CHINA'S 13TH FIVE-YEAR PLAN HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION Wednesday, April 27, 2016 Printed for use of the United States-China Economic and Security Review Commission Available via the World Wide Web: www.uscc.gov UNITED STATES-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION WASHINGTON: 2016 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION HON. DENNIS C. SHEA, Chairman CAROLYN BARTHOLOMEW, Vice Chairman Commissioners: PETER BROOKES HON. JAMES TALENT ROBIN CLEVELAND DR. KATHERINE C. TOB IN HON. BYRON L. DORGAN MICHAEL R. WESSEL JEFFREY L. FIEDLER DR. LARRY M. WORTZEL HON. CARTE P. GOODWIN MICHAEL R. DANIS, Executive Director The Commission was created on October 30, 2000 by the Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Public Law No. 106-398, 114 STAT. 1654A-334 (2000) (codified at 22 U.S.C. § 7002 (2001), as amended by the Treasury and General Government Appropriations Act for 2002 § 645 (regarding employment status of staff) & § 648 (regarding changing annual report due date from March to June), Public Law No. 107-67, 115 STAT. 514 (Nov. 12, 2001); as amended by Division P of the “Consolidated Appropriations Resolution, 2003,” Pub L. No. 108-7 (Feb. 20, 2003) (regarding Commission name change, terms of Commissioners, and responsibilities of the Commission); as amended by Public Law No. 109- 108 (H.R. 2862) (Nov. 22, 2005) (regarding responsibilities of Commission and applicability of FACA); as amended by Division J of the “Consolidated Appropriations Act, 2008,” Public Law Nol. 110-161 (December 26, 2007) (regarding responsibilities of the Commission, and changing the Annual Report due date from June to December); as amended by the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015, P.L. 113-291 (December 19, 2014) (regarding responsibilities of the Commission). The Commission’s full charter is available at www.uscc.gov. ii June 13, 2016 The Honorable Orrin Hatch President Pro Tempore of the Senate, Washington, D.C. 20510 The Honorable Paul Ryan Speaker of the House of Representatives, Washington, D.C. 20515 DEAR SENATOR HATCH AND SPEAKER RYAN: We are pleased to notify you of the Commission’s April 27, 2016 public hearing on “China’s 13th Five- Year Plan.” The Floyd D. Spence National Defense Authorization Act (amended by Pub. L. No. 113-291) provides the basis for this hearing. At the hearing, the Commissioners received testimony from the following witnesses: Dr. Yilin Hou, Professor, Public Administration and International Affairs and Senior Research Associate, Center for Policy Research, Maxwell School, Syracuse University; Dr. Weiping Wu, Professor and Chair of the Department of Urban and Environmental Policy and Planning, Tufts University; Dr. Eswar S. Prasad, Tolani Senior Professor of Trade Policy, Cornell University; Dr. Crystal Chang, Lecturer in Political Science, University of California, Berkeley; Dr. Chad J.R. Ohlandt, Aerospace Engineer, RAND Corporation; Mr. Jimmy Goodrich, Vice President, Global Policy, Semiconductor Industry Association; Ms. Deborah Seligsohn, Ph.D. Candidate, University of California, San Diego; Mr. Damien Ma, Fellow and Associate Director, The Paulson Institute; and Dr. Yanzhong Huang, Senior Fellow for Global Health, Council on Foreign Relations. This hearing examined China’s fiscal and financial reforms, implementation of China’s high - tech industrial policy in the automobile, aviation, and semiconductor sectors, efforts to improve citizens’ quality of life, and the implications these reforms and policies have for U.S. economic and national security interests. We note that prepared statements for the hearing, the hearing transcript, and supporting documents submitted by the witnesses are available on the Commission’s website at www.USCC.gov. Members and the staff of the Commission are available to provide more detailed briefings. We hope these materials will be helpful to the Congress as it continues its assessment of U.S. - China relations and their impact on U.S. security. The Commission will examine in greater depth these issues, and the other issues enumerated in its statutory mandate, in its 2016 Annual Report that will be submitted to Congress in November 2016. Should you have any questions regarding this hearing or any other issue related to China, please do not hesitate to have your staff contact our Congressional Liaison, Anthony DeMarino, at (202) 624-1496 or via email at [email protected] . Sincerely yours, Hon. Dennis C. Shea Carolyn Bartholomew Chairman Vice Chairman iii CONTENTS WEDNESDAY, APRIL 27, 2016 CHINA'S 13TH FIVE-YEAR PLAN Opening Statement of Chairman Dennis C. Shea (Hearing Co-Chair) .......................................................................................................01 Prepared Statement .........................................................................................................03 Opening Statement of Commissioner Carte P. Goodwin (Hearing Co-Chair) .......................................................................................................05 Prepared Statement .........................................................................................................06 Panel I: China’s Fiscal and Financial Reforms Panel I Introduction by Chairman Dennis C. Shea (Hearing Co-Chair) .......................................................................................................07 Statement of Dr. Yilin Hou Professor, Public Administration and International Affairs and Senior Research Associate, Center for Policy Research, Maxwell School, Syracuse University ............08 Prepared Statement .........................................................................................................10 Statement of Dr. Weiping Wu Professor and Chair of the Department of Urban and Environmental Policy and Planning, Tufts University .............................................................................................31 Prepared Statement .........................................................................................................33 Statement of Dr. Eswar S. Prasad Tolani Senior Professor of Trade Policy, Cornell University ........................................44 Prepared Statement .........................................................................................................47 Panel I: Question and Answer............................................................................................62 Panel II: China’s High-Tech Industrial Policies: Automobiles, Aerospace, and Semiconductors Panel II Introduction by Commissioner Carte P. Goodwin (Hearing Co-Chair) .......................................................................................................79 Statement of Dr. Crystal Chang Lecturer in Political Science, University of California, Berkeley ..................................80 Prepared Statement .........................................................................................................83 Statement of Dr. Chad J.R. Ohlandt Aerospace Engineer, RAND Corporation ......................................................................99 Prepared Statement .......................................................................................................101 Statement of Mr. Jimmy Goodrich Vice President, Global Policy, Semiconductor Industry Association ..........................106 Prepared Statement .......................................................................................................109 iv Panel II: Question and Answer ........................................................................................115 Panel III: Quality of Life Priorities Panel II Introduction by Commissioner Carte P. Goodwin (Hearing Co-Chair) .....................................................................................................133 Statement of Ms. Deborah Seligsohn, Ph.D. Candidate University of California, San Diego .............................................................................135 Prepared Statement .......................................................................................................137 Statement of Mr. Damien Ma Fellow and Associate Director, The Paulson Institute .................................................150 Prepared Statement .......................................................................................................153 Statement of Dr. Yanzhong Huang Senior Fellow for Global Health, Council on Foreign Relations .................................167 Prepared Statement .......................................................................................................170 Panel III: Question and Answer .......................................................................................180 v CHINA'S 13TH FIVE-YEAR PLAN WEDNESDAY, APRIL 27, 2016 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION Washington, D.C. The Commission met in Room 285 of Hall of the States, Washington, DC at 9:00 a.m. Chairman Dennis C. Shea and Commissioner Carte P. Goodwin (Hearing Co-Chairs), presiding. OPENING STATEMENT OF CHAIRMAN DENNIS SHEA HEARING CO-CHAIR CHAIRMAN SHEA: Good morning, everyone. Welcome. This is the fifth hearing of the U.S.-China Economic and Security Review Commission's 2016 Annual Report cycle, and I want to thank our witnesses for being here today and for the time they have put into their excellent written testimony. It really was excellent,