HEARING ON U.S.-CHINA RELATIONS IN 2019: A YEAR IN REVIEW HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION WEDNESDAY, SEPTEMBER 4, 2019 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: 2019 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION CAROLYN BARTHOLOMEW, CHAIRMAN ROBIN CLEVELAND, VICE CHAIRMAN Commissioners: ANDREAS A. BORGEAS KENNETH LEWIS JEFFREY L. FIEDLER MICHAEL A. MCDEVITT HON. CARTE P. GOODWIN HON. JAMES M. TALENT ROY D. KAMPHAUSEN MICHAEL R. WESSEL THEA MEI LEE LARRY M. WORTZEL 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 September 13, 2019 The Honorable Chuck Grassley President Pro Tempore of the Senate, Washington, DC 20510 The Honorable Nancy Pelosi Speaker of the House of Representatives, Washington, DC 20515 Dear Senator Grassley and Speaker Pelosi: We are writing to notify you of the Commission’s September 4, 2019 public hearing on “U.S.-China Relations in 2019: A Year in Review.” The Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Pub. L. No. 106-398 (as amended by the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015 § 1259b, Pub. L. No. 113-291) provides the basis for this hearing. At the hearing, the Commissioners received testimony from the following witnesses: Victor Shih, Ho Miu Lam Chair in China and Pacific Relations, Associate Professor, UC San Diego School of Global Policy and Strategy; Andrew Polk, Co-Founder, Trivium China; Elizabeth Economy, C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations; Oriana Skylar Mastro, Resident Scholar, American Enterprise Institute; Assistant Professor of Security Studies, Edmund A. Walsh School of Foreign Service, Georgetown University; Andrew Krepinevich Jr., Senior Fellow, Hudson Institute; Adjunct Senior Fellow, Center for a New American Security; President and COO, Solarium LLC; Michael Green, Senior Vice President for Asia and Japan Chair, Center for Strategic and International Studies; Director, Asian Studies, Edmund A. Walsh School of Foreign Service, Georgetown University; Bonnie Glaser, Senior Adviser for Asia and Director, China Power Project, Center for Strategic and International Studies; Syaru Shirley Lin, Lecturer, Politics, University of Virginia; Adjunct Associate Professor, Global Political Economy, Chinese University of Hong Kong; and Victoria Tin-bor Hui, Associate Professor, University of Notre Dame Department of Political Science. The hearing reviewed key developments in the U.S.-China relationship in 2019. Panel 1 evaluated developments in China’s political economy and the impact of U.S.-China trade frictions on the Chinese economy. Panel 2 assessed the implications of Chinese military activities and modernization in 2019 for the United States and U.S. allies and partners. Panel 3 reviewed the implications of economic, political, and security developments between China and Taiwan for regional security, and explore the escalating situation in Hong Kong. The full transcript of the hearing, prepared statements, and supporting documents are posted to the Commission’s website, 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 others in our statutory mandate this year. Our 2019 Annual Report will be submitted to Congress in November 2019. Should you have any questions, please do not hesitate to have your staff contact one of us or our Congressional Liaison, Leslie Tisdale Reagan, at 202-624-1496 or [email protected]. Sincerely yours, Carolyn Bartholomew Robin Cleveland Chairman Vice Chairman cc: Members of Congress and Congressional Staff iii CONTENTS WEDNESDAY, SEPTEMBER 4, 2019 U.S.-CHINA RELATIONS IN 2019: A YEAR IN REVIEW Opening Statement of Commissioner Fiedler (Hearing Co-Chair) .........................................................................................................6 Prepared Statement ...........................................................................................................8 Opening Statement of Commissioner Cleveland (Hearing Co-Chair) .........................................................................................................9 Prepared Statement .........................................................................................................12 Panel I: Shifting Dynamics in the U.S.-China Economic Relationship Panel I Introduction by Vice Chairman Cleveland (Hearing Co-Chair) .......................................................................................................14 Statement of Victor Shih Ho Miu Lam Chair in China and Pacific Relations, Associate Professor, UC San Diego School of Global Policy and Strategy ............................................................................15 Prepared Statement .........................................................................................................17 Statement of Andrew Polk Co-Founder, Trivium China ...........................................................................................26 Prepared Statement .........................................................................................................29 Statement of Elizabeth Economy C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations ........................................................................................................................................50 Panel I: Question and Answer............................................................................................53 Panel II: Shifting Dynamics in the U.S.-China Security Relationship Panel II Introduction by Commissioner Fiedler (Hearing Co-Chair) .......................................................................................................72 Statement of Oriana Skylar Mastro Resident Scholar, American Enterprise Institute; Assistant Professor of Security Studies, Edmund A. Walsh School of Foreign Service, Georgetown University ..........73 Prepared Statement .........................................................................................................76 Statement of Andrew Krepinevich Jr. Senior Fellow, Hudson Institute; Adjunct Senior Fellow, Center for a New American Security; President and COO, Solarium LLC ................................................................93 Prepared Statement .........................................................................................................96 Statement of Michael Green Senior Vice President for Asia and Japan Chair, Center for Strategic and International Studies; Director, Asian Studies, Edmund A. Walsh School of Foreign Service, Georgetown University ................................................................................................104 Prepared Statement .......................................................................................................107 iv Panel II: Question and Answer ........................................................................................116 Panel III: China’s Relations with Taiwan and Hong Kong Panel III Introduction by Vice Chairman Cleveland (Hearing Co-Chair) .....................................................................................................134 Statement of Bonnie Glaser Senior Adviser for Asia and Director, China Power Project, Center for Strategic and International Studies ....................................................................................................135 Prepared Statement .......................................................................................................138 Statement of Syaru Shirley Lin Lecturer, Politics, University of Virginia; Adjunct Associate Professor, Global Political Economy, Chinese University of Hong Kong ..............................................................149 Prepared Statement .......................................................................................................152