China

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GANG INFORMATION

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PROFILE

OFFICIAL NAME:
People's Republic of China

Geography
Total area: 9,596,960 sq. km. (about 3.7 million sq. mi.).
Cities: Capital--Beijing. Other major cities--Shanghai, Tianjin, Shenyang, Wuhan, Guangzhou, Chongqing, Harbin, Chengdu.
Terrain: Plains, deltas, and hills in east; mountains, high plateaus, deserts in west.
Climate: Tropical in south to subarctic in north.

People
Nationality: Noun and adjective--Chinese (singular and plural).
Population (2006 est.): 1.3 billion.
Population growth rate (2006 est.): 0.6%.
Health (2006 est.): Infant mortality rate--23.12/1,000. Life expectancy--72.58 years (overall); 70.89 years for males, 74.46 years for females.
Ethnic groups: Han Chinese--91.9%; Zhuang, Manchu, Hui, Miao, Uygur, Yi, Mongolian, Tibetan, Buyi, Korean, and other nationalities--8.1%.
Religions: Officially atheist; Taoism, Buddhism, Islam, Christianity.
Language: Mandarin (Putonghua), plus many local dialects.
Education: Years compulsory--9. Literacy--91%.
Work force (2001 est., 711 million): Agriculture and forestry--50%; industry and commerce--23%; other--27%.

Government
Type: Communist party-led state.
Constitution: December 4, 1982.
Independence: Unification under the Qin (Ch'in) Dynasty 221 BC; Qing (Ch'ing or Manchu) Dynasty replaced by a republic on February 12, 1912; People's Republic established October 1, 1949.
Branches: Executive--president, vice president, State Council, premier. Legislative--unicameral National People's Congress. Judicial--Supreme People's Court.
Administrative divisions: 23 provinces (the P.R.C. considers Taiwan to be its 23rd province); 5 autonomous regions, including Tibet; 4 municipalities directly under the State Council.
Political parties: Chinese Communist Party, 66.35 million members; 8 minor parties under communist supervision.
Suffrage: Universal at 18.

Economy
GDP (2005): $2.26 trillion (exchange rate based).
Per capita GDP (2005): $1,700 (exchange rate based).
GDP real growth rate (2005): 9.9%.
Natural resources: Coal, iron ore, crude oil, mercury, tin, tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, uranium, hydropower potential (world's largest).
Agriculture: Products--Among the world's largest producers of rice, wheat, potatoes, corn, peanuts, tea, millet, barley; commercial crops include cotton, other fibers, apples, oilseeds, pork and fish; produces variety of livestock products.
Industry: Types--mining and ore processing; iron; steel; aluminum; coal, machinery; textiles and apparel; armaments; petroleum; cement; chemicals; fertilizers; consumer products including footwear, toys, and electronics; automobiles and other transportation equipment including rail cars and locomotives, ships, and aircraft; and telecommunications.
Trade (2005): Exports--$762.3 billion: electronics; machinery; apparel; optical, photographic, and medical equipment; and furniture. Main partners--U.S., Hong Kong, Japan, EU, South Korea, Singapore. Imports--$660.2 billion: electronics, machinery, petroleum products, chemicals, steel. Main partners--Japan, EU, Taiwan, South Korea, U.S., Hong Kong.

PEOPLE

Ethnic Groups
The largest ethnic group is the Han Chinese, who constitute about 91.9% of the total population. The remaining 8.1% are Zhuang (16 million), Manchu (10 million), Hui (9 million), Miao (8 million), Uygur (7 million), Yi (7 million), Mongolian (5 million), Tibetan (5 million), Buyi (3 million), Korean (2 million), and other ethnic minorities.

Language
There are seven major Chinese dialects and many subdialects. Mandarin (or Putonghua), the predominant dialect, is spoken by over 70% of the population. It is taught in all schools and is the medium of government. About two-thirds of the Han ethnic group are native speakers of Mandarin; the rest, concentrated in southwest and southeast China, speak one of the six other major Chinese dialects. Non-Chinese languages spoken widely by ethnic minorities include Mongolian, Tibetan, Uygur and other Turkic languages (in Xinjiang), and Korean (in the northeast).

The Pinyin System of Romanization
On January 1, 1979, the Chinese Government officially adopted the pinyin system for spelling Chinese names and places in Roman letters. A system of Romanization invented by the Chinese, pinyin has long been widely used in China on street and commercial signs as well as in elementary Chinese textbooks as an aid in learning Chinese characters. Variations of pinyin also are used as the written forms of several minority languages.

Pinyin has now replaced other conventional spellings in China's English-language publications. The U.S. Government also has adopted the pinyin system for all names and places in China. For example, the capital of China is now spelled "Beijing" rather than "Peking."

Religion
Religion plays a significant part in the life of many Chinese. Buddhism is most widely practiced, with an estimated 100 million adherents. Traditional Taoism also is practiced. Official figures indicate there are 20 million Muslims, 5 million Catholics, and 15 million Protestants; unofficial estimates are much higher.

While the Chinese constitution affirms religious toleration, the Chinese Government places restrictions on religious practice outside officially recognized organizations. Only two Christian organizations--a Catholic church without official ties to Rome and the "Three-Self-Patriotic" Protestant church--are sanctioned by the Chinese Government. Unauthorized churches have sprung up in many parts of the country and unofficial religious practice is flourishing. In some regions authorities have tried to control activities of these unregistered churches. In other regions, registered and unregistered groups are treated similarly by authorities and congregations worship in both types of churches. Most Chinese Catholic bishops are recognized by the Pope, and official priests have Vatican approval to administer all the sacraments.

Population Policy
With a population officially just over 1.3 billion and an estimated growth rate of about 0.6%, China is very concerned about its population growth and has attempted with mixed results to implement a strict birth limitation policy. China’s 2002 Population and Family Planning Law and policy permit one child per family, with allowance for a second child under certain circumstances, especially in rural areas, and with guidelines looser for ethnic minorities with small populations. Enforcement varies, and relies largely on "social compensation fees" to discourage extra births. Official government policy opposes forced abortion or sterilization, but in some localities there are instances of forced abortion. The government's goal is to stabilize the population in the first half of the 21st century, and current projections are that the population will peak at around 1.6 billion by 2050.

HISTORY

Dynastic Period
China is the oldest continuous major world civilization, with records dating back about 3,500 years. Successive dynasties developed a system of bureaucratic control that gave the agrarian-based Chinese an advantage over neighboring nomadic and hill cultures. Chinese civilization was further strengthened by the development of a Confucian state ideology and a common written language that bridged the gaps among the country's many local languages and dialects. Whenever China was conquered by nomadic tribes, as it was by the Mongols in the 13th century, the conquerors sooner or later adopted the ways of the "higher" Chinese civilization and staffed the bureaucracy with Chinese.

The last dynasty was established in 1644, when the Manchus overthrew the native Ming dynasty and established the Qing (Ch'ing) dynasty with Beijing as its capital. At great expense in blood and treasure, the Manchus over the next half century gained control of many border areas, including Xinjiang, Yunnan, Tibet, Mongolia, and Taiwan. The success of the early Qing period was based on the combination of Manchu martial prowess and traditional Chinese bureaucratic skills.

During the 19th century, Qing control weakened, and prosperity diminished. China suffered massive social strife, economic stagnation, explosive population growth, and Western penetration and influence. The Taiping and Nian rebellions, along with a Russian-supported Muslim separatist movement in Xinjiang, drained Chinese resources and almost toppled the dynasty. Britain's desire to continue its illegal opium trade with China collided with imperial edicts prohibiting the addictive drug, and the First Opium War erupted in 1840. China lost the war; subsequently, Britain and other Western powers, including the United States, forcibly occupied "concessions" and gained special commercial privileges. Hong Kong was ceded to Britain in 1842 under the Treaty of Nanking, and in 1898, when the Opium Wars finally ended, Britain executed a 99-year lease of the New Territories, significantly expanding the size of the Hong Kong colony.

As time went on, the Western powers, wielding superior military technology, gained more economic and political privileges. Reformist Chinese officials argued for the adoption of Western technology to strengthen the dynasty and counter Western advances, but the Qing court played down both the Western threat and the benefits of Western technology.

Early 20th Century China
Frustrated by the Qing court's resistance to reform, young officials, military officers, and students--inspired by the revolutionary ideas of Sun Yat-sen--began to advocate the overthrow of the Qing dynasty and creation of a republic. A revolutionary military uprising on October 10, 1911, led to the abdication of the last Qing monarch. As part of a compromise to overthrow the dynasty without a civil war, the revolutionaries and reformers allowed high Qing officials to retain prominent positions in the new republic. One of these figures, Gen. Yuan Shikai, was chosen as the republic's first president. Before his death in 1916, Yuan unsuccessfully attempted to name himself emperor. His death left the republican government all but shattered, ushering in the era of the "warlords" during which China was ruled and ravaged by shifting coalitions of competing provincial military leaders.

In the 1920s, Sun Yat-sen established a revolutionary base in south China and set out to unite the fragmented nation. With Soviet assistance, he organized the Kuomintang (KMT or "Chinese Nationalist People's Party"), and entered into an alliance with the fledgling Chinese Communist Party (CCP). After Sun's death in 1925, one of his protégés, Chiang Kai-shek, seized control of the KMT and succeeded in bringing most of south and central China under its rule. In 1927, Chiang turned on the CCP and executed many of its leaders. The remnants fled into the mountains of eastern China. In 1934, driven out of their mountain bases, the CCP's forces embarked on a "Long March" across some of China's most desolate terrain to the northwestern province of Shaanxi, where they established a guerrilla base at Yan'an.

During the "Long March," the communists reorganized under a new leader, Mao Zedong (Mao Tse-tung). The bitter struggle between the KMT and the CCP continued openly or clandestinely through the 14-year long Japanese invasion (1931-45), even though the two parties nominally formed a united front to oppose the Japanese invaders in 1937. The war between the two parties resumed after the Japanese defeat in 1945. By 1949, the CCP occupied most of the country.

Chiang Kai-shek fled with the remnants of his KMT government and military forces to Taiwan, where he proclaimed Taipei to be China's "provisional capital" and vowed to re-conquer the Chinese mainland. Taiwan still calls itself the "Republic of China."

The People's Republic of China
In Beijing, on October 1, 1949, Mao Zedong proclaimed the founding of the People's Republic of China (P.R.C.). The new government assumed control of a people exhausted by two generations of war and social conflict, and an economy ravaged by high inflation and disrupted transportation links. A new political and economic order modeled on the Soviet example was quickly installed.

In the early 1950s, China undertook a massive economic and social reconstruction program. The new leaders gained popular support by curbing inflation, restoring the economy, and rebuilding many war-damaged industrial plants. The CCP's authority reached into almost every aspect of Chinese life. Party control was assured by large, politically loyal security and military forces; a government apparatus responsive to party direction; and the placement of party members into leadership positions in labor, women's, and other mass organizations.

The "Great Leap Forward" and the Sino-Soviet Split
In 1958, Mao broke with the Soviet model and announced a new economic program, the "Great Leap Forward," aimed at rapidly raising industrial and agricultural production. Giant cooperatives (communes) were formed, and "backyard factories" dotted the Chinese landscape. The results were disastrous. Normal market mechanisms were disrupted, agricultural production fell behind, and China's people exhausted themselves producing what turned out to be shoddy, un-salable goods. Within a year, starvation appeared even in fertile agricultural areas. From 1960 to 1961, the combination of poor planning during the Great Leap Forward and bad weather resulted in one of the deadliest famines in human history.

The already strained Sino-Soviet relationship deteriorated sharply in 1959, when the Soviets started to restrict the flow of scientific and technological information to China. The dispute escalated, and the Soviets withdrew all of their personnel from China in August 1960. In 1960, the Soviets and the Chinese began to have disputes openly in international forums.

The Cultural Revolution
In the early 1960s, State President Liu Shaoqi and his protégé, Party General Secretary Deng Xiaoping, took over direction of the party and adopted pragmatic economic policies at odds with Mao's revolutionary vision. Dissatisfied with China's new direction and his own reduced authority, Party Chairman Mao launched a massive political attack on Liu, Deng, and other pragmatists in the spring of 1966. The new movement, the "Great Proletarian Cultural Revolution," was unprecedented in communist history. For the first time, a section of the Chinese communist leadership sought to rally popular opposition against another leadership group. China was set on a course of political and social anarchy that lasted the better part of a decade.

In the early stages of the Cultural Revolution, Mao and his "closest comrade in arms," National Defense Minister Lin Biao, charged Liu, Deng, and other top party leaders with dragging China back toward capitalism. Radical youth organizations, called Red Guards, attacked party and state organizations at all levels, seeking out leaders who would not bend to the radical wind. In reaction to this turmoil, some local People's Liberation Army (PLA) commanders and other officials maneuvered to outwardly back Mao and the radicals while actually taking steps to rein in local radical activity.

Gradually, Red Guard and other radical activity subsided, and the Chinese political situation stabilized along complex factional lines. The leadership conflict came to a head in September 1971, when Party Vice Chairman and Defense Minister Lin Biao reportedly tried to stage a coup against Mao; Lin Biao allegedly later died in a plane crash in Mongolia.

In the aftermath of the Lin Biao incident, many officials criticized and dismissed during 1966-69 were reinstated. Chief among these was Deng Xiaoping, who reemerged in 1973 and was confirmed in 1975 in the concurrent posts of Politburo Standing Committee member, PLA Chief of Staff, and Vice Premier.

The ideological struggle between more pragmatic, veteran party officials and the radicals re-emerged with a vengeance in late 1975. Mao's wife, Jiang Qing, and three close Cultural Revolution associates (later dubbed the "Gang of Four") launched a media campaign against Deng. In January 1976, Premier Zhou Enlai, a popular political figure, died of cancer. On April 5, Beijing citizens staged a spontaneous demonstration in Tiananmen Square in Zhou's memory, with strong political overtones of support for Deng. The authorities forcibly suppressed the demonstration. Deng was blamed for the disorder and stripped of all official positions, although he retained his party membership.

The Post-Mao Era
Mao's death in September 1976 removed a towering figure from Chinese politics and set off a scramble for succession. Former Minister of Public Security Hua Guofeng was quickly confirmed as Party Chairman and Premier. A month after Mao's death, Hua, backed by the PLA, arrested Jiang Qing and other members of the "Gang of Four." After extensive deliberations, the Chinese Communist Party leadership reinstated Deng Xiaoping to all of his previous posts at the 11th Party Congress in August 1977. Deng then led the effort to place government control in the hands of veteran party officials opposed to the radical excesses of the previous two decades.

The new, pragmatic leadership emphasized economic development and renounced mass political movements. At the pivotal December 1978 Third Plenum (of the 11th Party Congress Central Committee), the leadership adopted economic reform policies aimed at expanding rural income and incentives, encouraging experiments in enterprise autonomy, reducing central planning, and attracting foreign direct investment into China. The plenum also decided to accelerate the pace of legal reform, culminating in the passage of several new legal codes by the National People's Congress in June 1979.

After 1979, the Chinese leadership moved toward more pragmatic positions in almost all fields. The party encouraged artists, writers, and journalists to adopt more critical approaches, although open attacks on party authority were not permitted. In late 1980, Mao's Cultural Revolution was officially proclaimed a catastrophe. Hua Guofeng, a protégé of Mao, was replaced as premier in 1980 by reformist Sichuan party chief Zhao Ziyang and as party General Secretary in 1981 by the even more reformist Communist Youth League chairman Hu Yaobang.

Reform policies brought great improvements in the standard of living, especially for urban workers and for farmers who took advantage of opportunities to diversify crops and establish village industries. Literature and the arts blossomed, and Chinese intellectuals established extensive links with scholars in other countries.

At the same time, however, political dissent as well as social problems such as inflation, urban migration, and prostitution emerged. Although students and intellectuals urged greater reforms, some party elders increasingly questioned the pace and the ultimate goals of the reform program. In December 1986, student demonstrators, taking advantage of the loosening political atmosphere, staged protests against the slow pace of reform, confirming party elders' fear that the current reform program was leading to social instability. Hu Yaobang, a protégé of Deng and a leading advocate of reform, was blamed for the protests and forced to resign as CCP General Secretary in January 1987. Premier Zhao Ziyang was made General Secretary and Li Peng, former Vice Premier and Minister of Electric Power and Water Conservancy, was made Premier.

1989 Student Movement and Tiananmen Square
After Zhao became the party General Secretary, the economic and political reforms he had championed came under increasing attack. His proposal in May 1988 to accelerate price reform led to widespread popular complaints about rampant inflation and gave opponents of rapid reform the opening to call for greater centralization of economic controls and stricter prohibitions against Western influence. This precipitated a political debate, which grew more heated through the winter of 1988-89.

The death of Hu Yaobang on April 15, 1989, coupled with growing economic hardship caused by high inflation, provided the backdrop for a large-scale protest movement by students, intellectuals, and other parts of a disaffected urban population. University students and other citizens camped out in Beijing's Tiananmen Square to mourn Hu's death and to protest against those who would slow reform. Their protests, which grew despite government efforts to contain them, called for an end to official corruption and for defense of freedoms guaranteed by the Chinese constitution. Protests also spread to many other cities, including Shanghai, Chengdu, and Guangzhou.

Martial law was declared on May 20, 1989. Late on June 3 and early on the morning of June 4, military units were brought into Beijing. They used armed force to clear demonstrators from the streets. There are no official estimates of deaths in Beijing, but most observers believe that casualties numbered in the hundreds.

After June 4, while foreign governments expressed horror at the brutal suppression of the demonstrators, the central government eliminated remaining sources of organized opposition, detained large numbers of protesters, and required political reeducation not only for students but also for large numbers of party cadre and government officials.

Following the resurgence of conservatives in the aftermath of June 4, economic reform slowed until given new impetus by Deng Xiaoping's dramatic visit to southern China in early 1992. Deng's renewed push for a market-oriented economy received official sanction at the 14th Party Congress later in the year as a number of younger, reform-minded leaders began their rise to top positions. Deng and his supporters argued that managing the economy in a way that increased living standards should be China's primary policy objective, even if "capitalist" measures were adopted. Subsequent to the visit, the Communist Party Politburo publicly issued an endorsement of Deng's policies of economic openness. Though not completely eschewing political reform, China has consistently placed overwhelming priority on the opening of its economy.

Third Generation of Leaders
Deng's health deteriorated in the years prior to his death in 1997. During that time, President Jiang Zemin and other members of his generation gradually assumed control of the day-to-day functions of government. This "third generation" leadership governed collectively with President Jiang at the center.

In March 1998, Jiang was re-elected President during the 9th National People's Congress. Premier Li Peng was constitutionally required to step down from that post. He was elected to the chairmanship of the National People's Congress. Zhu Rongji was selected to replace Li as Premier.

Fourth Generation of Leaders
In November 2002, the 16th Communist Party Congress elected Hu Jintao, who in 1992 was designated by Deng Xiaoping as the "core" of the fourth generation leaders, the new General Secretary. A new Politburo and Politburo Standing Committee was also elected in November.

In March 2003, General Secretary Hu Jintao was elected President at the 10th National People's Congress. Jiang Zemin retained the chairmanship of the Central Military Commission. At the Fourth Party Plenum in September 2004, Jiang Zemin retired from the Central Military Commission, passing the Chairmanship and control of the People's Liberation Army to President Hu Jintao.

China is firmly committed to economic reform and opening to the outside world. The Chinese leadership has identified reform of state industries and the establishment of a social safety network as government priorities. Government strategies for achieving these goals include large-scale privatization of unprofitable state-owned enterprises and development of a pension system for workers. The leadership has also downsized the government bureaucracy.

The Next 5 Years
The next 5 years represent a critical period in China's development. To investors and firms, especially following China’s accession to the World Trade Organization (WTO) in 2001, China represents a vast market that has yet to be fully tapped and a low-cost base for export-oriented production. Educationally, China is forging ahead as partnerships and exchanges with foreign universities have helped create new research opportunities for its students. China will host the Summer Olympics in 2008 and views this as an opportunity to showcase to the world China’s development gains of the past two decades. The new leadership is committed to generating greater economic development in the interior and providing more services to those who do not live in China’s coastal areas, goals that form the core of President Hu’s concepts of a "harmonious society" and a "spiritual civilization." However, there is still much that needs to change in China. Human rights issues remain a major concern, as does China’s lack of effective controls to prevent proliferation of weapons of mass destruction (WMD)-related materials and technology.

GOVERNMENT

Chinese Communist Party
The 66.35 million member CCP, authoritarian in structure and ideology, continues to dominate government. Nevertheless, China's population, geographical vastness, and social diversity frustrate attempts to rule by fiat from Beijing. Central leaders must increasingly build consensus for new policies among party members, local and regional leaders, influential non-party members, and the population at large.

In periods of greater openness, the influence of people and organizations outside the formal party structure has tended to increase, particularly in the economic realm. This phenomenon is most apparent today in the rapidly developing coastal region. Nevertheless, in all important government, economic, and cultural institutions in China, party committees work to see that party and state policy guidance is followed and that non-party members do not create autonomous organizations that could challenge party rule. Party control is tightest in government offices and in urban economic, industrial, and cultural settings; it is considerably looser in the rural areas, where the majority of the people live.

Theoretically, the party's highest body is the Party Congress, which is supposed to meet at least once every 5 years. The primary organs of power in the Communist Party include:

The Politburo Standing Committee, which currently consists of nine members;
The Politburo, consisting of 24 full members, including the members of the Politburo Standing Committee;
The Secretariat, the principal administrative mechanism of the CCP, headed by the General Secretary;
The Central Military Commission;
The Discipline Inspection Commission, which is charged with rooting out corruption and malfeasance among party cadres.
State Structure
The Chinese Government has always been subordinate to the Chinese Communist Party (CCP); its role is to implement party policies. The primary organs of state power are the National People's Congress (NPC), the President (the head of state), and the State Council. Members of the State Council include Premier Wen Jiabao (the head of government), a variable number of vice premiers (now four), five state councilors (protocol equivalents of vice premiers but with narrower portfolios), and 22 ministers and four State Council commission directors.

Under the Chinese constitution, the NPC is the highest organ of state power in China. It meets annually for about 2 weeks to review and approve major new policy directions, laws, the budget, and major personnel changes. These initiatives are presented to the NPC for consideration by the State Council after previous endorsement by the Communist Party's Central Committee. Although the NPC generally approves State Council policy and personnel recommendations, various NPC committees hold active debate in closed sessions, and changes may be made to accommodate alternate views.

When the NPC is not in session, its permanent organ, the Standing Committee, exercises state power.

Principal Government and Party Officials
President--Hu Jintao
Vice President--Zeng Qinghong
Premier, State Council--Wen Jiabao
NPC Chair--Wu Bangguo
Vice Premiers--Huang Ju, Wu Yi, Zeng Peiyan, Hui Liangyu
Politburo Standing Committee--Hu Jintao (General Secretary), Wu Bangguo, Wen Jiabao, Jia Qinglin, Zeng Qinghong, Huang Ju, Wu Guanzheng, Li Changchun, Luo Gan
Other Politburo Members--Cao Gangchuan, Chen Liangyu, Guo Boxiong, He Guoqiang, Hui Liangyu, Liu Qi, Liu Yunshan, Wang Lequan, Wang Zhaoguo, Wu Yi, Yu Zhengsheng, Zeng Peiyan, Zhang Dejiang, Zhang Lichang, Zhou Yongkang, Wang Gang (alternate)
Alternate Politburo Members--Wang Gang
Chairman, Central Military Commission--Hu Jintao

Foreign Minister--Li Zhaoxing
Minister of Commerce--Bo Xilai
Minister of Finance--Jin Renqing
Minister of Agriculture--Du Qinglin
Minister of Information Industry--Wang Xudong
Governor, People's Bank of China--Zhou Xiaochuan
Minister, State Development and Reform Commission--Ma Kai
Ambassador to U.S.--Zhou Wenzhong
Ambassador to UN--Wang Guangya

POLITICAL CONDITIONS

Legal System
The government's efforts to promote rule of law are significant and ongoing. After the Cultural Revolution, China's leaders aimed to develop a legal system to restrain abuses of official authority and revolutionary excesses. In 1982, the National People's Congress adopted a new state constitution that emphasized the rule of law under which even party leaders are theoretically held accountable.

Since 1979, when the drive to establish a functioning legal system began, more than 300 laws and regulations, most of them in the economic area, have been promulgated. The use of mediation committees--informed groups of citizens who resolve about 90% of China's civil disputes and some minor criminal cases at no cost to the parties--is one innovative device. There are more than 800,000 such committees in both rural and urban areas.

Legal reform became a government priority in the 1990s. Legislation designed to modernize and professionalize the nation's lawyers, judges, and prisons was enacted. The 1994 Administrative Procedure Law allows citizens to sue officials for abuse of authority or malfeasance. In addition, the criminal law and the criminal procedures laws were amended to introduce significant reforms. The criminal law amendments abolished the crime of "counter-revolutionary" activity, although many persons are still incarcerated for that crime. Criminal procedures reforms also encouraged establishment of a more transparent, adversarial trial process. The Chinese constitution and laws provide for fundamental human rights, including due process, but these are often ignored in practice. In addition to other judicial reforms, the Constitution was amended in 2004 to include the protection of individual human rights and legally-obtained private property, but it is unclear how those provisions will be implemented. Although new criminal and civil laws have provided additional safeguards to citizens, previously debated political reforms, including expanding elections to the township level, and other legal reforms, including the reform of the reeducation through labor system, have been put on hold.

Human Rights
The State Department’s annual China human rights and religious freedom reports have noted China’s well-documented abuses of human rights in violation of internationally recognized norms, stemming both from the authorities’ intolerance of dissent and the inadequacy of legal safeguards for basic freedoms. Reported abuses have included arbitrary and lengthy incommunicado detention, forced confessions, torture, and mistreatment of prisoners as well as severe restrictions on freedom of speech, the press, assembly, association, religion, privacy, worker rights, and coercive birth limitation. In 2005, China stepped up monitoring, harassment, intimidation, and arrest of journalists, Internet writers, defense lawyers, religious activists, and political dissidents. The activities of NGOs, especially those relating to the rule of law and expansion of judicial review, have been curtailed. The Chinese Government recognizes five official religions--Buddhism, Islam, Taoism, Catholicism, and Protestantism--and seeks to regulate religious groups and worship. Religious believers who seek to practice their faith outside of state-controlled religious venues and unregistered religious groups and spiritual movements are subject to intimidation, harassment, and detention. In 2004, the Secretary of State again designated China as a "Country of Particular Concern" under the International Religious Freedom Act for particularly severe violations of religious freedom.

At the same time, China’s economic growth and reform since 1978 has improved dramatically the lives of hundreds of millions of Chinese, increased social mobility, and expanded the scope of personal freedom. This has meant substantially greater freedom of travel, employment opportunity, educational and cultural pursuits, job and housing choices, and access to information. In recent years, China has also passed new criminal and civil laws that provide additional safeguards to citizens. Village elections have been carried out in over 90% of China’s one million villages.

We have conducted 12 rounds of human rights dialogue with China since Tiananmen. During 2003 and 2004, no progress was made on the commitments China made at the 2002 Dialogue and we declined to schedule another round. In November 2004 we initiated negotiations on outstanding commitments with China and these commitments have been met. We are now, in principle, prepared to resume our formal human rights dialogue with China. Although we have not yet engaged in discussions about a date for such a dialogue, during his February 2006 trip to Beijing, Assistant Secretary of State Barry Lowenkron urged progress on specific human rights concerns that President Bush raised with President Hu in September and November 2005, and outlined areas on which we would like to focus in future dialogue.

ECONOMY

Economic Reforms
Since 1979, China has reformed and opened its economy. The Chinese leadership has adopted a more pragmatic perspective on many political and socioeconomic problems, and has reduced the role of ideology in economic policy. China’s ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship. The result has been the largest reduction of poverty and one of the fastest increases in income levels ever seen. China today is the fourth-largest economy in the world. It has sustained average economic growth of over 9.5% for the past 26 years. In 2005 its $2.26 trillion economy was about 1/7 the size of the U.S. economy.

In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits. China pursued agricultural reforms, dismantling the commune system and introducing a household-based system that provided peasants greater decision-making in agricultural activities. The government also encouraged nonagricultural activities such as village enterprises in rural areas, and promoted more self-management for state-owned enterprises, increased competition in the marketplace, and facilitated direct contact between Chinese and foreign trading enterprises. China also relied more upon foreign financing and imports.

During the 1980s, these reforms led to average annual rates of growth of 10% in agricultural and industrial output. Rural per capita real income doubled. China became self-sufficient in grain production; rural industries accounted for 23% of agricultural output, helping absorb surplus labor in the countryside. The variety of light industrial and consumer goods increased. Reforms began in the fiscal, financial, banking, price-setting, and labor systems.

By the late 1980s, however, the economy had become overheated with increasing rates of inflation. At the end of 1988, in reaction to a surge of inflation caused by accelerated price reforms, the leadership introduced an austerity program.

China's economy regained momentum in the early 1990s. During a visit to southern China in early 1992, China's paramount leader at the time, Deng Xiaoping, made a series of political pronouncements designed to reinvigorate the process of economic reform. The 14th Party Congress later in the year backed Deng's renewed push for market reforms, stating that China's key task in the 1990s was to create a "socialist market economy." The 10-year development plan for the 1990s stressed continuity in the political system with bolder reform of the economic system.

China’s economy grew at an average rate of 10% per year during the period 1990-2004, the highest growth rate in the world. China’s gross domestic product (GDP) grew 10.0% in 2003, and even faster, 10.1%, in 2004, and 9.9% in 2005 despite attempts by the government to cool the economy. China’s total trade in 2005 surpassed $1.4 trillion, making China the world’s third-largest trading nation after the U.S. and Germany. Such high growth is necessary if China is to generate the 15 million jobs needed annually--roughly the size of Ecuador or Cambodia--for new entrants into the job market.

Nevertheless, serious imbalances exist behind the spectacular trade performance, high investment flows, and high GDP growth. High numbers of non-performing loans weigh down the state-run banking system. Inefficient state-owned enterprises (SOEs) are still a drag on growth, despite announced efforts to sell, merge, or close the vast majority of SOEs.

Social and economic indicators have improved since reforms were launched, but rising inequality is evident between the more highly developed coastal provinces and the less developed, poorer inland regions. According to World Bank estimates, more than 152 million people in China in 2003--mostly in rural areas of the lagging inland provinces--still live in poverty, on consumption of less than U.S. $1 a day.

Following the Chinese Communist Party’s Third Plenum, held in October 2003, Chinese legislators unveiled several proposed amendments to the state constitution. One of the most significant was a proposal to provide protection for private property rights. Legislators also indicated there would be a new emphasis on certain aspects of overall government economic policy, including efforts to reduce unemployment (now in the 8-10% range in urban areas), to rebalance income distribution between urban and rural regions, and to maintain economic growth while protecting the environment and improving social equity. The National People’s Congress approved the amendments when it met in March 2004. The Fifth Plenum in October 2005 approved the 11th Five-Year Economic Program aimed at building a "harmonious society" through more balanced wealth distribution and improved education, medical care, and social security.

Agriculture
China is the world’s most populous country and one of the largest producers and consumers of agricultural products. Roughly half of China's labor force is engaged in agriculture, even though only 10% of the land is suitable for cultivation and agriculture contributes only 13% of China’s GDP. China’s cropland area is only 75% of the U.S. total, but China still produces about 30% more crops and livestock than the U.S. because of intensive cultivation, China is among the world's largest producers of rice, corn, wheat, soybeans, vegetables, tea, and pork. Major non-food crops include cotton, other fibers, and oilseeds. China hopes to further increase agricultural production through improved plant stocks, fertilizers, and technology. Incomes for Chinese farmers are stagnating, leading to an increasing wealth gap between the cities and countryside. Government policies that continue to emphasize grain self-sufficiency and the fact that farmers do not own--and cannot buy or sell--the land they work have contributed to this situation. In addition, inadequate port facilities and lack of warehousing and cold storage facilities impede both domestic and international agricultural trade.

Industry
Industry and construction account for about 46% of China’s GDP. Major industries are mining and ore processing; iron; steel; aluminum; coal, machinery; textiles and apparel; armaments; petroleum; cement; chemicals; fertilizers; consumer products including footwear, toys, and electronics; automobiles and other transportation equipment including rail cars and locomotives, ships, and aircraft; and telecommunications.

China has become a preferred destination for the relocation of global manufacturing facilities. Its strength as an export platform has contributed to incomes and employment in China. The state-owned sector still accounts for about 40% of GDP. In recent years, authorities have been giving greater attention to the management of state assets--both in the financial market as well as among state-owned-enterprises--and progress has been noteworthy.

Energy
In 2003, China surpassed Japan to become the second-largest consumer of primary energy, after the United States. China is also the third-largest energy producer in the world, after the United States and Russia. China’s electricity consumption is expected to grow by over 4% a year through 2030, which will require more than $2 trillion in electricity infrastructure investment to meet the demand. China expects to add approximately 15,000 megawatts of generating capacity a year, with 20% of that coming from foreign suppliers.

Coal makes up the bulk of China’s energy consumption (64% in 2002), and China is the largest producer and consumer of coal in the world. As China’s economy continues to grow, China’s coal demand is projected to rise significantly. Although coal’s share of China’s overall energy consumption will decrease, coal consumption will continue to rise in absolute terms.

The 11th Five-Year Program, announced in 2005, calls for greater energy conservation measures, including development of renewable energy sources and increased attention to environmental protection. Moving away from coal towards cleaner energy sources including oil, natural gas, renewable energy, and nuclear power is an important component of China’s development program. China has abundant hydroelectric resources; the Three Gorges Dam, for example, will have a total capacity of 18 gigawatts when fully on-line (projected for 2009). In addition, the share of electricity generated by nuclear power is projected to grow from 1% in 2000 to 5% in 2030. China’s renewable energy law, which went into effect in 2006, calls for 10% of its energy to come from renewable energy sources by 2020.

Since 1993, China has been a net importer of oil, a large portion of which comes from the Middle East. Net imports are expected to rise to 3.5 million barrels per day by 2010. China is interested in diversifying the sources of its oil imports and has invested in oil fields around the world. Beijing also plans to increase China's natural gas production, which currently accounts for only 3% of China’s total energy consumption. Analysts expect China’s consumption of natural gas to more than double by 2010.

In May 2004, then-Secretary of Energy Spencer Abraham signed a Memorandum of Understanding (MOU) with China's National Development and Reform Commission (NDRC) that launched the U.S.-China Energy Policy Dialogue. The Dialogue has strengthened energy-related interactions between China and the United States, the world's two largest energy consumers. The U.S.-China Energy Policy Dialogue builds upon the two countries’ existing cooperative ventures in high energy nuclear physics, fossil energy, energy efficiency and renewable energy and energy information exchanges. The NDRC and the Department of Energy also exchange views and expertise on Peaceful Uses of Nuclear Technologies, and we convene an annual Oil and Gas Industry Forum with China.

Environment
One of the serious negative consequences of China's rapid industrial development has been increased pollution and degradation of natural resources. A World Health Organization report on air quality in 272 cities worldwide concluded that seven of the world's 10 most polluted cities were in China. According to China's own evaluation, two-thirds of the 338 cities for which air-quality data are available are considered polluted--two-thirds of them moderately or severely so. Respiratory and heart diseases related to air pollution are the leading cause of death in China. Almost all of the nation's rivers are considered polluted to some degree, and half of the population lacks access to clean water. By some estimates, every day approximately 300 million residents drink contaminated water. Ninety percent of urban water bodies are severely polluted. Water scarcity also is an issue; for example, severe water scarcity in Northern China is a serious threat to sustained economic growth and the government has begun working on a project for a large-scale diversion of water from the Yangtze River to northern cities, including Beijing and Tianjin. Acid rain falls on 30% of the country. Various studies estimate pollution costs the Chinese economy 7-10% of GDP each year.

China's leaders are increasingly paying attention to the country's severe environmental problems. In 1998, the State Environmental Protection Administration (SEPA) was officially upgraded to a ministry-level agency, reflecting the growing importance the Chinese Government places on environmental protection. In recent years, China has strengthened its environmental legislation and made some progress in stemming environmental deterioration. In 2005, China joined the Asia Pacific Partnership on Clean Development, which brings industries and governments together to implement strategies that reduce pollution and address climate change. During the 10th Five-Year Plan, China plans to reduce total emissions by 10%. Beijing in particular is investing heavily in pollution control as part of its campaign to host a successful Olympiad in 2008. Some cities have seen improvement in air quality in recent years.

China is an active participant in climate change talks and other multilateral environmental negotiations, taking environmental challenges seriously but pushing for the developed world to help developing countries to a greater extent. It is a signatory to the Basel Convention governing the transport and disposal of hazardous waste and the Montreal Protocol for the Protection of the Ozone Layer, as well as the Convention on International Trade in Endangered Species and other major environmental agreements.

The question of environmental impacts associated with the Three Gorges Dam project has generated controversy among environmentalists inside and outside China. Critics claim that erosion and silting of the Yangtze River threaten several endangered species, while Chinese officials say the dam will help prevent devastating floods and generate clean hydroelectric power that will enable the region to lower its dependence on coal, thus lessening air pollution.

The United States and China are members of the Asia Pacific Partnership on Clean Development and Climate (APP). The APP is a public-private partnership of six nations--Australia, China, India, Japan, the Republic of Korea, and the United States--committed to explore new mechanisms to meet national pollution reduction, energy security and climate change goals in ways that reduce poverty and promote economic development. APP members have undertaken cooperative activities involving deployment of clean technology in partner countries in eight areas: cleaner fossil energy, renewable energy and distributed generation, power generation and transmission, steel, aluminum, cement, coal mining, and buildings and appliances.

The United States and China have been engaged in an active program of bilateral environmental cooperation since the mid-1990s, with an emphasis on clean energy technology and the design of effective environmental policy. While both governments view this cooperation positively, China has often compared the U.S. program, which lacks a foreign assistance component, with those of Japan and several European Union (EU) countries that include generous levels of aid.

Science and Technology
Science and technology have always preoccupied Chinas leaders; indeed, China's political leadership comes almost exclusively from technical backgrounds and has a high regard for science. Deng called it "the first productive force." Distortions in the economy and society created by party rule have severely hurt Chinese science, according to some Chinese science policy experts. The Chinese Academy of Sciences, modeled on the Soviet system, puts much of China's greatest scientific talent in a large, under-funded apparatus that remains largely isolated from industry, although the reforms of the past decade have begun to address this problem.

Chinese science strategists see China's greatest opportunities in newly emerging fields such as biotechnology and computers, where there is still a chance for China to become a significant player. Most Chinese students who went abroad have not returned, but they have built a dense network of trans-Pacific contacts that will greatly facilitate U.S.-China scientific cooperation in coming years. The U.S. space program is often held up as the standard of scientific modernity in China. China's small but growing space program, which successfully completed their second manned orbit in October 2005, is a focus of national pride.

The U.S.-China Science and Technology Agreement remains the framework for bilateral cooperation in this field. A 5-year agreement to extend the Science and Technology Agreement was signed in April 2006. The Agreement is among the longest-standing U.S.-China accords, and includes over eleven U.S. Federal agencies and numerous branches that participate in cooperative exchanges under the S&T Agreement and its nearly 60 protocols, memoranda of understanding, agreements and annexes. The Agreement covers cooperation in areas such as marine conservation, renewable energy, and health. Biennial Joint Commission Meetings on Science and Technology bring together policymakers from both sides to coordinate joint science and technology cooperation. Executive Secretaries meetings are held biennially to implement specific cooperation programs. Japan and the European Union also have high profile science and technology cooperative relationships with China.

Trade
China's merchandise exports totaled $762.3 billion and imports totaled $660.2 billion in 2004. Its global trade surplus surged from $32 billion in 2004 to $102 billion in 2005. China's primary trading partners include Japan, the EU, the United States, South Korea, Hong Kong, and Taiwan. According to U.S. statistics, China had a trade surplus with the U.S. of $201.6 billion in 2005.

China has taken important steps to open its foreign trading system and integrate itself into the world trading system. In November 1991, China joined the Asia-Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation in the economic, trade, investment, and technology spheres. China served as APEC chair in 2001, and Shanghai hosted the annual APEC leaders meeting in October of that year.

China formally joined the WTO in December 2001. As part of this far-reaching trade liberalization agreement, China agreed to lower tariffs and abolish market impediments. Chinese and foreign businessmen, for example, gained the right to import and export on their own, and to sell their products without going through a government middleman. By 2005, average tariff rates on key U.S. agricultural exports dropped from 31% to 14% and on industrial products from 25% to 9%. The agreement also opens up new opportunities for U.S. providers of services like banking, insurance, and telecommunications. China has made significant progress implementing its WTO commitments, but serious concerns remain, particularly in the realm of intellectual property rights protection.

While accession does not guarantee smaller trade deficits, full implementation of all WTO commitments would further open China’s markets to--and help level the playing field for--U.S. exports. China is now one of the most important markets for U.S. exports: in 2005, U.S. exports to China totaled $41.8 billion, more than double the $19 billion when China joined the WTO in 2001 and up 20% over 2004. U.S. agricultural exports have increased dramatically, making China our fourth-largest agricultural export market (after Canada, Japan, and Mexico). Over the same period (2001-1005), U.S. imports from China have risen from $102 billion to $243.5 billion.

Export growth continues to be a major driver of China's rapid economic growth. To increase exports, China has pursued policies such as fostering the rapid development of foreign-invested factories, which assemble imported components into consumer goods for export, and liberalizing trading rights. In its eleventh Five-Year Program, adopted in 2005, China placed greater emphasis on developing a consumer demand-driven economy to sustain economic growth and address global imbalances.

The United States is one of China's primary suppliers of power generating equipment, aircraft and parts, computers and industrial machinery, raw materials, and chemical and agricultural products. However, U.S. exporters continue to have concerns about fair market access due to strict testing and standards requirements for some imported products. In addition, a lack of transparency in the regulatory process makes it difficult for businesses to plan for changes in the domestic market structure. The April 11, 2006 U.S.-China Joint Commission on Commerce and Trade (JCCT) produced agreements on key U.S. trade concerns ranging from market access to U.S. beef, medical devices, and telecommunications; to the enforcement of intellectual property rights, including, significantly, software. The JCCT also produced an agreement to establish a U.S.-China High Technology and Strategic Trade Working Group to review export control cooperation and facilitate high technology trade.
Foreign Investment
China’s investment climate has changed dramatically in 24 years of reform. In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. Foreign direct investment (FDI) grew quickly during the 1980s, but stalled in late 1989 in the aftermath of Tiananmen. In response, the government introduced legislation and regulations designed to encourage foreigners to invest in high-priority sectors and regions. Since the early 1990s, China has allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, and authorized the establishment of wholly foreign-owned enterprises, now the preferred form of FDI. However, the Chinese Government’s emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China’s services sectors underdeveloped. China is now one of the leading recipients of FDI in the world, receiving $60 billion in 2005, for a cumulative total of $623.8 billion.

As part of its WTO accession, China undertook to eliminate certain trade-related investment measures and to open up specified sectors that had previously been closed to foreign investment. New laws, regulations, and administrative measures to implement these commitments are being issued. Major remaining barriers to foreign investment include opaque and inconsistently enforced laws and regulations and the lack of a rules-based legal infrastructure.

Opening to the outside remains central to China's development. Foreign-invested enterprises produce about half of China's exports, and China continues to attract large investment inflows. Foreign exchange reserves were $819 billion at the end of 2005, and have now surpassed those of Japan, making China’s foreign exchange reserves the largest in the world.

FOREIGN RELATIONS
Since its establishment, the People's Republic has worked vigorously to win international support for its position that it is the sole legitimate government of all China, including Hong Kong, Macau, and Taiwan. In the early 1970s, Beijing was recognized diplomatically by most world powers. Beijing assumed the China seat in the United Nations in 1971 and became increasingly active in multilateral organizations. Japan established diplomatic relations with China in 1972, and the U.S. did so in 1979. The number of countries that have established diplomatic relations with Beijing has risen to 159, while 25 have diplomatic relations with Taiwan.

After the founding of the P.R.C., China's foreign policy initially focused on solidarity with the Soviet Union and other communist countries. In 1950, China sent the People's Liberation Army into North Korea to help North Korea halt the UN offensive that was approaching the Yalu River. After the conclusion of the Korean conflict, China sought to balance its identification as a member of the Soviet bloc by establishing friendly relations with Pakistan and other Third World countries, particularly in Southeast Asia.

In the 1960s, Beijing competed with Moscow for political influence among communist parties and in the developing world generally. Following the 1968 Soviet invasion of Czechoslovakia and clashes in 1969 on the Sino-Soviet border, Chinese competition with the Soviet Union increasingly reflected concern over China's own strategic position.

In late 1978, the Chinese also became concerned over Vietnam's efforts to establish open control over Laos and Cambodia. In response to the Vietnamese invasion of Cambodia, China fought a brief border war with Vietnam (February-March 1979) with the stated purpose of "teaching Vietnam a lesson."

Chinese anxiety about Soviet strategic advances was heightened following the Soviet Union's December 1979 invasion of Afghanistan. Sharp differences between China and the Soviet Union persisted over Soviet support for Vietnam's continued occupation of Cambodia, the Soviet invasion of Afghanistan, and Soviet troops along the Sino-Soviet border and in Mongolia--the so-called "three obstacles" to improved Sino-Soviet relations.

In the 1970s and 1980s China sought to create a secure regional and global environment for itself and to foster good relations with countries that could aid its economic development. To this end, China looked to the West for assistance with its modernization drive and for help in countering Soviet expansionism, which it characterized as the greatest threat to its national security and to world peace.

China maintained its consistent opposition to "superpower hegemony," focusing almost exclusively on the expansionist actions of the Soviet Union and Soviet proxies such as Vietnam and Cuba, but it also placed growing emphasis on a foreign policy independent of both the U.S. and the Soviet Union. While improving ties with the West, China continued to follow closely economic and other positions of the Third World nonaligned movement, although China was not a formal member.

In the immediate aftermath of Tiananmen crackdown in June 1989, many countries reduced their diplomatic contacts with China as well as their economic assistance programs. In response, China worked vigorously to expand its relations with foreign countries, and by late 1990, had reestablished normal relations with almost all nations. Following the collapse of the Soviet Union in late 1991, China also opened diplomatic relations with the republics of the former Soviet Union.

In recent years, Chinese leaders have been regular travelers to all parts of the globe, and China has sought a higher profile in the UN through its permanent seat on the United Nations Security Council and other multilateral organizations. Closer to home, China has made efforts to reduce tensions in Asia, hosting the Six-Party Talks on North Korea’s nuclear weapons program, cultivating a more cooperative relationship with members of the Association of Southeast Asian Nations, and participating in the ASEAN Regional Forum. Its moves to play a greater regional leadership role in Asia and, especially, the success of its "charm offensive" in Southeast Asia are examples of a new, more mature diplomacy. China is also working hard to strengthen ties with countries in South Asia, including India. Following Premier Wen’s 2005 visit to India, the two sides have moved to increase commercial and cultural ties, as well as to resolve longstanding border disputes. China has likewise improved ties with Russia, with President Putin visiting Beijing in April 2006. A second round of Russia-China joint military exercises is scheduled for 2007. China has played a prominent role in the Shanghai Cooperation Organization (SCO), a regional grouping that also includes Russia and the Central Asian nations of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Beijing has resolved many of its border and maritime disputes, notably including a November 1997 agreement with Russia that resolved almost all outstanding border issues and a 2000 agreement with Vietnam to resolve some differences over their maritime border, though disagreements remain over islands in the South China Sea. Tensions with Japan continue, fueled by longstanding and emotionally charged disputes over history and competing claims to portions of the East China Sea. China has played a constructive role in support of peacekeeping operations in Sudan and has stated publicly that it shares the international community’s concern over Iran’s nuclear program. Set against this has been an effort on the part of China to improve ties to countries such as Iran, Sudan, Zimbabwe, and Venezuela, which are sources of oil and other resources and which welcome China’s non-conditional assistance and investment.

DEFENSE
Establishment of a professional military force equipped with modern weapons and doctrine was the last of the "Four Modernizations" announced by Zhou Enlai and supported by Deng Xiaoping. In keeping with Deng's mandate to reform, the People's Liberation Army (PLA), which includes the strategic nuclear forces, army, navy, and air force, has demobilized millions of men and women since 1978 and introduced modern methods in such areas as recruitment and manpower, strategy, and education and training.

Following the June 1989 Tiananmen crackdown, ideological correctness was temporarily revived as the dominant theme in Chinese military affairs. Reform and modernization appear to have since resumed their position as the PLA's priority objectives, although the armed forces' political loyalty to the CCP remains a leading concern.

The Chinese military is in the process of transforming itself from a land-based power, centered on a vast ground force, to a smaller, mobile, high-tech military eventually capable of mounting limited defensive operations beyond its coastal borders.

China's power-projection capability is limited but has grown over recent years. China has acquired some advanced weapons systems, including Sovremmeny destroyers, SU-27 and SU-30 aircraft, and Kilo-class diesel submarines from Russia. However, much of its air and naval forces continues to be based on 1960s-era technology. As the Defense Department’s Quadrennial Defense Review, released February 2006, noted, the U.S. shares with other countries a concern about the pace, scope, and direction of China’s military modernization. We view military exchanges, visits, and other forms of engagement are useful tools in promoting transparency, provided they have substance and are fully reciprocal. Regularized exchanges and contact also have the significant benefit of building confidence, reducing the possibility of accidents, and providing the lines of communication that are essential in ensuring that episodes such as the April 2001 EP-3 aircraft incident do not escalate into major crises. During their April 2006 meeting, President Bush and President Hu agreed to increase officer exchanges and to begin a strategic nuclear dialogue between STRATCOM and the Chinese military’s strategic missile command. U.S. and Chinese militaries are also considering ways in which we might cooperate on disaster assistance relief.

Nuclear Weapons and Arms Control Policy
Nuclear Weapons. In 1955, Mao Zedong's Chinese Communist Party decided to proceed with a nuclear weapons program; it was developed with Soviet assistance until 1960. After its first nuclear test in October 1964, Beijing deployed a modest but potent ballistic missile force, including land- and sea-based intermediate-range and intercontinental ballistic missiles.

China became a major international arms exporter during the 1980s. Beijing joined the Middle East arms control talks, which began in July 1991 to establish global guidelines for conventional arms transfers, but announced in September 1992 that it would no longer participate because of the U.S. decision to sell F-16A/B aircraft to Taiwan.

China was the first state to pledge "no first use" of nuclear weapons. It joined the International Atomic Energy Agency (IAEA) in 1984 and pledged to abstain from further atmospheric testing of nuclear weapons in 1986. China acceded to the nuclear Non-Proliferation Treaty (NPT) in 1992 and supported its indefinite and unconditional extension in 1995. In 1996, it signed the Comprehensive Test Ban Treaty (CTBT) and agreed to seek an international ban on the production of fissile nuclear weapons material. To date, China has not ratified the CTBT.

In 1996, China committed not to provide assistance to un-safeguarded nuclear facilities. China became a full member of the NPT Exporters (Zangger) Committee, a group that determines items subject to IAEA inspections if exported by NPT signatories. In September 1997, China issued detailed nuclear export control regulations. China began implementing regulations establishing controls over nuclear-related dual-use items in 1998. China also has committed not to engage in new nuclear cooperation with Iran (even under safeguards), and will complete existing cooperation, which is not of proliferation concern, within a relatively short period. In May 2004, with the support of the United States, China became a member of the Nuclear Suppliers Group.

Based on significant, tangible progress with China on nuclear nonproliferation, President Clinton in 1998 took steps to bring into force the 1985 U.S.-China Agreement on Peaceful Nuclear Cooperation.

Chemical Weapons. China is not a member of the Australia Group, an informal and voluntary arrangement made in 1985 to monitor developments in the proliferation of dual-use chemicals and to coordinate export controls on key dual-use chemicals and equipment with weapons applications. In April 1997, however, China ratified the Chemical Weapons Convention (CWC) and, in September 1997, promulgated a new chemical weapons export control directive. In October 2002, China promulgated updated regulations on dual-use chemical agents, and now controls all the major items on the Australia Group control list.

Missiles. Although it is not a member of the Missile Technology Control Regime (MTCR), the multinational effort to restrict the proliferation of missiles, in March 1992 China undertook to abide by MTCR guidelines and parameters. China reaffirmed this commitment in 1994, and pledged not to transfer MTCR-class ground-to-ground missiles. In November 2000, China committed not to assist in any way the development by other countries of MTCR-class missiles. However, in August 29, 2003, the U.S. Government imposed missile proliferation sanctions lasting two years on the Chinese company China North Industries Corporation (NORINCO) after determining that it was knowingly involved in the transfer of equipment and technology controlled under Category II of the Missile Technology Control Regime (MTCR) Annex that contributed to MTCR-class missiles in a non-MTCR country.

In December 2003, the P.R.C. promulgated comprehensive new export control regulations governing exports of all categories of sensitive technologies.

U.S.-CHINA RELATIONS

From Liberation to the Shanghai Communiqué
As the PLA armies moved south to complete the communist conquest of China in 1949, the American Embassy followed the Nationalist government headed by Chiang Kai-shek, finally moving to Taipei later that year. U.S. consular officials remained in mainland China. The new P.R.C. Government was hostile to this official American presence, and all U.S. personnel were withdrawn from the mainland in early 1950. Any remaining hope of normalizing relations ended when U.S. and Chinese communist forces fought on opposing sides in the Korean conflict.

Beginning in 1954 and continuing until 1970, the United States and China held 136 meetings at the ambassadorial level, first at Geneva and later at Warsaw. In the late 1960s, U.S. and Chinese political leaders decided that improved bilateral relations were in their common interest. In 1969, the United States initiated measures to relax trade restrictions and other impediments to bilateral contact. On July 15, 1971, President Nixon announced that his Assistant for National Security Affairs, Dr. Henry Kissinger, had made a secret trip to Beijing to initiate direct contact with the Chinese leadership and that he, the President, had been invited to visit China.

In February 1972, President Nixon traveled to Beijing, Hangzhou, and Shanghai. At the conclusion of his trip, the U.S. and Chinese Governments issued the "Shanghai Communiqué," a statement of their foreign policy views. (For the complete text of the Shanghai Communiqué, see the Department of State Bulletin, March 20, 1972).

In the Communiqué, both nations pledged to work toward the full normalization of diplomatic relations. The U.S. acknowledged the Chinese position that all Chinese on both sides of the Taiwan Strait maintain that there is only one China and that Taiwan is part of China. The statement enabled the U.S. and China to temporarily set aside the "crucial question obstructing the normalization of relations"--Taiwan--and to open trade and other contacts.

Liaison Office, 1973-78
In May 1973, in an effort to build toward the establishment of formal diplomatic relations, the U.S. and China established the United States Liaison Office (USLO) in Beijing and a counterpart Chinese office in Washington, DC. In the years between 1973 and 1978, such distinguished Americans as David Bruce, George H.W. Bush, Thomas Gates, and Leonard Woodcock served as chiefs of the USLO with the personal rank of Ambassador.

President Ford visited China in 1975 and reaffirmed the U.S. interest in normalizing relations with Beijing. Shortly after taking office in 1977, President Carter again reaffirmed the interest expressed in the Shanghai Communiqué. The United States and China announced on December 15, 1978, that the two governments would establish diplomatic relations on January 1, 1979.

Normalization
In the Joint Communiqué on the Establishment of Diplomatic Relations dated January 1, 1979, the United States transferred diplomatic recognition from Taipei to Beijing. The U.S. reiterated the Shanghai Communiqué's acknowledgment of the Chinese position that there is only one China and that Taiwan is a part of China; Beijing acknowledged that the American people would continue to carry on commercial, cultural, and other unofficial contacts with the people of Taiwan. The Taiwan Relations Act made the necessary changes in U.S. domestic law to permit such unofficial relations with Taiwan to flourish.

U.S.-China Relations Since Normalization
Vice Premier Deng Xiaoping's January 1979 visit to Washington, DC, initiated a series of important, high-level exchanges, which continued until the spring of 1989. This resulted in many bilateral agreements--especially in the fields of scientific, technological, and cultural interchange and trade relations. Since early 1979, the United States and China have initiated hundreds of joint research projects and cooperative programs under the Agreement on Cooperation in Science and Technology, the largest bilateral program.

On March 1, 1979, the United States and China formally established embassies in Beijing and Washington, DC. During 1979, outstanding private claims were resolved, and a bilateral trade agreement was concluded. Vice President Walter Mondale reciprocated Vice Premier Deng's visit with an August 1979 trip to China. This visit led to agreements in September 1980 on maritime affairs, civil aviation links, and textile matters, as well as a bilateral consular convention.

As a consequence of high-level and working-level contacts initiated in 1980, U.S. dialogue with China broadened to cover a wide range of issues, including global and regional strategic problems, political-military questions, including arms control, UN and other multilateral organization affairs, and international narcotics matters.

The expanding relationship that followed normalization was threatened in 1981 by Chinese objections to the level of U.S. arms sales to Taiwan. Secretary of State Alexander Haig visited China in June 1981 in an effort to resolve Chinese questions about America's unofficial relations with Taiwan. Eight months of negotiations produced the U.S.-China joint communiqué of August 17, 1982. In this third communiqué, the U.S. stated its intention to reduce gradually the level of arms sales to Taiwan, and the Chinese described as a fundamental policy their effort to strive for a peaceful resolution to the Taiwan question. Meanwhile, Vice President Bush visited China in May 1982.

High-level exchanges continued to be a significant means for developing U.S.-China relations in the 1980s. President Reagan and Premier Zhao Ziyang made reciprocal visits in 1984. In July 1985, President Li Xiannian traveled to the United States, the first such visit by a Chinese head of state. Vice President Bush visited China in October 1985 and opened the U.S. Consulate General in Chengdu, the U.S.'s fourth consular post in China. Further exchanges of cabinet-level officials occurred between 1985-89, capped by President Bush's visit to Beijing in February 1989.

In the period before the June 3-4, 1989 crackdown, a large and growing number of cultural exchange activities undertaken at all levels gave the American and Chinese peoples broad exposure to each other's cultural, artistic, and educational achievements. Numerous Chinese professional and official delegations visited the United States each month. Many of these exchanges continued after Tiananmen.

Bilateral Relations After Tiananmen
Following the Chinese authorities' brutal suppression of demonstrators in June 1989, the U.S. and other governments enacted a number of measures to express their condemnation of China's blatant violation of the basic human rights of its citizens. The U.S. suspended high-level official exchanges with China and weapons exports from the U.S. to China. The U.S. also imposed a number of economic sanctions. In the summer of 1990, at the G-7 Houston summit, Western nations called for renewed political and economic reforms in China, particularly in the field of human rights.

Tiananmen disrupted the U.S.-China trade relationship, and U.S. investors' interest in China dropped dramatically. The U.S. Government also responded to the political repression by suspending certain trade and investment programs on June 5 and 20, 1989. Some sanctions were legislated; others were executive actions. Examples include:

The U.S. Trade and Development Agency (TDA)--new activities in China were suspended from June 1989 until January 2001, when then-President Clinton lifted this suspension.
Overseas Private Insurance Corporation (OPIC)--new activities suspended since June 1989.
Development Bank Lending/IMF Credits--the United States does not support development bank lending and will not support IMF credits to China except for projects that address basic human needs.
Munitions List Exports--subject to certain exceptions, no licenses may be issued for the export of any defense article on the U.S. Munitions List. This restriction may be waived upon a presidential national interest determination.
Arms Imports--import of defense articles from China was banned after the imposition of the ban on arms exports to China. The import ban was subsequently waived by the Administration and re-imposed on May 26, 1994. It covers all items on the Bureau of Alcohol, Tobacco, Firearms, and Explosives' Munitions Import List.
In 1996, the P.R.C. conducted military exercises in waters close to Taiwan in an apparent effort at intimidation, after Taiwan’s former President, Lee Teng-huei made a private visit to the U.S. The United States dispatched two aircraft carrier battle groups to the region. Subsequently, tensions in the Taiwan Strait diminished, and relations between the U.S. and China have improved, with increased high-level exchanges and progress on numerous bilateral issues, including human rights, nonproliferation, and trade. Former Chinese president Jiang Zemin visited the United States in the fall of 1997, the first state visit to the U.S. by a Chinese president since 1985. In connection with that visit, the two sides reached agreement on implementation of their 1985 agreement on peaceful nuclear cooperation, as well as a number of other issues. Former President Clinton visited China in June 1998. He traveled extensively in China, and direct interaction with the Chinese people included live speeches, press conference and a radio show, allowing the President to convey first-hand to the Chinese people a sense of American ideals and values.

Relations between the U.S. and China were severely strained by the tragic accidental bombing of the Chinese Embassy in Belgrade in May 1999. By the end of 1999, relations began to gradually improve. In October 1999, the two sides reached agreement on humanitarian payments for families of those who died and those who were injured as well as payments for damages to respective diplomatic properties in Belgrade and China.

In April 2001, a Chinese F-8 fighter collided with a U.S. EP-3 reconnaissance aircraft flying over international waters south of China. The EP-3 was able to make an emergency landing on China's Hainan Island despite extensive damage; the P.R.C. aircraft crashed with the loss of its pilot. Following extensive negotiations, the crew of the EP-3 was allowed to leave China 11 days later, but the U.S. aircraft was not permitted to depart for another 3 months. Subsequently, the relationship, which had cooled following the incident, gradually improved. President George W. Bush visited China in February 2002 and met with President Jiang Zemin in Crawford, Texas in October. President Bush hosted Premier Wen Jiabao in Washington in December 2003. President Bush first met Hu Jintao in his new capacity as P.R.C. President on the margins of the G-8 Summit in Evian in June 2003, and at subsequent international fora, such as the September 2004 APEC meeting in Chile, the July 2005 G-8 summit in Scotland, and the September 2005 UN General Assembly meetings in New York. President Bush traveled to China in November 2005, an official visit that was reciprocated in April 2006 when President Hu met with President Bush in Washington.
U.S. China policy has been remarkably consistent. For seven consecutive administrations, U.S. policy has been to encourage China’s opening and integration into the global system. As a result, China has moved from being a relatively isolated and poor country to one that is a key participant in international institutions and a major trading nation. The U.S. encourages China to play an active role as a responsible stakeholder in the international community, working with the U.S. and other countries to support and strengthen the international system that has enabled China’s success. As Secretary of State Condoleezza Rice has noted, "America has reason to welcome a confident, peaceful, and prosperous China. We want China as a global partner, able and willing to match its growing capabilities to its international responsibilities." Deputy Secretary Robert Zoellick and his P.R.C. counterpart have engaged in intensive discussions covering the entire range of bilateral relations, the second round of which was held in Washington November 2005. The goal of these and similar high-level discussions has been, as the Deputy Secretary noted in a September 2005 speech, to encourage China to act as a "responsible stakeholder" in the international community, on issues ranging from UN action on Iran and the Sudan to joint efforts to promote energy security.

China has an important role to play in global, regional, and bilateral counterterrorism efforts, and the U.S. and China have cooperated with growing effectiveness on various aspects of law enforcement. Following the September 11, 2001 terrorist attacks (9-11) in New York City and Washington, DC, China offered strong public support for the war on terrorism and has been an important partner in U.S. counterterrorism efforts. China voted in favor of UN Security Council Resolution 1373, publicly supported the coalition campaign in Afghanistan, and contributed $150 million of bilateral assistance to Afghan reconstruction following the defeat of the Taliban. China also pledged $25 million to the reconstruction of Iraq and has voiced strong support for the December 2005 Iraqi Parliamentary elections. Shortly after 9-11, the U.S. and China also commenced a counterterrorism dialogue, the most recent round of which was held in Washington in November 2005.

China and the U.S. have also been working closely with the international community to address threats to global security, such as those posed by North Korea and Iran’s nuclear programs. China has played a constructive role in hosting the Six-Party Talks, and the U.S. looks to Beijing to use its unique influence with Pyongyang to help bring North Korea back to the table and to implement fully its commitments under the September 2005 Statement of Principles. China has publicly stated that it does not want Iran to acquire nuclear weapons and supported the International Atomic Energy Agency’s decision to report Iran’s nuclear program to the UN Security Council. On these and other important issues, such as the ongoing humanitarian crisis in Darfur, the U.S. expects China to join with the international community in finding solutions. China’s participation is critical to efforts to combat transnational health threats such as avian influenza and HIV/AIDS, and both the U.S. and China play an important role in new multilateral energy initiatives, such as the Asia-Pacific Partnership.

While the United States looks forward to a constructive and broad-based relationship with China--a message reiterated by President Bush when he met with President Hu in April 2006 in Washington--there remain areas of potential disagreement. U.S.-China relations are sometimes complicated by events in Taiwan and Hong Kong. The United States does not support Taiwan independence and opposes unilateral steps, by either side, to change the status quo. At the same time, the U.S. has made it clear that cross-strait differences should be resolved peacefully and in a manner acceptable to people on both sides of the Strait. At various points in the past several years, China’s has expressed concern about the U.S. making statements on the political evolution of Hong Kong and has stressed that political stability there is paramount for economic growth. The NPC’s passage of an Anti-Secession law in March 2005 was viewed as unhelpful to the cause of promoting cross-Strait and regional stability by the U.S. and precipitated critical high-level statements by both sides.

U.S.-China Economic Relations
U.S. direct investment in China covers a wide range of manufacturing sectors, several large hotel projects, restaurant chains, and petrochemicals. U.S. companies have entered agreements establishing more than 20,000 equity joint ventures, contractual joint ventures, and wholly foreign-owned enterprises in China. More than 100 U.S.-based multinationals have projects in China, some with multiple investments. Cumulative U.S. investment in China is estimated at $54 billion, through the end of 2005, making the U.S. the second-largest foreign investor in China.

Total two-way trade between China and the U.S. grew from $33 billion in 1992 to over $285.3 billion in 2005. The United States is China’s second-largest trading partner, and China is now the third-largest trading partner for the United States (after Canada and Mexico). U.S. exports to China have been growing more rapidly than to any other market (up 28.4% in 2003, 20% in 2004, and 20% in 2005). U.S. imports from China grew 18% in 2005, bringing the U.S. trade deficit with China to more than $200 billion. Some of the factors that influence the U.S. trade deficit with China include:

A shift of low-end assembly industries to China from the newly industrialized economies (NIEs) in Asia. China has increasingly become the last link in a long chain of value-added production. Because U.S. trade data attributes the full value of a product to the final assembler, Chinese value-added gets over-counted.
Strong U.S. demand for Chinese goods.
China's restrictive trade practices, which have included an array