US-China Economic Relations
Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) announced in late September that they would not seek a vote this year on their bill to impose tariffs of 27.5 percent on imports from China if Beijing does not further revalue its currency. The two senators announced their decision after discussions with the Senate Finance Committee leadership and Treasury Secretary Henry M. Paulson, Jr.
The United States and China announced in late September the formation of a Strategic Economic Dialogue, which will be headed by Paulson and PRC Vice Premier Wu Yi. Paulson described the dialogue as covering long-term "broader themes" in the bilateral economic relationship, under which short-term issues could be addressed.
Corruption
Chinese and Indian companies are most willing to pay bribes to do business abroad, according to a Transparency International (TI) report released in October. TI noted that although the United States has "blazed new trails" with the Foreign Corrupt Practices Act, it is still more corrupt than several developed countries, including Switzerland, Australia, and Canada.
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In a surprise move, the Politburo of the Central Committee of the Chinese Communist Party (CCP) in late September dismissed Chen Liangyu from his post as CCP secretary of Shanghai and suspended his membership in the CCP Politburo and Central Committee. Chen allegedly benefited from and protected individuals involved in a scandal surrounding investment practices at the Shanghai Labor and Social Security Bureau.
R&D
China announced in September that its spending on research and development (R&D) in 2005 was the highest on record, totaling ¥245 billion ($30.6 billion), a 26.4 percent jump over 2004. The figures also show that R&D spending accounted for 1.34 percent of China's GDP.
China's share of global R&D spending is expected to grow from 12.7 percent in 2005 to 14.8 percent in 2007, while that of the United States is expected to decline by 1 percentage point, according to a study by Battelle Memorial Institute and R&D Magazine. The report recommended that the United States invest more in math and science education, as well as in pure research, to maintain a competitive edge in science and technology.
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Autos
In late September, China temporarily blocked the formation of a World Trade Organization (WTO) dispute settlement panel for the case on auto parts tariffs. The United States, European Union, and Canada had requested the panel to resolve the case, which they initiated last spring. As the CBR went to press, the WTO Dispute Settlement Body was expected to establish the panel in late October.
The PRC State Information Center forecasted in early October that China's auto sales could hit 7 million this year, which would constitute 10 percent of worldwide auto sales. In 2002, 3.2 million autos were sold in China.
Banking & Finance
The nonperforming loan (NPL) ratio of Chinese commercial banks dropped 1.1 percentage points from January to June to 7.5 percent, the China Banking Regulatory Commission announced in early October. NPLs totaled ¥1.28 trillion ($160 billion), of which 82 percent is held by state-owned commercial banks.
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