige projects and toward the

needs of the people. I would point out that as of September of last

year the average Chinese farmer had an income somewhere between $300 and $400 U.S. per year—that’s very, very low; the average urban resident about $700 or $800.

Now, let’s hope that these changes will occur. There’s much that

we could do to help them occur, and we should. But we must not

stake our policy on the idea that they will occur. Things could go

well or they could go very wrong. And what we need is a China

policy that can deal with either outcome.

33

Thank you very much.

[The prepared statement of Mr. Waldron follows:]

PREPARED STATEMENT OF ARTHUR WALDRON

A NOTE ABOUT TAIWAN

In light of Assistant Secretary of State James Kelly’s remarks yesterday to the

House International Relations Committee, I would like to preface my testimony with

a few words that are not found in the printed handout, but are on the disk.

First, it is important to realize that the United States has never recognized Chinese sovereignty over Taiwan, whether that sovereignty was claimed by Chiang Kaishek’s Republic of China government, which we nevertheless recognized until 1979

as the legitimate government of China, or by the People’s Republic of China, whose

claims to Taiwan we only ‘‘acknowledge’’ but do not accept, as is clear in the transcripts of Mr. Kissinger’s discussions, and was reiterated by the Clinton administration, when Press Secretary Mike McCurry was forced to correct remarks to the contrary. Our consistent position is that the status of Taiwan under international law

‘‘remains to be determined.’’

Therefore the phrase ‘‘one China policy’’ does not mean that we recognize Taiwan

as part of China: we do not. Rather, it means that while we did recognize both East

and West Germany, and could well recognize both North and South Korea, in the

case of China we have decided that we can recognize only one government. That

was a problem only when Taipei presented itself as the government of all of China.

This it no longer does.

Yesterday Mr. Kelly, one of our finest diplomats, revealed the growing confusion

about our China and Taiwan policies when he stated flatly that efforts by Taiwan

to assert its own independent national identity ‘‘must be stopped’’—strong words—

while saying of China’s threats to use force against the island only that ‘‘we strongly

disagree with the approach.’’ He did not say that it ‘‘must be stopped.’’

Clearly we are in a bind here. On the one hand we have never recognized that

Taiwan is part of China. Yet we are deeply concerned lest it declare ‘‘independence.’’

Independence from what? Unless it is a part of China, which we do not accept, it

is already independent.

Briefly we have three problems here:

First, by responding as it has to democratic developments in Taiwan,

Washington risks bringing its commitment to democracy into question.

Second, I have no doubt that the current concern in the administration

arises from China’s increasing military strength and growing talk about

using it against Taiwan. To be frank, we are appearing to be intimidated,

something no great power should ever allow. Of course we want cooperation

from Taiwan on avoiding conflict, but whom should we insist ‘‘be stopped?’’

Not so much Taiwan, as China—for it is China that has the immense military and China that is making the threats of war. It is not enough to

‘‘strongly disagree’’ with China’s menacing approach. We must make clear

that we reject it, period.

Third, I think we have a lesson here in diplomatic plans gone awry.

When President Carter severed all relations with Taiwan in 1979, his assumption, I think, was that the island, then ruled autocratically, would become part of China through an agreement over the heads of the people of

Taiwan, between Taipei’s unelected leaders, and the unelected leaders in

Beijing.

We did not consider the possibility that Taiwan would reform and liberalize and

democratize. So not only did we fail to plan for such a possibility, we gave away

all sorts of things that would have helped us to deal with that situation, for instance

by failing to insist that Taipei remain in the UN General Assembly.

Thinking we were stabilizing the situation, we unwittingly created deep instability in the Taiwan Strait under the Carter administration. Historical development

took off in a direction we had scarcely considered and for which we were unprepared. The answer today is not to try to put things back the way they were—like

King Canute, proverbially lashing the incoming tide to force it to retreat—but rather to begin to rethink our whole approach, dealing with the current reality and not

the failed expectations of thirty years ago.

34

INTRODUCTION

The situation in China today is more volatile than most observers understand.

‘‘Reform’’ is not quite the word to apply to what is happening there; something like

‘‘unplanned but major change in several dimensions’’ would be more appropriate.

For although economic, political, and social forces have been released over the past

quarter century that will certainly take China somewhere, no one in China can

specify exactly to where that will be. No plan or roadmap exists. So when change

does come, as it most certainly will, most likely it will be unexpected and discontinuous, which means that it will have the potential to affect not only China, but also

her neighbors, the world economy, and direct interests of the United States and its

friends and allies.

NO PROGRESS ON POLITICAL REFORM

Politically, the Communist Party seems intent on maintaining its slipping hold on

power. No signs of progress are visible in areas such as the establishment of real

law and impartial courts, the freeing of speech and political and religious activity,

or the constitution of legitimate government by voting at local and national levels.

Quite the opposite: political repression is, if anything, increasing. With the help of

American companies, China has created a highly sophisticated system for monitoring the internet, tracking individual users, blocking access to web sites. Thanks

to powerful new computers and technology, China’s secret police even has the ability

to monitor cell phone conversations and text messaging, and to store and screen

messages in detail. This monitoring ability extends to an increasingly well developed

Chinese secret police network in the United States, operated out of the Chinese embassy and consulates, and now so deeply rooted on our university campuses that a

Chinese dissident can be monitored by Beijing almost as easily here as in China.

More conventionally, the freedom even of the Party-run press has, if anything,

been curtailed in the past year, with a number of editors being fired, and some publications closed. Even respected academic specialists in such areas as economics

often find it impossible to publish their opinions in the Chinese press, while nothing

remotely resembling dissent—or even USA Today style of editorials, one pro and

one con, is to be found.

This situation cannot last, for as Chinese sages taught thousands of years ago,

imposing dictatorship depends upon keeping the people ignorant and tied to the

land, as they were in the Qin dynasty (221–206 B.C.E.) and again under Mao

Zedong (1949–1976). Since Mao’s death new forces have been unleashed, not least

of which are intellectual and political. China’s educational institutions have begun

to regain some of their pre-Communist distinction. The number of highly educated

people has grown, and so has the number of those who have traveled or lived

abroad. In addition, Chinese people are beginning to own their own dwellings, have

a bit of money, and feel a stake in society. Put simply, the system has begun to

turn out citizens, or rather potential citizens—for at the moment these educated and

thoughtful people (like the farmers, who also have a certain wisdom) are denied any

meaningful influence on how they are governed. Officials are appointed, not elected—even mayors. At the top, no transition of rule has ever occurred in the PRC that

actually followed the Constitution or even the rules of the Communist Party. The

current ruler, Hu Jintao, was simply designated by the late strong-man Deng

Xiaoping, at the time of the Tiananmen massacre, to succeed Jiang Zemin, who was

installed in power immediately—and quite illegally—while Premier Zhao Ziyang

was placed under house arrest (which continues). This lack of even a defined system

for choosing a leader is a powerful contrast to India (where even a series of assassinations never disrupted constitutional rule), Japan, South Korea, Taiwan, and numerous other countries. Politically the Chinese system remains rather primitive and

lacking in legitimacy.

It also quite evidently lacks any feeling of the urgency of reform. One reason for

this is that the leadership is deeply divided, and things work best in the short term

if everyone is allowed to do more or less as they want. But that approach will work

only in the short term. As economic development makes China more complex, the

need for objective mechanisms, for choosing leaders responsive to popular needs and

wishes, and for resolving disputes objectively, will become inescapable. Doing those

things will require that the Communist Party give up power.

If the Party does not move on its own, it will probably face increasing internal

division and popular turbulence, which may effect the sort of change it is unwilling

to carry out itself. That sort of chaotic shift is worrying enough. But even more worrying is the possibility that the Party will somehow retain control, and develop

China into a state having a dictatorial government having unfulfilled territorial asVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 95873 SFRELA2 PsN: SFRELA2
35

pirations (see below), a sizeable treasury and military, and no internal checks and

balances.

The unwillingness of the Party to consider change is clear in its approach to Hong

Kong, to which it promised democracy in 1984. In the past year or so, as the people

of Hong Kong began to call for real progress towards actually electing their government, Beijing seems to have panicked and, in effect, torn up all its promises in favor

of rule from the center, intermediated by carefully selected pro-Beijing locals. To

some extent Beijing must be bluffing, for she lacks the capacity to coerce Hong Kong

(as she did her own capital in 1989) without destroying the hub of her most advanced economic region. Yet so strong is the instinct for control that the central government has adopted quite astonishingly hard line talk and methods.

The same unwillingness is demonstrated in Beijing’s policy toward Taiwan, now

a democracy, and a state having a national character and identity quite different

to that of the People’s Republic. Taiwan would like to coexist with China and enjoy

the benefits such coexistence would bring to both sides. For more than a dozen years

the government in Taipei has been offering to negotiate with China, but after a brief

start in 1993 in Singapore, Beijing has refused all offers to meet. Instead, she has

adopted a strategy of pressuring Washington, somehow, to force Taiwan to do what

she says—which is of course both impossible and dangerous.

So, much as we may all hope for political reform leading to freedom and democracy in China, and however much we may be heartened by the occasional liberal

straw in the wind, it is essential that we recognize clearly the complete lack of

progress in this area at least since 1989. We should talk to the Chinese about this;

we should never be bashful about listing prisoners or condemning abuses—but we

must not comfort ourselves with the illusion that the present leaders are ‘‘reformers.’’ They are not. They are dictators, having aspirations to a sort of totalitarianism

they cannot achieve (this is evident in their approach to religion), improvising expedients to stay in power, whatever it takes—arrests, propaganda, whipping up xenophobia, even perhaps a ‘‘Splendid Little War.’’ These leaders are to be treated with

great care and caution, even as we are mindful of the precariousness of their power.

A PRECARIOUS ECONOMY

Economically, China is in the midst of an unsustainable boom and headed for a

hard or a soft landing, depending upon policy. China’s astronomical growth rates are

not entirely credible, and, to the extent they are real, they do not represent healthy

growth. By and large they are the product of three factors: (1) exports, which as we

know, are soaring; (2) foreign investment, which is fine so long as it does not substitute for the development of Chinese entrepreneurship. Sadly, a good half of China’s exports are accounted for by firms having foreign participation, and in some

key sectors foreign ownership is greater than Chinese (in Information Technology,

for example, Taiwanese investors own roughly 70% of China’s capacity), and (3)

massive state investment, based on government-directed borrowing from the stateowned banks (the only place Chinese can put their savings)—such borrowing goes

heavily to support loss-making state enterprises, rather than to genuinely profitable

uses. Chinese growth, in other words, is not being created by increased productivity

and efficiency, the proverbial ‘‘assignment of goods to their highest paid uses,’’ but

rather by a torrent of capital investment, both foreign and state, much of which is

misallocated and thus wasted.

To be more specific, last year in 2003 non-farm investment increased at three

times the rate of GDP. So far this year that rate has doubled again. Year on year

it is up 53% in the first two months of 2004. Investment by state enterprises is up

55% with investment in industry up an astonishing 79%. Purchases of building materials in the first two months of this year grew at an annualized rate of 137%. Chinese demand for oil—a commodity of which the globe has only a limited supply—

has now passed that of Japan, to stand second to our own country, which consumes

roughly four times as much. Not surprisingly world commodity prices are beginning

to rise in response.

But this is artificial demand, driven above all by state directed loans to state enterprises. It is not the product, as some would have us believe, of dynamic ‘‘free enterprise’’ or ‘‘entrepreneurship’’ in China. If anything, the entrepreneurial class, is

being squeezed out and denied capital of which it could make good use, by extravagant state lending (only 1% of which goes to the private sector) and by foreign investment, which often receives preferential treatment.

The result of all this is of course insolvency in the banking system (experts disagree about the exact percentage of bad loans, but an estimate of one third would

be conservative) and growing government debt. Local currency loans through February of this year alone rose by 20.7% year to year, to $1.98 trillion. New loans in

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the past year alone amount to one quarter of GDP. Total government debt, including

unfunded liabilities for unemployment, for medical care, and retirement for state

workers, is of course far larger.

Although plans are regularly announced to reduce the rate of growth of debt,

purge the banks of non-performing loans, rein in over-investment, and so forth, so

far these have little to show. China is of course not the only country where fiscal

irresponsibility may be politically expedient. But in today’s world she is nearly

unique in the all-important role that governments, central and local, play in deciding, not always very rationally, what will be invested and where. So even though

countries such as the United States and Japan also face massive fiscal and debt

problems, in both of them the economy as a whole is sound and productive. Both

are host to dozens and dozens of world-class global companies, and have been for

many years. If we count twenty-eight years from the creation of the Ministry of

International Trade and Industry in Japan in 1949, we reach 1977, by which time

Japan already boasted such players as Honda, Fujitsu, Kyocera, NEC, and others.

By contrast, count the same number of years from Mao’s death in 1976, when socalled ‘‘reform’’ began, and you reach the present—and the worrying realization that

even after all that time, China has yet to produce a genuinely world-class competitive company, whether private or state owned.

Most worrying, perhaps, is the rapid growth in regional and personal inequalities

of income owed to state misallocation of resources, and to massive corruption. In

September of last year rural incomes in China averaged $217 U.S., while urban incomes were at $766 U.S. Hundreds of millions of farmers remain dirt poor and deprived of all political rights as well. Tens of millions of unemployed rural workers

roam the urban areas, sleeping on streets, working at construction and other hard

labor, or trading, without any provision for health, education, or even wages. (Official estimates of unemployment are now touching 14%). Nor is the typical Chinese

urbanite the fashionable young woman one reads of so often, stopping in at a fashionable Shanghai boutique to spend $400 on a pair of the latest shoes. Urban life

has a much more uniformly early industrial revolution shade of gray about it than

we often realize.

So we have a vicious circle. Population and unemployment are rising, which pose

an obvious threat to order in China. Unwilling to unleash the private sector, which

already accounts for half to two thirds of new jobs in some areas, the state insists

on taking the precious savings of the impoverished Chinese people and pouring

them into make-work projects that may absorb some labor for a while, but are unlikely ever to be profitable, which is to say, provide real long-term jobs. The money

thus wasted cannot be recovered: it is a vast, wasted, opportunity cost. Nor does

China have the resources to continue to waste money at such a rate.

As one economist at the Chinese State Development Bank recently put it, ‘‘All the

characteristics of China’s financial industry today are similar to those found in

Thailand before the Asian financial crisis [of 1997]. The probability of a crisis erupting in China is rising.’’ This comment, by a well qualified Chinese economist, deserves careful note.

Sooner or later a crunch will come, with the ordinary people being the chief victims—as the perpetrators will mostly have expatriated first their money and then

themselves ahead of time. We can only guess about the consequences for the rest

of the world, and for the Chinese regime.

MILITARY BUILDUP

Finally, and perhaps most importantly, China is engaged in a massive military

buildup, to which both Washington and China’s neighbors unaccountably pay far

from adequate attention.

Ever since the sack of Beijing by the People’s Liberation Army in June of 1989,

that army has been dissatisfied and ashamed of what it did. I have been told as

much personally by a very senior Chinese military commander. Chinese join the

army to protect their country, not to kill their fellow citizens. Furthermore, ever

since Mao died in 1976, and his chosen successors were swept away by a coup d’etat

of the 8341 unit, or capital bodyguard division, the military has been the ultimate

kingmaker in China. Put these two facts together, and it becomes clear why over

the past dozen years or so members of the Chinese Communist ruling elite who lack

military ties have been so eager to create them.

Since the Tiananmen massacre, the PLA has been given immense budget increases, difficult to estimate but obvious when one considers new military hardware,

the space program (which has strong military dimension), and huge increases in research and development and military production capability. Jiang Zemin, China’s

former president who retains a great deal of power today as Chairman of the MiliVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 95873 SFRELA2 PsN: SFRELA2
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tary Commission, created numerous field and flag level officers in a bid to win loyalty. Now, evidently, Jiang’s ostensible successor, Hu Jintao has also established his

own military headquarters, in the Western Hills, in an attempt to counterbalance

Jiang’s continuing influence over the military and security apparatus.

At the same time the military has been given a new mission: not so much national defense (as no country seems to have any desire to attack China) but rather

national expansion, or as it would be put in China, ‘‘recovery’’ of lost national territories—to most of which Beijing holds only the most tenuous of claims. Hence we

have seen repeated Chinese probes into the Japanese Senkaku Island chain

(Diaoyutai in Chinese) which have deeply irritated Tokyo and, along with the acquisition of nuclear weapons by North Korea, evidently set Japan on a course toward

military self-sufficiency: very bad news for Beijing. We have seen ‘‘archaeological’’

research carried out that reassigns the ancient Korean kingdom of Koguryo to the

‘‘Chinese’’ world, which would mean that Korea almost to the 38th parallel would

be Chinese. This is a difficult move to judge, but it is hard to resist the conclusion

that it prepares the way for possible intervention to prevent Korean unification. On

the Indian border, China has proved most unforthcoming about territories occupied

in the 1962 war—and some territory given to China by Pakistan. As with Japan,

Beijing’s condescending and ham-fisted approach to India has led to terrible strategic consequences, in the form of a nuclear armed India alert to its national interests. Without Chinese assistance, the Pakistani nuclear program would have been

little more than blackboards and some smart physicists. In the South China Sea,

China is asserting sovereignty over various reefs and islands, some seized from Vietnam, another from the Philippines, probably with a view to declaring the entire area

territorial waters. And of course there is Taiwan, against which China is carrying

out an unprecedented military buildup. She will soon possess more advanced fighter

aircraft than Taiwan does; her submarine and surface fleets are growing, and she

has roughly 500 missiles—one for every 45,000 Taiwanese—aimed at the island.

Russia seems not yet to have grasped fully the potential threat to her interests that

this newly well-armed China poses (Moscow, after all, is a major source of weapons

and technology), but that realization may come soon. Added together, all of this portends increasing tension and danger in Asia, as China attempts to shift the military

balance decisively in her favor—an action, however, more likely to elicit a balancing

coalition than lead to success.

Most importantly, however, Americans should understand that the new Chinese

military is the only one being developed anywhere in the world today that is specifically configured to fight the United States of America. Thus China has gone to great

lengths to acquire supersonic missiles from Russia that were originally designed by

the USSR to destroy American aircraft carriers. Her researchers are deeply involved

in identifying potential weaknesses in the American military. She is working hard

on counter-stealth technologies, lasers, cruise missiles, space surveillance, and

weapons that target our vulnerable communications and other links. Many argue

that China seeks only minimal deterrence and a certain degree of influence in Asia,

But that does not account for the vast scale of, for instance, her ICBM and space

programs, nor for her development of specific systems to target American forces. My

own view is that no objective reason exists why China, if she stays on her present

course, should not eventually pose an even greater threat to the United States and

its friends and allies than did the Soviet Union.

CONCLUSION

Received opinion in Washington appears to be, overwhelmingly, that in spite of

the worrying indicators I have mentioned, China is in a process of change and democratization that will make her eventually into our close friend, rather than competitor or adversary. Most people remain highly bullish about the Chinese economy,

despite the warning lights I have mentioned. American business has made itself increasingly dependent upon China, regularly provides technologies it should not (e.g.

for internet surveillance) and increasingly lobbies for Chinese wishes in Washington. Many also believe that U.S. policy mistakes (support for Taiwan, for example) rather than Chinese political competition and strategic debates, explain whatever difficulties or menaces may seem to appear. The result is an extraordinary degree of complacency in the face of potentially real threats.

Those threats may never become real, but if they do not, the reason is likely to

be more than just good luck. It will be the result of serious American and allied

action to cut off Chinese access to advanced military technology, enhance the defensive and deterrent abilities of the free countries in Asia that are our real friends,

and straight talk with the Chinese government.

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In the longer run, the only assurance of our interests and those of our Asian

friends and allies will be for China to abandon Communist dictatorship, as the

USSR and its former satellite states did, introduce freedom and democracy, and redirect spending away from prestige projects (such as the Olympics and extravagant

new buildings in Beijing and Shanghai) and toward the still-pressing needs of her

people.

This may occur. The U.S. can do much to help it to occur, and should. But we

must not count on its occurring. Things could go very well, or they could go very

wrong. We need a China policy that can deal with either outcome.

Senator BROWNBACK. Thank you very much for those insightful

comments.

Ms. Lee, good to see you again. I look forward to your testimony.

I don’t know if you caught the earlier panel, but we’ve already spoken some about the case that’s been put forward. I look forward to

hearing your specifics about that case.

STATEMENT OF THEA M. LEE, CHIEF INTERNATIONAL ECONOMIST, AMERICAN FEDERATION OF LABOR AND CONGRESS

OF INDUSTRIAL ORGANIZATIONS

Ms. LEE. Thank you so much, Mr. Chairman, for the invitation

to come today and testify on behalf of the AFL-CIO. We appreciate

that. And I also appreciate your personal interest and concern in

the issues that we’ve raised with respect to workers’ rights and

human rights.

I want to talk today about a crucial issue in the U.S.-China economic relationship that we believe has not received the attention

it deserves from this or previous administrations, and that is, as

you’ve said, the brutal repression of workers’ rights by the Chinese

Government and the impact of that repression on American workers. This is particularly important this week, as Mr. Robinson

noted, since we’ve just concluded a very high level annual meeting,

the Joint Commission on Commerce and Trade. From all the press

reports, it appears that workers’ rights was not even on the agenda, from the point of view of the Bush administration, while other

issues, such as intellectual property rights protections and some

sectoral market access issues were discussed. Another issue that

did not appear to be on the agenda was the Chinese Government’s

manipulation and undervaluation of its currency. These two issues

together, the currency undervaluation and the workers’ rights repression, to us are the two key economic problems in the U.S.-

China relationship that account together for many of the hundreds

of thousands of U.S. jobs that are lost due to this economic relationship. We are disappointed that the administration chose not to

put a priority on these important issues in these high level talks.

As you know, on March 16 the AFL-CIO filed a Section 301 petition with the U.S. Trade Representative, alleging that China’s violation of workers’ rights is an unfair trade practice under U.S.

trade law. This is the first time that Section 301 has ever been

used in that way. We think this is a really important innovation

and an important message, both to our own Government and to the

Chinese Government, that the unfair cost advantage that comes

from repressing the human rights of workers is contributing to the

$124 billion trade deficit the United States has with China, the

highest bilateral trade deficit between any two countries in the history of the world. This unfair cost advantage contributes to the

39

hundreds of thousands of U.S. jobs lost. We think we’ve clearly met

the standard of Section 301, that this is a burden and restriction

on U.S. commerce and that there’s a persistent pattern of violation

of workers’ rights on the part of the Chinese government.

If we don’t address the systematic, egregious and institutionalized repression of workers’ rights in China, we’ll continue to lose

hundreds of thousands of good jobs here. We’re creating conditions

of desperation and exploitation in China and fundamentally altering the nature of global labor competition in the rest of the world.

Workers in developing countries, that I think Mr. Craner mentioned earlier, are impacted by the kinds of competition that we

will or won’t tolerate with respect to China, and I know you mentioned that as well. So our petition seeks to ensure that our Government will give this issue the priority it deserves in its economic

dialogue with the Chinese Government.

Chinese Vice Premier Wu Yi said this week to The New York

Times that the allegations in our petition are groundless and she

invited the AFL-CIO to come to China to see for ourselves what the

conditions are. In response to her charge that the allegations are

groundless, as you know, the documentation in the petition is quite

extensive and credible and, as Mr. Craner said, relies heavily on

extremely credible sources, such as the U.S. State Department, the

International Labor Organization, the International Confederation

of Free Trade Unions, The New York Times, The Washington Post,

and so on. We’re very confident that the evidence that we’ve put

together will stand up to scrutiny. We also would be very interested in being able to go to China and further investigate some of

the allegations that were made. We’ve always said in the past to

the Chinese Government that if we are to go to China we want to

be able to have access to Chinese labor dissidents who are in jail,

as well as the official union representatives. We want to be able to

meet with workers on our own terms without any kind of government supervision or restriction and to bring our own translators

and so on. So if we can meet all those conditions we would be very

happy to go to China and investigate further.

As you know, the allegations have to do with the denial of freedom of association, the right to bargain collectively; Chinese workers simply don’t have the right to organize an independent union.

They are limited to the government-controlled body, the All China

Federation of Trade Unions. Workers who attempt to strike or organize unions independent of that body have been arrested, imprisoned, beaten and tortured. Even speaking out at the workplace has

been often grounds for severe reprisals and arrest.

We’ve very concerned about the conditions of forced labor, essentially, that exist for many migrant workers. As we’ve discussed, the

migrant workers in China work under a system where they’re

disempowered and vulnerable, often caught between unscrupulous

employers and an indifferent government.

The Chinese Government has simply failed to enforce its own

labor laws with respect to minimum wage, maximum hours of

work, and health and safety. The results are that workers are left

really defenseless at the workplace, and this is simply an unacceptable situation.

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1The internationally recognized workers’ rights enumerated under Section 301 include freedom of association and the right to organize and bargain collectively, prohibitions on child and

forced labor, and acceptable conditions with respect to minimum wages, hours of work, and

health and safety.

We don’t challenge the fact of low wages in China. We understand that a developing country with an excess supply of poorly

educated rural workers will have low wages. We understand that

even if China were to fully enforce workers’ rights we wouldn’t

completely close the wage gap between Chinese and American

workers. But we think it would surely narrow. And what the AFLCIO petition challenges is the incremental cost advantage that

comes from the brutal and undemocratic repression of workers’ human rights. That incremental advantage is illegitimate under

universal norms of human rights and it’s illegitimate under U.S.

trade laws.

The AFL-CIO petition shows what the economic burden is on the

United States, that there’s a cost advantage of between 10 and 77

percent that comes specifically from the repression of workers’ rights. We ask the President to take trade measures that will offset

this illegitimate advantage, to negotiate an agreement with the

Chinese Government to meet concrete benchmarks of compliance

with workers’ rights. As those benchmarks are met, the tariff can

be gradually reduced.

And third, we ask the President not to enter into new WTO

agreements until the WTO incorporates enforceable workers’ rights

as a condition of WTO membership, so that we can have protection

for workers’ rights throughout the trading system through multilateral rules. Global rules should fairly enforce basic workers’ rights

to ensure that competition does not reward and encourage repression of human rights at the workplace.

I thank you very much for your attention, and I look forward to

your questions.

[The prepared statement of Ms. Lee follows:]

PREPARED STATEMENT OF THEA M. LEE

Mr. Chairman, members of the subcommittee, I want to thank you for the opportunity to testify today on a crucial issue in the U.S.-China economic relationship

that has not received the attention it deserves—from this or previous administrations: the brutal repression of workers’ rights by the Chinese government and the

impact of that repression on American workers.

This is particularly important now, as the U.S. and Chinese governments conclude

a high-level annual meeting, the Joint Commission on Commerce and Trade. From

early press reports, it does not appear that workers’ rights are on the agenda, while

other issues, such as intellectual property rights protection and market access were

scheduled to be discussed. Another key issue that does not appear to be on the agenda is the Chinese government’s manipulation and undervaluation of its currency,

which we believe is also adversely affecting American workers, producers, and jobs.

On March 16th, the AFL-CIO filed an unprecedented petition with the United

States Trade Representative under Section 301 of the Trade Act of 1974, asking the

Trade Representative to take action to end the Chinese government’s repression of

the human rights of its factory workers.

This marks the first time in the history of Section 301 that a petition has invoked

the violation of workers’ rights as an unfair trade practice, although it is quite common for corporations or the government to use Section 301 to challenge commercial

unfair trade practices, such as illegal subsidies or violations of intellectual property

rights.

The petition shows, first, that the Chinese government engages in a ‘‘persistent

pattern’’ of denying the fundamental rights of its factory workers.1 Second, it demVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 95873 SFRELA2 PsN: SFRELA2
41

onstrates that China’s violation of workers’ rights artificially reduces wages and production costs in China and, as a result, displaces hundreds of thousands of manufacturing jobs in the United States. This unfair cost advantage has contributed to the

stunning bilateral trade deficit with China, which hit $124 billion in 2003—the

highest bilateral trade deficit between any two countries in the history of the world.

Under the terms of Section 301, we argue that this clearly ‘‘burdens and restricts’’ U.S. commerce.

China’s brutal repression of workers’ rights is, in our view, the most important

issue in the U.S.–China trade relationship. Failure to address the systematic, egregious, and institutionalized repression of workers’ rights in China costs hundreds

of thousands of good jobs here, creates conditions of desperation and exploitation in

China, and fundamentally alters the nature of global labor competition in the rest

of the world. The AFL-CIO’s 301 petition seeks to ensure that our government will

give this issue the priority it deserves in its economic dialogue with the Chinese

government.

CHINA DENIES WORKERS’ RIGHTS

There is overwhelming evidence that the Chinese Government denies the workers’ rights covered by Section 301. The petition amasses evidence from the U.S. State

Department, the International Labor Organization (ILO), labor unions, academics,

newspaper accounts, and human rights groups.

China denies freedom of association and the right to bargain collectively. The Chinese Government relentlessly represses attempts to organize unions that are independent of the government-controlled All-China Federation of Trade Unions

(ACFTU). The ACFTU is officially and legally subservient to the Communist Party

and to local officials who profit from export enterprises. Workers who attempt to

strike or organize unions independent of the ACFTU have been arrested, imprisoned, beaten, and tortured. Even workers who have spoken out against corrupt

managers or who have attempted to publicize workplace problems have been subject

to severe reprisals and arrest.

Conditions of forced labor are widespread. Many of the workers in China’s export

sector are temporary migrants from the countryside, who work under a system of

internal passports that is similar to the pass system in apartheid-era South Africa.

Factory workers are permanently registered to live in their rural villages, and have

few civil or political rights when they work temporarily in factory towns and cities.

Upon arrival to the factories, migrant workers become heavily indebted in order to

pay large ‘‘deposits’’ and other fees to their employers. They lose their deposit if they

quit without the employer’s consent. They are thereby essentially turned into bonded laborers who cannot leave their employment without incurring large and disproportionate penalties. The wages, conditions of work, and hours often turn out to

be quite inferior to what is promised upon arrival, meaning that workers have clearly not entered into a free labor market, with fairly enforced rules.

China does not enforce its own laws with respect to minimum wages, maximum

hours, and workplace safety and health. Many manufacturers in China, including

multinational corporations, pay their workers much less than the minimum wage

standards set by the central and provincial governments. It is apparently common

for companies to keep double and triple sets of books, to hide this practice. Workplace safety and health practices are atrocious, and China has the highest rate of

industrial deaths and accidents in the world. Government officials simply do not enforce their own laws on wages, hours, and safety and health.

The AFL-CIO’s petition does not challenge China’s right to compete in the global

economy on the basis of low wages. It is natural for a developing country with an

excess supply of poorly educated rural workers to have low wages. We fully understand that even if China fully enforced its workers’ rights, the wage gap between

Chinese and American workers would not disappear. But it would surely narrow.

The AFL-CIO challenge is specifically to the incremental cost advantage that comes

from the brutal and undemocratic repression of workers’ human rights. That increment is an illegitimate advantage under universal norms of human rights. And it

is illegitimate under U.S. trade law as well.

THE BURDEN ON U.S. COMMERCE

U.S. workers today have to compete with factory workers who are forced to work

under lawless working conditions. And it is taking a toll. The manufacturing sector

in the U.S. has been losing jobs for 43 straight months. The U.S. has lost a staggering 2.8 million manufacturing jobs since early 2001.

The AFL-CIO petition shows that China’s violations of workers’ rights gives Chinese manufacturers a cost advantage ranging between 10 percent and 77 percent

42

of overall production costs. We estimate that the illegitimate cost advantage displaces approximately 727,000 jobs in the United States.

These are very conservative estimates. We used the most conservative assumptions to estimate the wage reduction that results from the Chinese government’s repression of independent unions and its failure to enforce its own minimum wage

laws. Then we applied the trade model used by the U.S. International Trade Commission to translate that figure into an impact on U.S. output, prices, and jobs.

And the burden on U.S. workers goes far beyond the number of jobs lost. Twentyfive percent of displaced workers in the U.S. are still without a job six months after

losing their jobs. Many of those who are fortunate enough to find new jobs suffer

big losses of income, with two-thirds earning less on their new jobs. And these figures on lost wages are from the years before the bottom fell out of the labor market

in the last three years, when it has become even more difficult to transition into

decent-paying jobs.

CHINA’S MANUFACTURING CAPACITY

While U.S. manufacturing workers have faced catastrophic losses, China’s manufacturing output, exports, and productive capacity have grown at unprecedented, accelerating rates—and are poised to grow even more explosively in the next five

years. It is much easier to keep jobs from leaving than it is to bring them back once

they are gone. For this reason, the USTR should act now to prevent the imminent,

irreversible loss of U.S. jobs due to China’s illegitimate exploitation of its factory

workers.

Even though China is still in a relatively early stage of industrialization, it is already the second leading exporter to the United States, surpassed only by Canada.

China’s exports to the United States now exceed the exports of such industrial

powerhouses as Japan, Germany, and the United Kingdom, and may soon surpass

even Canada’s. China’s exports to the United States also exceed those of Mexico, the

low-wage export platform immediately across our border.

Unlike Mexico and other emerging export platforms, China has made ‘‘the crucial

leap’’ from assembly of electronic and other consumer goods for global and domestic

markets, to manufacturing the components for those goods, including the fabrication

of computer chips. Guangdong Province encompasses the largest such production

base for electronics in the world.

China now leads the world in the production of televisions, refrigerators, cameras,

bicycles, motorbikes, desktop computers, computer cables and other components,

microwave ovens, DVD players, cell phones, cigarette lighters, cotton textiles, and

countless other manufactured products—and China’s lead is growing at an accelerating pace.

China’s exports of textile and apparel goods have increased 320 percent in the last

two years, while U.S. employment in those sectors has fallen by 323,000. In the first

eleven months of 2003, China’s production of computers grew by 105.5%. Its production of micro-computers grew by 84.9%, power-generating equipment by 72.5%, optical communication equipment by 54.3%, air conditioners by 43.2%, semiconductor

integrated circuits by 38.6%, metal-cutting machine tools by 34.1%, motor vehicles

by 33%, chemical equipment by 30.5%, fax machines by 30.2%, household refrigerators by 27.3%, household washing machines by 27%, cell phones by 24.5%, electric motors by 26.8% electric-driven tools by 26.2%, steel products by 21.5%, and

plastic products by 17%. China’s output of many manufactured products showed accelerating growth in the later months of 2003.China has now become an export powerhouse in high-tech computers and electronics and machine parts, not just low-tech

toys and garments.

But even while productivity rose rapidly in China in the last decade, the real

wages of China’s factory workers stagnated. The manufacturing boom in China has

not been a train carrying China’s workers into the middle class. China’s workers

can’t bargain for higher wages because they lack basic workers’ rights.

THE U.S. MUST ACT

The President had 45 days from the date when the AFL-CIO filed its petition,

March 16th, to decide whether to accept the petition and launch an investigation.

If he denies the petition, he must state his reasons. He must declare either that

China does not violate its workers’ rights, or that China’s violation of its workers’

rights has no adverse effect on U.S. workers. Either declaration would contradict

the overwhelming evidence presented in the AFL-CIO petition. Indeed, the President had authority under Section 301 to take action on his own initiative even without the AFL-CIO petition, but he has chosen not to do so. The only Section 301 case

43

initiated by this Administration to date has been on intellectual property rights violations in the Ukraine.

Section 301 authorizes the President to take any actions within his Constitutional

powers to enforce fair competition and protect workers’ rights overseas. The AFLCIO petition asks that the President take three actions to remedy China’s persistent

denial of workers’ rights:

First, the President should impose trade measures against China that are

sufficiently large to induce China to enforce workers’ rights and to offset

the unfair competition caused by China’s violations. The AFL-CIO is not

asking for protectionist barriers. If China enforces the basic workers’ rights

agreed by the international community, then it can enjoy normal access to

U.S. markets, and it can create jobs that don’t assault human dignity.

Second, in that non-protectionist spirit, the AFL-CIO asks that the President negotiate an agreement with China to phase out the trade measures

in incremental steps, as China comes into compliance with concrete workers’ rights benchmarks—benchmarks that are specific and verifiable by the

ILO, the United Nations agency responsible for promulgating and monitoring international labor rights.

Third, the AFL-CIO asks that the President enter into no new WTO

agreements until the WTO incorporates enforceable core workers’ rights as

a condition of WTO membership. It is essential that workers’ rights be protected throughout the trading system, ideally through multilateral rules.

Global rules should fairly enforce basic workers’ rights—to ensure that global

competition does not reward and encourage repression of fundamental human rights

at the workplace. I thank you for your attention, and I look forward to your questions.

Senator BROWNBACK. Thank you very much, Ms. Lee, for bring

this forward and addressing an issue that I care about a great deal

in a different form and in a novel way.

Mr. Bottelier, thank you very much for being here, welcome. And

I look forward to your statement.

STATEMENT OF PIETER BOTTELIER,

JOHNS HOPKINS UNIVERSITY (SAIS)

Mr. BOTTELIER. Thank you, Mr. Chairman, and thank you for inviting me to participate in this panel. I will limit my comments to

the specifics in the AFL-CIO petition, and I have not addressed the

currency manipulation issue that you are interested in. Should you

wish to address questions to me on that subject I’m ready to respond.

Senator BROWNBACK. Okay.

Mr. BOTTELIER. Let me preface my comments by saying that I

believe job losses to plant relocation and outsourcing certainly due

to unfair trade practices are an extremely serious issue for the U.S.

And I also believe that we cannot take it for granted that every job

lost will be automatically replaced, even in a growing economy.

However, blaming U.S. job losses to any significant degree on China’s alleged repression of workers’ rights is not going to get us very

far. I do not believe that the repression of workers’ rights in

China—and I certainly do not deny all the facts in the AFL-CIO

report—is a significant source of unfair cost advantage to many

producers in China.

The petition’s conclusions on the measurement of job losses in

the U.S. hinges critically on the estimate of the margin by which

China’s alleged persistent repression of workers’ rights depresses

Chinese wages below the level that would otherwise prevail. The

petition estimates that Chinese wages would rise by 90 to 595 perVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 95873 SFRELA2 PsN: SFRELA2
44

cent if there were no repression of workers’ rights in China. I have

at least three serious problems with that.

First, the estimate of the underpayment, 90 to 595 percent. One

absurd implication of this estimate is that if it were true, probably

the majority of Chinese enterprises engaged in exports or even in

local trade would have to disappear. These are margins so big they

far exceed the profit margins of Chinese firms, which are typically

very low. The implication of this allegation is that somehow these

Chinese workers that would then not be employed would be better

off in other circumstances.

The second objection I have, Mr. Chairman, is that the petition

assumes, without even raising the issue, that all these alleged cost

advantages generated by the suppression of workers’s rights are

automatically passed on to the buyer; the buyer in the U.S. or the

buyer elsewhere. That’s an assumption that flies in the face, I

would say, of logic. To the extent employers can succeed in pocketing that rent that they create that way, themselves, they would

certainly do so. There is no reason to assume that automatically all

cost advantages would be passed on to the buyer. And that’s the

basis of the case.

The third point I wish to bring to your attention, Mr. Chairman,

is that a share of Chinese exports to the U.S. is generated by U.S.

companies located in China. There are no statistics on that. I personally estimate that somewhere between 12 and 15 percent of Chinese exports to the U.S. originate from U.S.-owned plants in China.

Now, the petition doesn’t mention that, but if the petition were to

recognize that fact, it implies that the suppression of workers’ rights is equally conducted by U.S.-owned plants in China, and

that the U.S. would somehow need the cooperation of the Chinese

Government to get U.S. companies in China to stop the suppression

of those rights. That seems to be a rather absurd implication of the

way the petition has been formulated.

Finally, and perhaps somewhat philosophically, if I may, the petition does not really take into account that China is in a relatively

early stage of development, sometimes in economics called the

‘‘Lewis Phase of Industrialization.’’ During that phase a vast number of rural workers remain outside the modern economy. In this

respect China’s current stage of labor market development is comparable to that of Britain in the Industrial Revolution and the U.S.

in the 19th century. There were few, if any workers’ rights in either country in those days. There’s no reason to believe that free

labor unions and the right to strike would improve average industrial wages in China today. The petition employs assumptions

about the effect of independent unions and strike threats on wage

levels that are not consistent with the realities in China.

Finally, the estimates of the degree to which people are receiving

less than they should in China are somewhat shaky and contradict,

I think, other indicators. We know from many statements and statistics that the average standard of living in China, including rural

people but more particularly urban people, is rising fast. The world

has never seen a population increasing living standards on such a

vast scale, so fast. This also leads to massive transfers of worker

savings from the urban areas to the rural areas. Last year, according to the Chinese banking statistics, almost $40 billion of savings

45

was transferred by urban migrant workers to their families in

rural areas, almost nine percent more than the year before. Clearly, that is a significant source of income that could not have been

transferred if urban wages are suppressed to a pure survival level.

Another fact is that, according to my information, whereas all cities have different standards for minimum wages—and these are

not laws, these are standards—they are enforced to varying degrees. In some areas, for example in Shanghai, the minimum

standard is 570 RMB per month. My contacts in Shanghai, and

these include private companies, tell me that Shanghai is pretty effective in enforcing the standards there.

Another dimension I would like to mention, if you give me a second, is the suggestion that the underpayment of Chinese workers

is somehow supported or condoned or at least abetted by the Chinese Government. This, I think, is a misstatement of the facts. It’s

clear that there are problems in China, particularly with regard to

those migrants who enter the urban labor market for the first time;

they have no negotiating power, but the average wages in China

are, in fact, rising very rapidly. The abuses that do occur are recognized by the present government, both Prime Minister Wen Jiabo

and President Hu Jintao have repeatedly stated that they want to

end these practices and have invested a lot of political capital in

trying to redress some of the problems.

One final very brief comment on the so-called bondage of Chinese

laborers through the hukou system, that is, the internal passport

system. I believe that the report is seriously out of date. It quotes

sources of many years ago. The hukou system in China is, in fact,

on its way out; there is an official committee that is studying how

it should be modified or abolished and in some areas of China it

has officially been abolished already on an experimental basis.

I’d like to leave it at that, Mr. Chairman. I’m ready to take your

questions.

[The prepared statement of Mr. Bottelier follows:]

PREPARED STATEMENT OF PIETER BOTTELIER

COMMENTS ON THE AFL-CIO SECTION 301 PETITION AGAINST CHINA DATED 3/16/04

Conclusions:

1. The economic analysis underlying the calculation of job losses in the U.S. due

to China’s alleged ‘‘Persistent Suppression of Workers Rights’’ is defective and deceptive.

2. The suggestion that China’s Government knowingly supports or at least abets

the suppression of workers rights, so as to allow Chinese industries to gain unfair

competitive advantage, is not adequately substantiated; there are important indications that China’s Government, led by President Hu Jintao and PM Wen Jiabao is

making serious efforts to combat such abuses of workers rights as do occur (other

than the ban on strikes and the prohibition of independent unions).

3. China’s Government does indeed prohibit independent labor unions and generally does not permit labor strikes. These factors were known and understood at

the time the U.S. negotiated the terms of China’s entry into the WTO and the U.S.

Congress passed the PNTR legislation in 2001. If the U.S. had wanted to accuse

China of unfair competition due to a ‘‘Persistent Suppression of Workers Rights’’

under section 301 of the 1974 Trade Law, it should have done so much earlier. If

anything, labor conditions in China, though still very poor in many respects, particularly with regard to unskilled or semi-skilled rural migrant labor, are generally

improving and in many industries better today than they were at the time China

46

1To illustrate this point two quotes from Upton Sinclair’s, The Jungle (1906) describing the

terrible conditions in Chicago’s meatpacking industry and the ineffectiveness of labor unions at

that time: ‘‘She was in another canning factory and her work was to trim the meat of those

diseased cattle that Jurgis had been told about not long before. She was shut up in one of the

rooms where the people seldom saw the daylight; beneath her were the chilling rooms, where

the meat was frozen, and above her were the cooking rooms; and so she stood on an ice-cold

floor, while her head was often so hot that she could scarcely breathe. Trimming beef off the

bones by the hundred-weight, while standing up from early morning till late at night, with

heavy boots on and the floor always damp and full of puddles, liable to be thrown out of work

indefinitely because of a slackening in the trade, liable again to be kept overtime in rush season,

and be worked till she trembled in every nerve and lost her grip on her slimy knife, and gave

herself a poisoned wound.’’ ‘‘Of course she stopped paying her dues to the union. She lost all

interest in the union, and cursed herself for a fool that she had ever been dragged into one.’’

entered the WTO. The low pay of migrant labor is only one of many factors that

keep production costs low in many manufacturing and service industries in China.

4. The relentlessly negative picture of labor conditions in China presented in the

petition is based on a selective use of data and sources; moreover, much of the information used is out of date.

5. It would be more important and more productive for the U.S. to focus on other

violations by China of fair trade rules and to approach the issue of job losses in the

U.S. due to globalization in a different, more strategic way. There are many things

the U.S. can do internally to make the economy more efficient and to lower production costs.

1. The economic analysis is defective and deceptive.

1. The petition’s conclusions on job losses in the U.S. hinge critically on the

estimate of the margin by which China’s alleged ‘‘persistent repression of workers’ rights’’ depresses Chinese wages below the level that would prevail in the

absence of such repression. The petition estimates that local wages would rise

by 90 to 595 percent if there were no repression. There are at least three problems with this:

(a) The estimate of ‘‘under-payment’’ is not credible—most Chinese manufacturing industries/exports would not be able to survive if they had to pay

their workers 90–595 percent more than they are paying now. One absurd

implication of this is that the bulk of China’s enterprises ought not to exist

and that Chinese workers, whose rights are being repressed, would somehow be better off if these enterprises didn’t exist.

(b) The petition assumes, without questioning or substantiation, that all

of the production cost advantages resulting from labor repression—estimated at 10–77 percent—are always fully passed on to the customer (local

or foreign). Why would the seller do this if he can keep at least part of the

‘‘rent’’ for himself, as must be possible in some cases? If all or part of the

unfair cost advantages are pocketed by the Chinese firm or its owner (often

a local Government), the petition’s central argument is seriously undermined.

(c) The petition makes no allowance for the fact that U.S. companies operating in China account for an estimated 12–15 percent of China’s exports

to the U.S. Are those companies also violating Chinese workers’ rights? If

they don’t, the petition’s calculations of unfair cost advantages and associated job losses in the U.S. need to be adjusted. If they do, another absurd

implication of the petition is that the U.S. Government requires punitive

duties on all Chinese exports to the U.S. (and cooperation from China’s

Government) to get U.S. companies in China to stop suppressing Chinese

workers’ rights.

2. The petition does not take into account that China is at a relatively early

stage (sometimes called the ‘‘Lewis phase’’) of industrialization. During this

stage a vast number of rural surplus workers remain outside the ‘‘modern’’

economy. In this respect, China’s current stage of labor market development is

comparable to that of Britain during its industrial revolution and the U.S. in

the 19th century. There were few if any ‘‘workers’ rights’’ in either country in

those days. There is no reason to believe that free labor unions and the right

to strike would improve average industrial wages in China today. The petition

employs assumptions about the effect of independent unions and strike threats

on wage levels that are not consistent with present labor market conditions in

China.1

47

3. The petition’s estimates of unfair cost advantages in China due to the alleged non-observance of minimum wage standards are shaky. Nobody seriously

disputes that average real incomes and living standards in China, especially in

urban areas, have improved dramatically over the past 20 years and continue

to rise at a rate that the world has rarely seen anywhere, any time. How do

we reconcile the petition’s picture of utter misery and Government-sanctioned

bondage and deprivation in China’s factories with this? How do we explain the

RMB 374 billion that was transferred by urban migrant workers to their families in rural villages in 2003 (8.7 percent more than in 2002) according to China’s banking statistics? Most Chinese researchers agree that real wages at the

very bottom of China’s urban labor market—the point where most urban migrants enter—have risen only very slowly or stagnated at around RMB 500–600

p.m. for many years. No serious researchers (Chinese or foreign) dispute, however, that average real wages (and living conditions) for skilled and experienced

workers are improving, sometimes rapidly, in most urban areas, and not only

in factories owned by foreigners. The current standard minimum wage in

Shanghai (excluding overtime and benefits such as lunch and transportation

subsidy) is RMB 570 p.m. According to my sources, the minimum wage standard is reasonably well enforced in Shanghai and in other big cities. There are,

moreover, many known and documented cases of Chinese firms improving labor

conditions for their workers in order to be able to retain them or to attract better qualified people.

2. Is China’s Government condoning the repression of workers’ rights?

1. The petition either states or implies that China’s Government supports,

condones or at least abets the repression of workers’ rights for economic advantage. This is a misrepresentation of the facts. It is true that migrant workers

in China, especially those who are just entering the market, are often subjected

to abuse and discriminatory practices. (Is the situation in the U.S. with regard

immigrant labor from Latin America any better?) It is probably also true that

local Governments in China are often aware of labor abuses when they occur,

but chose not to intervene, either because they benefit from the situation, or because they are unable to correct the problem. However, this is not Government

policy. President Hu Jintao and PM Wen Jiabao have both stated repeatedly

that the Government wishes to eliminate labor abuses and there is ample evidence of efforts in this regard.

2. The petition’s characterization of China’s ‘‘internal passport’’ (hukou) system is out of date. Rather than using the system for labor repression (bondage)

as stated in the petition, the Chinese Government is actively working to reform

the system. There is an official Government study group charged with recommending policies how best to modify or abolish the system (which, as the petition points out, dates back to the Mao years). In several parts of Zhejiang (currently the Province with the most advanced private enterprise development in

China) the hukou system was abolished on an experimental basis last year.

Many cities have begun to use the hukou system as a fiscal revenue instrument

instead of a labor control instrument. The entire hukou system is likely to disappear in the coming years and be replaced by a national ID card system. The

ID card system is already in use in some parts of China.

3. Ironically, the petition asserts that the hukou system artificially depresses

wages in China. The opposite is more likely to be the case. If the hukou system

works the way the petition describes it, namely by restricting the flow of rural

surplus labor to the cities, abolishing the system would probably increase the

supply of migrant labor and thus depress urban wages.

3. China’s policy on independent labor unions and labor strikes.

1. The petition has the facts right, but the interpretation wrong. China is

afraid that free labor unions could undermine the (constitutional) power monopoly of the CCP (as happened in Poland under Walesa’s Solidarity movement in

the 1980s) and thus become a threat to social stability. However despicable or

deplorable one may find this Chinese perspective on the risk of independent

labor unions, it is China’s reality today and the U.S. knew all about this when

it negotiated the terms for China’s entry into the WTO and when Congress

passed the PNTR legislation. The fundamentals of China’s political system may

not change dramatically any time soon, but the dynamics of the ongoing social

and economic change processes, will undoubtedly contribute to further improvements in average living standards and in widening freedoms for the vast majority of its population. Foreign enterprises operating in China account some 50%

48

of China’s exports. Many of these enterprises contribute actively to the improvement of labor conditions in China.

2. The petition’s assumption that independent labor unions and the right to

strike would significantly improve wages and other labor conditions in China

(and thus reduce unfair costs advantages) is not realistic as long as there are

massive numbers of rural surplus labor and urban unemployed (see footnote 1).

4. The petition’s unqualified and relentlessly negative picture of labor conditions in China.

1. I am sure that there are quite a few factories in China that retain some

or all of the terrible conditions for workers as described in the petition. But,

by not acknowledging or even hinting, that the situation is highly variable between industries and areas—and in any event changing, generally for the better—the petition undermines its own credibility. The petition presents evidence

and data in a highly selective way. Only the most ardent China critics—often

people with little or no real knowledge of the country—will accept the petition’s

description of labor conditions in China without question.

2. On some less important points, the petition is just plain wrong. For example, on page 64 it states that ‘‘Chinese citizens have no alternative to depositing

their savings in the state-owned banks’’. That was probably substantially true

until about ten years ago. Today Chinese citizens can and do own stock, cars,

houses, etc. and if they any savings left, they can buy insurance or deposit them

in many different banks. From December 2006 they can also deposit their savings in foreign banks in China if they wish, under WTO conditions. Chinese citizens can also obtain passports for personal travel abroad and take out foreign

exchange for that purpose. The limits on what may be taken out of the country

for personal travel have recently been increased significantly.

5. Comments on China’s unfair trade practices and job losses in the U.S.

1. The ‘‘repression of workers’ rights’’ in China is almost certainly not a significant source of unfair cost advantage for many producers in China. More important in my opinion are China’s lax enforcement of IPR and the pervasive

counterfeiting of both foreign and domestic products. Another way in which

some Chinese state-owned enterprises may gain unfair advantage is through

quasi-fiscal loans from state banks. Banking reform has still not progressed to

the point where all state enterprises face genuinely hard budget constraints,

like non-state enterprises. Completion of China’s banking system reform will

probably take several more years. It is still possible for some state enterprises

in some situations to offload some or all of their losses on state banks, thereby

adding to the NPL problem. To the extent they succeed in doing so, they may

be in a position to under-price their competitors unfairly. I think that it would

be more important and more productive for the U.S. and other trading partners

of China to focus on compliance with WTO commitments that China has made

regarding IPR protection, legal system development and banking reform.

2. Job losses due to globalization in general are undoubtedly a serious issue

for the U.S. and other rich countries—we cannot take it for granted that every

job lost will automatically replaced by another one elsewhere in the economy.

Blaming U.S. job losses to any significant degree on China’s alleged repression

of workers’ rights, however, is not going to get us very far. Opponents of the

AFL-CIO Petition could argue that U.S. production costs are unduly high, because of excessive CEO compensation, enormous waste in energy use and in the

country’s health care system, serious problems in public education, etc. Addressing U.S. unemployment problems is going to require a more strategic approach

than what the AFL-CIO is proposing in its Petition.

3. I fully support efforts to improve occupational safety and health standards

(OSH) in all factories around the world, through the WTO or otherwise. Unfortunately, after citing many OSH horror stories in Chinese factories, the petition

drops the OSH issue in its final analysis on the ground that there is empirical

evidence to suggest that improved OSH standards may be cost-neutral or even

contribute to cost reductions over time. If the AFL-CIO has the interests of Chinese workers at heart, it should press the OSH standards issue, not drop it. The

petition is also silent on cost advantages that some Chinese producers may

enjoy as a result of inadequate environmental controls. Again, I would support

efforts by the U.S. and by China’s other trading partners to improve environmental standards in China and their enforcement, even if that in some cases

leads to cost increases.

49

Senator BROWNBACK. Thank you very much for the very thoughtful comments that you put forward. The whole panel has been very

good on an area that I’ve had a lot of questions about, so I appreciate the tutorial from each of you.

Mr. Robinson, let me start with you on this. Do we know, or do

you know what percent of total foreign investment going to developing countries goes to China? In other words, of the whole global

Foreign Direct Investment (FDI), or maybe Dr. Waldron, if you

know this number, how much of it’s pouring into China versus

going to Honduras, other developing countries? Do we know that

number?

Mr. WALDRON. I don’t know the number but I do seem to recall

a news item a while ago saying that China had overtaken the

United States as the most-favored destination for investment. We

can get that number, certainly.

Mr. BOTTELIER. I don’t know it, Mr. Chairman, precisely, but let

me answer by saying, the number varies from year to year. China

has come on extraordinarily strong as a recipient of FDI in the last

few years and, as Mr. Robinson mentioned, received more FDI than

the United States last year, and this year, probably. My guess is

that the total amount of FDI flowing to developing countries—we

have to distinguish between Europe, United States, Japan—that

China would probably receive about a quarter, at least a quarter

at the present time.

Ms. LEE. A lot more than that.

Senator BROWNBACK. I want to focus in on the developing countries because here’s the thought that I’m working with on this, is

that you’ve got a global economy that’s clearly integrating very,

very rapidly. I mean, it moves and it moves rapidly and capital

moves. But China has become such a great suction for Foreign Direct Investment that it has significant impacts on that score

throughout the developing world in quite a profound way.

Mr. D’AMATO. There’s no question, Mr. Chairman, that China is

exceeding the net in-flow from developing countries because, for example, we’re worried about Mexico ceding its textile advantage to

the Chinese because of China’s lower labor costs coming up, that

if the multi-fiber agreement does end on time, this year, that the

chances of most of the countries of Asia losing textile share to

China will be apparent. So it looks like the in-flow of FDI into

China is exceeding, you know, most of that that’s going to the rest

of the developing world.

Mr. ROBINSON. I would just chime in, Mr. Chairman, that the

number’s about $50 billion, and that sucking sound you hear in

your mind is real. This is the largest flow of Foreign Direct Investment on the globe, I believe. Now, what percentage it is of the developing world, we’ll take a look at that and be back to you on it.

But leave it to say that this has got to be having a deleterious affect on some of these other emerging market economies that I think

you’re getting to.

Senator BROWNBACK. I’m getting to that and plus, this is about

two years ago, I did a trip through India and China, and I was just

comparing those two countries’ Foreign Direct Investment, and

India was a paltry amount relative to what China was. Now, I

think India’s has been growing substantially the last couple of

50

years, but it still has not been in comparison to China. And then,

I started to hear now from Central American countries saying this

thesis: Look, we engaged democracy and open societies ten, 15

years ago, and we aren’t living any better today than we were ten

or 15 years ago. Why? What’s happening here? Well, it appears as

if, you know, while we were saying yes, you should do that and

you’ve got to open the society and create systems where you can

grow, but that China is pulling so much of that in that we’re just

not seeing that spread much anywhere around the world.

Mr. WALDRON. Could I just add, I think one of the things that

troubles me the most about this is that China has what is

euphemistically described as a disciplined workforce. And she is

competing with lots of countries, new democracies, where workers

actually have rights. Now, the sad fact is that most investors are

quite happy to have a disciplined workforce. They don’t want

strikes. They’re quite happy if the secret police takes away somebody who’s making trouble. They will supply all sorts of rationalizations, but the real point is that it’s much easier to do business

in a certain type of dictatorship than it is in a democracy. Yet it’s

overwhelmingly in the interest of the United States that we should

support other democracies with trade, with investment, and so

forth. And I think the administration and the government should

think very, very seriously about how to do this.

One of my colleagues at Penn, who is a law professor, said that

he expects, within ten or 15 years, that the issue of workers’ rights

will become an integral part of international trade law. And if that

should happen then this very, very worrying issue would begin to

be addressed. But I do think, as an American, that it is terrible to

see countries that have made the sacrifices and taken the risks to

become democratic and to give their workers rights then lose out

in the competition for foreign capital to countries having these

workforces which are basically under police supervision.

Senator BROWNBACK. Mr. Bottelier, respond to that thought. I

would ask, what are your thoughts about that?

Mr. BOTTELIER. Okay. May I preface that, Mr. Chairman, by just

one more comment on these FDI numbers? I think it’s important.

China is indeed a huge absorber of FDI. Number one comment that

I would like to make, that China now has also become a large

source of outgoing FDI. It’s the largest amongst developing countries of outgoing FDI, that few people have focused on. Secondly,

in the 80s and the early 90s, 60 to 70 percent of all the FDI going

in China came from overseas Chinese, mainly Hong Kong, Taiwan,

Thailand, Indonesia. Even today, about half of the FDI going into

China is from overseas Chinese. Furthermore, to qualify the numbers, it is estimated that perhaps 20 to 30 percent of the total FDI

going into China is in fact Chinese money that is being recycled

through Hong Kong or the United States in order to take advantage of certain privileges extended to foreign investment rather

than domestic investment.

Senator BROWNBACK. Good, good, excellent point.

Mr. BOTTELIER. The number is a bit more. And finally, perhaps

the most important point, a lot of FDI goes to China because the

domestic financial intermediation in that country is still so undeveloped that bank loans tend to be not easily available to private

51

enterprises or non-state enterprises. Most of them still go to state

enterprises and now increasingly mortgages. Once the domestic

banking system and the stock exchanges and the bond markets develop, then you will see that there is much less need for foreign investment money to sustain the same level of investments. The FDI

record levels partly reflect defective domestic financial intermediation.

Senator BROWNBACK. Mr. Bottelier, though, respond to the comment that China’s disciplined workforce is one that gives it an advantage over a democratized Central or South American workforce?

Mr. BOTTELIER. Well, I think the discipline to which Mr. Robinson referred is probably an element but less and less so. The Chinese labor force is, by Asian standards, East Asian standards and

South Asian standards, a disciplined labor force in the sense that

the people are well trained, Chinese workers are generally very literate, have relatively high health standard; this is a long tradition,

their life expectancy is higher than in most Asian countries and the

Chinese are extraordinarily industrious people.

Ms. LEE. Oh, please.

Mr. BOTTELIER. And entrepreneurial people. I’m not an advocate

for China here, but we should realize that there’s more to China

than cheap labor. Another factor which is now beginning to play a

significant role is the relationship between all these foreign investments located in China. It is the intra-China supply lines that

allow newcomers to reduce their costs, not only because labor is

good and cheap but because everybody else is there. So intra-China

supply lines between manufacturing industries allow cost advantages that other developing countries, with far less foreign investments, don’t have.

Senator BROWNBACK. Ms. Lee?

Ms. LEE. If I may just say, I think it’s really an insult to talk

about workers in China as industrious and hard working as opposed to oppressed. Of course they’re industrious and hard working

and of course they’re good workers and they’re smart and so on,

but the reason that foreign investment floods to China is a combination of many factors, including other kinds of commercial advantages, a large marketplace, and so on, but I think you cannot

underplay the level of oppression in China. You said you don’t challenge the facts that are in the petition that the State Department

has documented. I just think it’s really appalling to talk about the

advantages of Chinese labor in terms of level of hard work. Workers in China are denied their basic human rights. They’re not allowed to form unions. They’re not allowed to even advocate for

unions. They’re not allowed, in some cases, to even ask for the

wages that they’re due, and they’re treated abominably both by

their employers and by their own government. And I challenge

many of the arguments you make. I’m surprised, Mr. Bottelier, to

hear your critique, and I guess I’m wondering what the implication

is, whether you’re saying that there’s no wage advantage whatsoever that comes from the denial of workers’ right of freedom of association, the failure to enforce minimum wage and hours of work

and health and safety laws, or are you saying that the particular

estimate that we have is too high? We can talk about what the particular estimate is, but to say that there’s no advantage whatsoVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 95873 SFRELA2 PsN: SFRELA2
52

ever, there’s no cost advantage, I think threatens credibility because then you have to ask the question, why is it that companies

don’t pay decent wages? Why is it that the Chinese government by

law prohibits unions from forming, prohibits workers from exercising their rights? And is there no economic advantage whatsoever

to doing that? I find that very, very hard to believe, and I’d be surprised if that’s really the argument that you’re making.

Mr. WALDRON. Could I just second what Ms. Lee has said? I’m

really ashamed to hear American spokesmen or business spokesmen gloss over the fact that China is now one of the most repressive countries in the world and their labor force is certainly under

very close observation and supervision. And my own view is that

we need something like the Sullivan Principles that we applied to

South Africa to regulate the activities of American business there

with respect to the treatment of labor. And I would add, of course,

on another point that the activities of American business in facilitating the development of the Chinese military industrial complex

have also been a very serious problem. But to run through a list

of how hard working, industrious, healthy and so forth the Chinese

workers are while suggesting that somehow they have no awareness they are oppressed is simply wrong. We all know any number

of union leaders who have been arrested. We know that there is

strong labor awareness, and we also know that the Chinese secret

police cracks down on this very, very hard.

Senator BROWNBACK. It’s a tough topic. Ms. Lee, let me ask you

a question that I had a gentleman pose to me this morning, if the

administration agrees with proceeding forward with the 301 case,

and hearing it, that we will not get support internationally in the

developing world because many people in the developing countries

will say, well, that may be China now, but we’re going to be next,

and it will be about our not having the same worker wages or

rights in our area as they do in the United States so we’re not

going to support you on step one because we think we’re step two

or three down the road. How do you respond to that?

Ms. LEE. Well, that’s a really interesting question. I don’t know

the answer at the moment because we haven’t had official conversations with governments in developing countries on this specific issue. What we have had is conversations with unions in developing countries around this issue, and with the International

Confederation of Free Trade Unions (ICFTU), which is the international labor body which we belong to. ICFTU represents about

150 million workers worldwide, about two-thirds of whom are in

developing countries, and it has been very supportive of our workers’ rights petition. Most of what we hear from unions in developing countries is that they are terrified competing with China.

They’re very supportive of an action that would, in fact, challenge

China to be more democratic, to respect basic ILO core labor standards, to bring its laws into compliance with international standards. So certainly workers in developing countries have a keen understanding of the same exact kind of challenges that American

workers are facing. They’re losing their jobs to China because China’s not a democracy, because China violates human rights. We’d

like to see some of their governments, we certainly will be in contact, more specific contact with our union counterparts in develVerDate 11-MAY-2000 13:20 Sep 28, 2004 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 95873 SFRELA2 PsN: SFRELA2
53

oping countries and also in industrialized countries to see if we can

get them to lobby their governments to support the petition.

Senator BROWNBACK. Have any come forward yet to support, in

any developing countries?

Ms. LEE. We haven’t had that specific conversation yet at this

time. But we expect that there will be some support internationally

because even in Cancun, at the last WTO ministerial meeting,

many trade union representatives, including myself, met with some

developing country governments, most of whom were fixated on the

problem, the challenge of competing with China, particularly in

2005 when the textile and apparel quotas are scheduled to be lifted. And there were governments in Africa and the Caribbean that

were very, very concerned what the competitive impact on them

would be, and they were more interested in talking to us about

workers’ rights provisions in the WTO than they’ve ever been in

the past.

Senator BROWNBACK. I haven’t been a fan, historically, of labor

agreements as part of trade agreements. I’ve always felt like these

are things that should be separated. Yet what I’m seeing develop

is a constellation of issues, particularly focused on China, that just

makes me increasingly concerned with it, so that I’m looking

aghast and saying what else? How else should we address this set

of issues? And maybe it all works through. I’m hoping for that, that

it all works on through, but I’m been hoping for that for a number

of years now, and I haven’t seen anything. And so that’s why I’m

wondering if we’re going to have to take other actions that maybe

previously had not been thought of for the issues of addressing

China, but also for addressing equality and democratization issues

around the world that we’re running into our own rhetoric in

places where we ought to be able to stand up and say, you do this

and life does improve.

Mr. Bottelier, you present some very sound, I think, arguments

on some of these things, as well. I mean, like once you get a concentration in China it tends to grow; when if you don’t have that

same concentration in other places, it would have less ability to attract the capital, and so I respect the thought and the fundamental

economic forces. There are a set of very big issues here that are circling around China, and much of it, I think, could be resolved if

they would embrace democratization, if they would embrace human

rights. And then, you know, guys like me would let up and say if

that’s the way the market’s going to compete, it will compete, and

we’re all going to compete fairly in it. It just doesn’t seem like

that’s what’s taking place. And then the product of our policy decisions, or lack of policy decisions, then grows and its importance and

our options lessen as the years move forward. I think Mr. Robinson

was saying we may have about ten years to really influence China

and its direction and pass that. The engine has enough fuel on its

own to do what it chooses to do at that point in time.

I want to thank you all for being here and for hanging in through

this. I would invite each of you, if you have particular policy

thoughts that you think we should be putting forward to implement some of the ideas that you’re putting forward, to get them to

us.

54

Dr. Waldron, you mentioned the Sullivan Principles. Mr. Robinson, I thought you really put your finger on the issues. I didn’t hear

with the same clarity okay, do this, this and this afterwards.

I think, Ms. Lee, I understand clearly your point of view is certify the case, would be it.

And Mr. Bottelier, if you see items that we should move forward

with, let us know as well.

This is an area of growing concern, policy-wise. It’s a growing

concern politically across the country. The nation knows that we

are heavily dependent upon China, and we’re getting cheap goods

from there, but they don’t like it. They don’t particularly like that

set up.

And while the outsourcing issue is getting a lot of play as well,

as it should, I think it needs some real good economic examination

as to the actual outsourcing/insourcing issue. It still reflects more

of an internal, deeper feeling, like we’re just too dependent upon

a place that’s just not structurally the way we think it should be.

And not stable structurally, when you’re ruled by a small party

elite that has the ability to move rapidly in unpredictable fashions,

and that’s a discomforting thing to many, many of us.

Mr. D’Amato.

Mr. D’AMATO. I just wanted to say, Mr. Chairman, the commission will have its report for you in about a month, and it will have

a lot of very specific recommendations and things we think the

Congress ought to be doing to take a look at these issues and to

move to the Executive Branch as well, down the road. Because we

do think that leverage is important here. The Chinese do respond

to leverage but leverage has got to be strong, sustained.

Senator BROWNBACK. And real.

Mr. D’AMATO. And real, absolutely. And that’s what’s going to

have to make the difference. But those are the recommendations

that we will be providing for you.

Senator BROWNBACK. Yes, it’s not a jawboning process. This is

playing with real dollars here and real lives, and we have to make

it substantial and direct and felt for action to occur.

Mr. D’AMATO. Right.

Senator BROWNBACK. Thank you. Thank you all very much for

attending.

The hearing is adjourned.

[Whereupon, at 4:19 p.m. the hearing was adjourned.]

(55)

APPENDIX

RESPONSES TO QUESTIONS FOR THE RECORD SUBMITTED TO ASSISTANT SECRETARY

LORNE W. CRANER BY SENATOR RUSSELL FEINGOLD

Question. The Congressional Executive Commission on China stated in their 2003

annual report that ‘‘working conditions and respect for worker rights in China were

frequently in violation of China’s own laws, especially those governing wages and

overtime pay, work hours and overtime hours, and workplace health and safety.’’

What are the obstacles to the enforcement of China’s own laws? What steps are you

taking to encourage China to both enforce its existing labor laws and expand worker

protection?

Answer. The 2003 annual human rights report noted ‘‘widespread official corruption and efforts by local officials to attract and keep taxpaying, job-producing enterprises that might otherwise locate elsewhere undercut enforcement of the minimum

wage provisions.’’ There are national laws governing working hours, but these laws

are often not enforced, particularly in private enterprises that can rely on a vast

supply of low-skilled migrant labor. A Work Safety Act was enacted in 2002 and

nearly 70 field offices of the State Administration for Work Safety exist throughout

the country, but enforcement is the responsibility of lower-level governments and is

weak. The absence of genuinely representative trade unions exacerbates this state

of affairs by depriving workers of a powerful voice that could defend their rights in

the workplace.

The U.S. Departments of State and Labor are funding projects in China totaling

approximately $10 million to improve labor laws, strengthen their enforcement,

raise labor awareness, provide legal aid to workers, and improve mine safety and

health.

Question. It has been reported that much of the labor abuse occurs in foreignowned factories in China’s coastal provinces. News reports discuss how factory managers hold two accounting books—one reflecting the reality of the factory and one

book, which distorts the hours and workplace conditions to show their foreign clients. What should be done to pressure the Chinese government and foreign companies to monitor their factories more closely to ensure that labor codes of conduct are

being followed? Can more be done to encourage companies operating in China to

prioritize labor conditions?

Answer. The U.S. Government is committed to supporting socially responsible

business practices and encouraging good labor practices in China. The U.S. Departments of State and Labor are funding projects in China totaling approximately $10

million to improve labor laws, strengthen their enforcement, raise labor awareness,

provide legal aid to workers, and improve mine safety and health. Projects to foster

socially acceptable practices are being carried out by organizations selected through

open competition.

In March, representatives of major international buyers in the footwear and apparel industry met with our Ambassador in Beijing to discuss ways to improve enforcement of labor law in their Chinese supply chains. The Ambassador said he

would raise their concerns in his own meetings with Chinese government officials.

We are exploring holding a national conference on socially responsible practices in

China in the near future.

Question. According to recent news reports, the People’s Republic of China continues to assert that they will set the pace of reform in Hong Kong on their own

schedule. Democracy activists believe that Beijing is gradually reneging on their

guarantee of broad autonomy and that their demands for direct elections are being

56

dismissed. What leverage will you use to pressure the Chinese government to respect the political rights of the people of Hong Kong?

Answer. It is longstanding United States Government (USG) policy that the Hong

Kong Government should move toward greater democratization, through electoral

reform and universal suffrage, as provided for in the Basic Law. We were deeply

disappointed by the recent National People’s Congress decision that effectively ruled

out the possibility of universal suffrage for the Chief Executive in 2007 and the Legislative Council in 2008. This decision does not adequately reflect the strongly expressed wishes of the Hong Kong people for universal suffrage and democratization

and threatens to undermine the high degree of autonomy guaranteed to Hong Kong

in the Basic Law.

We will continue to support electoral reform and universal suffrage in Hong Kong,

in keeping with the Basic Law’s own goals. Hong Kong Consul General James

Keith, Ambassador Clark Randt and other senior USG officials regularly express

our views on this issue, stressing that international confidence in Hong Kong is

predicated on its rule of law and high degree of autonomy. Vice President Cheney

made this point to his counterparts during his April trip to China. In the months

ahead, the United States will continue to monitor the situation in Hong Kong with

the goal of supporting Hong Kong’s democratization process.

Question. China has recently suspended its human rights dialogue with the

United States following a proposed UN resolution by the Bush Administration that

criticized China’s human rights practices. How can we continue to make progress

on these issues dispite this Chinese action?

Answer. Since the defeat of China’s no-action motion in 1995 and a close vote on

the resolution itself, the Chinese have equated sponsorship of a China resolution at

the United Nations Commission on Human Rights with ‘‘confrontation’’ and suspended the U.S.-China Human Rights Dialogue in retaliation. We were not surprised that they did so this year, but felt that China’s backsliding on human rights

in 2003 fully warranted bringing up China’s human rights record before the world’s

preeminent human rights forum.

Key human rights issues are being raised in channels other that the Human

Rights Dialogue by senior officials. for example, Vice President Cheney raised

human rights concerns during his April trip to Beijing.

We have already begun to press China to resume the dialogue, pointing out that

it is China’s own strongly held and often expressed view that dialogue, not ‘‘confrontation,’’ is the most effective way to resolve differences on human rights. We are

hopeful that China will agree to resume the dialogue sometime later this year. We

are also making the point to Chinese officials that only progress made as a result

of dialogue will denable us to forego an resolution next year and that resuming the

dialogue is in both of our interests.

57

PREPARED STATEMENT OF SENATOR RUSSELL D. FEINGOLD

I would like to thank Senator Brownback for convening this important hearing

on the status of reforms in China.

Sadly, evidence of positive human rights reforms is sparse. Despite U.S. pressure

on the Chinese government, it appears that the human rights situation continues

to deteriorate. Refusing to distinguish between peaceful and violent dissent, the Chinese government punishes those who dare to speak out for political and civil rights,

and works to silence those demanding basic labor rights.

A flurry of press reports have documented China’s labor conditions, and revealed

a persistent and widespread suppression of labor rights in China. China’s labor activists continue to be accused of ‘‘subversion of the state’’ and to be imprisoned, tortured and beaten by authorities. Too many Chinese workers suffer from inhumane

working conditions, confronting gas explosions, mine flooding, and toxic fumes at

work, and laboring at machinery without proper safeguards in their workplaces.

They have no national minimum wage or overtime pay, nor do they have the ability

to seek recourse for these injustices. While the Chinese Constitution ostensibly provides for freedom of association, Chinese workers in practice are not free to organize

or bargain collectively.

Wisconsin alone has lost approximately 80,000 manufacturing jobs since 2002,

many of which have moved to China. There is a growing consensus in my state that

abysmal labor conditions in China are creating an impossible playing field, one

where U.S. workers cannot compete, and should not compete. The Chinese government’s unwillingness to check these labor abuses appear to be undermining our own

manufacturing base in Wisconsin.

In addition to problems with labor rights, the People’s Republic of China continues to violate the political and civil rights of its citizens. The state refuses to

allow the people of Hong Kong to elect their own representatives despite the overwhelming support for direct elections, and continues to persecute the ethnic Uighurs

and Tibetans, repressing all political, religious and cultural expression.

When it comes to these fundamental human rights issues, where is the reform?

Where is the progress? What more can Congress do? I look forward to the panelists’

insights on how the U.S. government can play a greater role in encouraging reforms

in China.

Æ