China’s Currency: An Analysis of the Economic Issues

Wayne M. Morrison
Specialist in Asian Trade and Finance

Marc Labonte
Specialist in Macroeconomic Policy

China’s currency policy has been an issue of significant concern to many in Congress over the past several years. Since 1994, the Chinese government has maintained a policy of intervening in currency markets to limit or halt the appreciation of its currency, the renminbi (RMB), against the U.S. dollar and other currencies. Critics charge that this is a deliberate Chinese policy to make its exports significantly cheaper, and its imports more expensive, than would if the RMB were a freely traded currency. They contend that the RMB is significantly undervalued against the dollar and that this has been a major contributor to the large annual U.S. trade deficits with China and the loss of U.S. manufacturing jobs in recent years. Some Members have urged the Obama Administration take a more aggressive stand against China over its currency policy, such as by designating it as a “currency manipulator” under U.S. trade law. Others have introduced legislation that would seek to counter the perceived effects of China’s currency policy on the U.S. economy. For example, in the 112th Congress, H.R. 639 and S. 328 would make a “fundamentally undervalued currency” an actionable subsidy under U.S. countervailing duty cases.

From July 2005 to July 2008, China’s central bank allowed the RMB to appreciate against the dollar by about 21%. However, once the effects of the global economic crisis became apparent, China halted appreciation of the RMB in an effort to help Chinese industries dependent on trade. From July 2008 to about mid-June 2010, China kept the exchange rate of the RMB relatively constant at 6.83 yuan (the base unit of the RMB) to the dollar. On June 19, 2010, the China’s central bank stated that it would resume appreciation of the RMB exchange. Since then, China has allowed the RMB/dollar exchange rate to rise by 5.4% (through the end of June 2011). Many U.S. officials have criticized this pace as being too slow, especially given China’s strong economic growth over the past few years, including its trade sector, and its rising level of foreign exchange reserves, which hit $3.2 trillion as of June 2011.

Many economists argue the that effects of China’s currency policy on the U.S. economy are mixed. If the RMB is undervalued (as many contend), then it might be viewed as an indirect export subsidy which artificially lowers the prices of Chinese products imported into the United States. This benefits U.S. consumers and U.S. firms that use Chinese-made parts and components, but could negatively affect certain U.S. import-sensitive firms. An undervalued RMB might also have the effect of limiting the level of U.S. exports to China than might occur under a floating exchange rate system. Further complicating the issue is China’s large purchases of U.S. Treasury securities, which totaled $1.2 trillion at the end of 2010. These purchases occur because China’s intervention in currency markets causes it to accumulate large levels of foreign exchange reserves, especially U.S. dollars, which are then used to purchase U.S. debt. Such purchases help the U.S. government fund the budget deficit, which helps to keep U.S. interest rates relatively low. These factors suggest that an appreciation of the RMB to the dollar could benefit some U.S. sectors, but negatively impact others. The effects of the global economic slowdown have refocused attention on the need to reduce global imbalances (e.g., savings, investment, and trade), especially in regards to China and the United States. Many economists contend that China should take steps to lessen its dependence on exports and fixed investment for its economic growth and instead rely more on domestic consumption. A market-based currency policy is seen as an important factor in achieving this goal. Further RMB appreciation could help promote the development of non-export industries in China, while boosting China’s imports, including from the United States. This report provides an economic analysis of China’s currency policy and lists current legislation and options for Congress.


Date of Report: July 14, 2011
Number of Pages: 42
Order Number: RS21625
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Singapore: Background and U.S. Relations

Emma Chanlett-Avery
Specialist in Asian Affairs

A former trading and military outpost of the British Empire, the tiny Republic of Singapore has transformed itself into a modern Asian nation and a major player in the global economy, though it still substantially restricts political freedoms in the name of maintaining social stability and economic growth. Singapore’s heavy dependence on international trade makes regional stability and the free flow of goods and services essential to its existence. As a result, the island nation is a firm supporter of both U.S. international trade policy and the U.S. security role in Asia, but also maintains close relations with China. The U.S.-Singapore Free Trade Agreement (FTA) went into effect in January 2004, and trade has burgeoned.

The People’s Action Party (PAP) has won every general election since the end of the colonial era in 1959, aided by a fragmented opposition, Singapore’s economic success, and electoral procedures that strongly favor the ruling party. Some point to changes in the political and social environment that may herald more political pluralism, including generational changes and an ever-increasingly international outlook among Singaporeans. In May 2011, opposition parties claimed their most successful results in history, taking six of parliament’s 87 elected seats. Though this still left the PAP with an overwhelming majority in Parliament, the ruling party described the election as a watershed moment for Singapore and vowed to reform the party to respond to the public’s concerns.

As one of the closest U.S. partners in ASEAN, Singapore is one of the strongest supporters of closer American engagement in Southeast Asia. Maintaining positive relations with both China and the United States is a keystone of Singapore’s foreign policy. Singapore often portrays itself as a useful balancer and intermediary between major powers in the region. China’s economic power makes it a crucial component of trade policy for all countries in the region, but Singapore’s ties with Beijing are multifaceted and extend to cultural, political, and educational exchanges as well. Singapore adheres to a one-China policy, but has an extensive relationship with Taiwan and has managed it carefully to avoid jeopardizing its strong relations with Beijing.

In 2010, Singapore was the 13h largest U.S. trading partner with $46.6 billion in total two-way goods trade, and a substantial destination for U.S. foreign direct investment. It is frequently ranked as one of the world’s freest economies—the Heritage Foundation’s 2011 Index of Economic Freedom ranked Singapore second, behind only Hong Kong. In addition to trade, mutual security interests strengthen ties between Singapore and the United States. A formal strategic partnership agreement outlines access to military facilities and cooperation in counterterrorism, counter-proliferation of weapons of mass destruction, joint military exercises, policy dialogues, and shared defense technology.


Date of Report: July 15, 2011
Number of Pages: 9
Order Number: RS20409
Price: $19.95

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Human Rights in China and U.S. Policy

Thomas Lum
Specialist in Asian Affairs

This report examines human rights conditions in China, including the 2011 crackdown on rights activists and dissent; ongoing human rights abuses; recent PRC efforts to protect human rights; and the development of civil society. Ongoing human rights problems in China include the excessive use of violence by public security forces, unlawful detention, torture of detainees, arbitrary use of state security laws against political dissidents, coercive family planning policies, state control of information, and religious and ethnic persecution. Tibetans, Uighur Muslims, and Falun Gong adherents have been singled out for especially harsh treatment. For additional, comprehensive information about human rights conditions in China, see the Congressional- Executive Commission on China, Annual Report 2010, and the U.S. Department of State, 2010 Human Rights Report: China.

The Chinese leadership’s resistance to major political reform and fuller support of civil liberties has been driven largely by its fears of social unrest and political instability. Moreover, some public opinion surveys suggest that many Chinese people, while wanting greater freedoms, do not support rapid political change. Nonetheless, Chinese society has become more assertive. Incidents of social protests are frequent, numerous, and widespread. Economic, social, and demographic changes have given rise to labor unrest. PRC citizens have become increasingly aware of their legal rights, while emerging networks of lawyers, journalists, and activists have advanced the causes of many aggrieved individuals and groups. The mass media continues to push the boundaries of officially approved discourse, and the Internet has made it impossible for the government to restrict information as fully as before.

The PRC government has attempted to respond to some popular grievances, develop the legal system, and cautiously support the expansion of civil society, while suppressing activists who attempt to organize mass protests and dissidents who openly question sensitive policies or call for fundamental political change. This approach has produced modest improvements in some human rights conditions, but also allowed for continued, serious abuses. In recent months, the government has intensified efforts to suppress legal activists, rights defenders, and other individuals and groups whom it has deemed to be threatening to social and political stability.

The United States government has developed a comprehensive array of policy tools aimed toward promoting democracy, human rights, and the rule of law in China, but their effects have been felt primarily along the margins of the PRC political system. U.S. government efforts to promote human rights in China have included sanctions; openly criticizing PRC human rights policies and calling for the release of political prisoners; bilateral dialogue; “quiet diplomacy;” and hearings and investigations. The U.S. Congress has appropriated funding for democracy, human rights, rule of law, environmental, and other programs in China, including Tibet, and supported Internet freedom and public diplomacy efforts aimed at the PRC. Some policy makers contend that U.S. engagement with China has failed to produce meaningful political reform and improvements in human rights conditions. Other experts argue that engagement has helped to advance economic and social change in China, to develop social and legal foundations for democracy and human rights, and to open channels through which to directly communicate U.S. concerns.


Date of Report: July 18, 2011
Number of Pages: 40
Order Number: RL34729
Price: $29.95

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U.S.-Vietnam Relations in 2011: Current Issues and Implications for U.S. Policy

Mark E. Manyin
Specialist in Asian Affairs

After communist North Vietnam’s victory over U.S.-backed South Vietnam in 1975, the United States and Vietnam had minimal relations until the mid-1990s. Since the establishment of diplomatic relations in 1995, overlapping security and economic interests have led the two sides to begin to form a strategic partnership of sorts. In 2010, the Obama Administration indicated its intent to take relations to “the next level,” and cooperated with Vietnam to coordinate a multicountry diplomatic push back against perceived Chinese encroachment in the South China Sea.

In the United States, voices favoring improved relations have included those reflecting U.S. business interests in Vietnam’s reforming economy and U.S. strategic interests in expanding cooperation with a populous country—Vietnam has 88 million people—that has an ambivalent relationship with China and that is asserting itself on the regional stage. Others argue that improvements in bilateral relations should be conditioned upon Vietnam’s authoritarian government improving its record on human rights. The population of more than 1 million Vietnamese-Americans, as well as legacies of the Vietnam War, also drive continued U.S. interest.

Vietnamese leaders have sought to upgrade relations with the United States in part due to the desire for continued access to the U.S. market and to worries about China’s expanding influence in Southeast Asia. That said, Sino-Vietnam relations are Vietnam’s most important bilateral relationship and Vietnamese leaders must tiptoe carefully along the tightrope between Washington and Beijing, such that improved relations with one capital not be perceived as a threat to the other. Also, some Vietnamese remain suspicious that the United States’ long-term goal is to erode the Vietnamese Communist Party’s (VCP) monopoly on power.

The United States is Vietnam’s largest export market and in some years its largest source of foreign direct investment. Bilateral trade in 2010 was over $15 billion, a tenfold increase since the United States extended “normal trade relations” (NTR) treatment to Vietnam in 2001. Increased trade also has been fostered by Vietnam’s market-oriented reforms. From 1987-2007, Vietnam’s annual gross domestic product (GDP) growth averaged over 7%. Since then, Vietnam’s economy has been buffeted by economic difficulties that have lowered growth rates and raised inflation. Vietnam is one of the largest recipients of U.S. assistance in East Asia; since the late 2000s, annual U.S. aid typically surpasses $100 million, much of it for health-related activities. The United States and Vietnam are two of nine countries negotiating a Trans-Pacific Strategic and Economic Partnership (TPP) regional free trade agreement (FTA).

Human rights are the biggest thorn in the side of the relationship. Vietnam is a one-party, authoritarian state ruled by the Vietnamese Communist Party (VCP), which appears to be following a strategy of permitting most forms of personal and religious expression while selectively repressing individuals and organizations that it deems a threat to the party’s monopoly on power. Most observers argue that the government, which already had tightened restrictions on dissent and criticism since 2007, intensified its suppression in 2010.

In January 2011, the VCP held a Party Congress that selected Nguyen Phu Trong to become the new VCP general secretary, Vietnam’s top post. Vietnam’s prime minister, Nguyen Tan Dung, was endorsed to continue his tenure as head of the government. Many Western analysts regard the Congress’s results as a sign that steady, incremental improvements in relations with the United States will continue. However, Dung’s power base within the VCP appears to have been weakened, which could make bilateral cooperation more difficult on some issues.


Date of Report: July 26, 2011
Number of Pages: 36
Order Number: R40208
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Taiwan: Major U.S. Arms Sales Since 1990

Shirley A. Kan
Specialist in Asian Security Affairs

This report, updated as warranted, discusses U.S. security assistance to Taiwan, or Republic of China (ROC), including policy issues for Congress and legislation. Congress has oversight of the Taiwan Relations Act (TRA), P.L. 96-8, which has governed arms sales to Taiwan since 1979, when the United States recognized the People’s Republic of China (PRC) instead of the ROC. Two other relevant parts of the “one China” policy are the August 17, 1982, U.S.-PRC Joint Communique and the “Six Assurances” to Taiwan. U.S. arms sales to Taiwan have been significant. The United States also expanded military ties with Taiwan after the PRC’s missile firings in 1995-1996. However, the U.S.-ROC Mutual Defense Treaty terminated in 1979.

At the last U.S.-Taiwan annual arms sales talks on April 24, 2001, President George W. Bush approved for possible sale diesel-electric submarines, P-3 anti-submarine warfare (ASW) aircraft (linked to the submarine sale), four decommissioned U.S. Kidd-class destroyers, and other items. Bush also deferred decisions on Aegis-equipped destroyers and other items, while denying other requests. Afterward, attention turned to Taiwan, where the military, civilian officials, and legislators from competing political parties debated contentious issues about how much to spend on defense and which U.S. weapons to acquire, despite the increasing threat (including a missile buildup) from the People’s Liberation Army (PLA). In 2003, the Bush Administration pointed Taiwan to three priorities for defense: command and control, missile defense, and ASW. The Pentagon also has broadened its concern from Taiwan’s arms purchases to its defense spending, seriousness in self-defense and protection of secrets, joint capabilities, operational readiness, critical infrastructure protection, and asymmetrical advantages. Blocked by the Kuomintang (KMT) party in the Legislative Yuan (LY) that opposed the Democratic Progressive Party (DPP)’s president (2000-2008), the Special Budget (not passed) for submarines, P-3C ASW aircraft, and PAC-3 missile defense systems was cut from $18 billion in 2004 to $9 billion (for submarines only) in 2005. In March 2006, Taiwan’s defense minister requested a 2006 Supplemental Defense Budget (not passed) in part for submarine procurement, P-3Cs, and PAC-2 upgrades (not new PAC-3 missiles). In June 2007, the LY passed Taiwan’s 2007 defense budget with funds for P-3C planes, PAC-2 upgrades, and F-16C/D fighters. In December 2007, the LY approved $62 million to start the sub design phase. After the KMT’s Ma Ying-jeou became President in May 2008, he resumed cross-strait talks while retaining the arms requests. But Ma has cut the defense budget.

Attention also turned to U.S. decisions on pending arms sales. In 2008, congressional concerns mounted about a suspected “freeze” in President Bush’s notifications to Congress on arms sales. On October 3, 2008, Bush finally notified Congress. However, he submitted six of the eight pending programs (not a “package”) for a combined value of $6.5 billion. Despite the concerns in 2008, President Obama repeated that cycle to wait to decide on submissions for congressional review all at one time (on January 29, 2010) five programs with a total value of $6.4 billion. Like Bush, President Obama did not notify the submarine design program (the only one pending from decisions in 2001) and has not accepted Taiwan’s formal request for F-16C/D fighters (pending since 2006). Defense Secretary Robert Gates submitted to Congress in February 2010 an unclassified assessment of Taiwan’s air defense forces, including its F-16 fighters, finding that Taiwan faced diminished ability to deny the PRC air superiority. Legislation in the 112th Congress includes H.Con.Res. 39 (Andrews) and H.R. 2583 (Ros-Lehtinen). In April and May 2011, Senator Richard Lugar wrote to the Secretaries of State and Defense, asking for clarity on whether to accept Taiwan’s request for F-16C/D fighters. On May 26, 45 Senators also wrote to President Obama on the F-16C/Ds. On July 21, Senator Cornyn lifted his hold on a nomination to urge for a pending report on Taiwan’s air defense and decision on the F-16s, promised by Oct. 1.


Date of Report: July 27, 2011
Number of Pages: 73
Order Number: RL30957
Price: $29.95

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