THE FOREIGN INVESTMENT CLIMATE IN CHINA: PRESENT CHALLENGES AND POTENTIAL FOR REFORM HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ONE HUNDRED FOURTEENTH CONGRESS FIRST SESSION WEDNESDAY, January 28, 2015 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: 2015 ii U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION Hon. WILLIAM A. REINSCH, Chairman Hon. DENNIS C. SHEA, Vice Chairman Commissioners: CAROLYN BARTHOLOMEW DANIEL M. SLANE ROBIN CLEVELAND SEN. JAMES TALENT JEFFREY L. FIEDLER DR. KATHERINE C. TOBIN SEN. CARTE P. GOODWIN MICHAEL R. WESSEL 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. iii March 16, 2015 The Honorable Orrin Hatch President Pro Tempore of the Senate, Washington, D.C. 20510 The Honorable John A. Boehner Speaker of the House of Representatives, Washington, D.C. 20515 DEAR SENATOR HATCH AND SPEAKER BOEHNER: We are pleased to notify you of the Commission’s January 28, 2015 public hearing on “the Foreign Investment Climate in China: Present Challenges and Potential for Reform.” The Floyd D. Spence National Defense Authorization Act (amended by Pub. L. No. 109-108, section 635(a) and amended by Pub. L. No. 113-291, Section 1259 B) provides the basis for this hearing. At the hearing, the Commissioners received testimony from the following witnesses: Maureen K. Ohlhausen, Commissioner, Federal Trade Commission; Mark A. Cohen, Special Counsel, U.S. Patent and Trademark Office; Robert D. Atkinson, Ph.D., President, Information Technology and Innovation Foundation; Dan Harris, Founder/Partner, Harris Moure; Written statement from Oded Shenkar, Ph.D., Ford Motor Company Chair in Global Business Management, The Ohio State University; Abbot (Tad) Lipsky, Jr., Partner, Latham & Watkins; Xiao-Ru Wang, Ph.D., Principal, Charles River Associates; William Kovacic, Global Competition Professor of Law and Policy and Director, Competition Law Center, George Washington University Law School; Written statement from Gil Kaplan, Partner, King & Spalding; Lucille Barale, Visiting Professor, Georgetown University School of Law; Joshua Eisenman, Ph.D., Assistant Professor, University of Texas at Austin, Lyndon Johnson School of Public Affairs and Senior Fellow for China Studies, American Foreign Policy Council; and Scott Kennedy, Ph.D., Deputy Director, Freeman Chair in China Studies and Director, Project on Chinese Business and Political Economy, Center for Strategic and International Studies. The hearing assessed the most recent and pressing challenges facing foreign firms operating in China, with a spotlight on China’s Anti-Monopoly Law enforcement, and the potential for China’s planned reforms to create a more transparent, cooperative, and fair environment for foreign investors. 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 2015 Annual Report that will be submitted to Congress in November 2015. 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, Reed Eckhold, at (202) 624-1496 or via email at [email protected]. Sincerely yours, Hon. William A. Reinsch Hon. Dennis C. Shea Chairman Vice Chairman iv CONTENTS WEDNESDAY, JANUARY 28, 2015 THE FOREIGN INVESTMENT CLIMATE IN CHINA: PRESENT CHALLENGES AND POTENTIAL FOR REFORM Opening Statement of Chairman William A. Reinsch (Hearing Co-Chair) .......................................................................................................01 Prepared Statement .........................................................................................................03 Opening Statement of Commissioner Daniel M. Slane (Hearing Co-Chair) .......................................................................................................05 Prepared Statement .........................................................................................................06 Administration Panel: Assessing the Interface between China’s Competition and Technology Licensing Policies Administration Panel Introduction by Chairman William A. Reinsch (Hearing Co-Chair) .......................................................................................................07 Statement of Maureen K. Ohlhausen Commissioner, Federal Trade Commission ...................................................................08 Prepared Statement .........................................................................................................12 Statement of Mark A. Cohen Special Counsel, U.S. Patent and Trademark Office ....................................................18 Prepared Statement .........................................................................................................21 Administration Panel: Question and Answer .....................................................................33 Panel I: Industry Perspectives on the Foreign Investment Climate in China Panel I Introduction by Commissioner Daniel M. Slane (Hearing Co-Chair) .......................................................................................................49 Statement of Robert D. Atkinson, Ph.D. President, Information Technology and Innovation Foundation ...................................50 Prepared Statement .........................................................................................................54 Statement of Dan Harris Founder/Partner, Harris Moure .....................................................................................65 Prepared Statement .........................................................................................................67 Panel I: Question and Answer............................................................................................79 v Panel II: The Legal and Regulatory Context for China’s Competition Law Enforcement Panel II Introduction by Chairman William A. Reinsch (Hearing Co-Chair) .....................................................................................................101 Statement of Abbot (Tad) Lipsky, Jr. Partner, Latham & Watkins .........................................................................................103 Statement of Elizabeth Xiao-Ru Wang, Ph.D. Principal, Charles River Associates ............................................................................106 Prepared Statement .......................................................................................................108 Statement of William Kovacic Global Competition Professor of Law and Policy; Director, Competition Law Center, George Washington University Law School ................................................................114 Prepared Statement .......................................................................................................117 Panel II: Question and Answer .......................................................................................127 Panel III: Evaluating the Impact of China’s Reforms on the Foreign Investment Climate Panel III Introduction by Commissioner Daniel M. Slane (Hearing Co-Chair) .....................................................................................................143 Statement of Lucille Barale Visiting Professor, Georgetown University School of Law ........................................144 Statement of Joshua Eisenman, Ph.D. Assistant Professor, University of Texas at Austin, Lyndon Johnson School of Public Affairs, Austin, TX Senior Fellow for China Studies, American Foreign Policy Council ..........................147 Prepared Statement .......................................................................................................150