This report provides background information and issues for Congress on China's naval modernization effort and its implications for U.S. Navy capabilities. For an overview of the strategic and budgetary context in which China's naval modernization effort and its implications for U.S. Navy capabilities may be considered, see Appendix A.

Particularly since the Tiananmen Square incident of June 4, 1989, the U.S. Congress has considered two diametrically opposed types of action regarding China's nondiscriminatory, or most-favored-nation (MFN; normal-trade-relations) tariff status in trade with the United States. One has been its total withdrawal, the other--of more recent origin--its extension on a permanent basis.

In recent years, the United States and other countries have expressed considerable concern that China’s national currency (the yuan or renminbi) is seriously undervalued. Some analysts say the yuan needs to rise by as much as 40% in order to reflect its equilibrium value. Critics say that China’s undervalued currency provides it with an unfair trade advantage that has seriously injured the manufacturing sector in the United States. Chinese officials counter that they have not pegged the yuan to the dollar in order to gain trade advantages. Rather, they say the fixed rate promotes economic stability that is vital for the functioning of its domestic economy.

Front: Summary of Potsdam conference. War News 7 August. Map shows European boundaries as of January 1938. Inset map details administration of eastern Germany and East Prussia. Back: Map of Formosa; inset map shows location of Formosa in Asia.

Text describes action on various war fronts: China, Russia, Western Europe, Southwest Pacific, Convoys, Egypt, Aleutians. Large world map is keyed to text and illustrates time zones around the world. Includes inset maps: The sixth year of war in the China provinces; The Russian central front; Battleground of the Middle East. Photographs: British gliders; Lady drivers; The FBI walked in; Royal inspection; Southwest fighting bases