China’s economy continues to be a concern to U.S. policymakers. On the one hand, China’s economic growth presents huge opportunities for U.S. exporters. On the other hand, the surge in Chinese exports to the United States has put competitive pressures on many U.S. industries. Many U.S. policymakers have argued that greater efforts should be made to pressure China to fully implement its WTO commitments and to change various economic policies deemed harmful to U.S. economic interests, such as its currency peg and its use of subsidies to support its SOEs. In addition, recent bids by Chinese state-owned firms to purchase various U.S. firms have raised concerns among Members over the impact such acquisitions could have on U.S. national and economic security.

After the terrorist attacks on September 11, 2001, the United States faced a challenge in enlisting the full support of the People’s Republic of China (PRC) in counter-terrorism. This effort raised short-term policy issues about how to elicit cooperation and how to address China’s concerns about military action (Operation Enduring Freedom). Longer-term questions have concerned whether counterterrorism has strategically transformed bilateral relations and whether China’s support has been valuable and not obtained at the expense of other U.S. interests.

The bilateral relationship between the U.S. and the People's Republic of China (PRC) is vitally important, touching on a wide range of areas including, among others, economic policy, security, foreign relations, and human rights. This report addresses relevant policy questions in current U.S.-China relations, discusses trends and key legislation in the current Congress, and provides a chronology of developments and high-level exchanges.

U.S.-China economic ties have expanded substantially over the past several years. China is now the third largest U.S. trading partner, its second largest source of imports, and its fourth largest export market. However, U.S.-China commercial ties have been strained by a number of issues, including a surging U.S. trade deficit with China, China's refusal to float its currency, and failure to fully comply with its World Trade Organization (WTO) commitments, especially its failure to provide protection for U.S. intellectual property rights (IPR). This report explores these issues in detail, especially concerning the lack of protection for U.S. IPR.

China’s economy continues to be a concern to U.S. policymakers. On the one hand, China’s economic growth presents huge opportunities for U.S. exporters. On the other hand, the surge in Chinese exports to the United States has put competitive pressures on many U.S. industries. Many U.S. policymakers have argued that greater efforts should be made to pressure China to fully implement its WTO commitments and to change various economic policies deemed harmful to U.S. economic interests, such as its currency peg and its use of subsidies to support its SOEs. In addition, recent bids by Chinese state-owned firms to purchase various U.S. firms have raised concerns among Members over the impact such acquisitions could have on U.S. national and economic security.

In recent years, the United States and China have disagreed whether China’s national currency, the yuan or renminbi, is properly valued compared to the U.S. dollar and whether China is manipulating its currency.1 The United States has pushed China to raise the value of its currency. Chinese officials say they want to make their exchange rate system more flexible, but China also needs long-term stability in its currency value in order to avoid dislocations. Chinese officials also say they will not bow to foreign pressure. China announced a new exchange rate procedure on July 21, 2005. This report summarizes this controversy, it describes actions and positions taken by the United States, China and other countries, and it discusses various approaches the United States might use to address this concern.