* Commission urges comprehensive review of U.S.-China ties
* Accuses Beijing of growing malicious cyber activities
* China said to set stage for yuan's internationalization
By Jim Wolf
WASHINTON, Nov 16 China's economy is
moving up the value chain and its currency could "mount a
challenge" to the U.S. dollar in five to ten years, a
congressionally created commission reported on Wednesday.
Gone are the days when Beijing was content to be the low-end
factory of the world, the U.S.-China Economic and Security
Review Commission said in its 2011 report to the U.S. Congress.
China's planners are intent on joining the realm of advanced
technology products. high-end research and development and
next-generation products, the bipartisan, 12-member body said in
a 406-page report.
"Similarly, it no longer seems inconceivable that the RMB
could mount a challenge to the dollar, perhaps within the next
five to 10 years," the commissioners said, 10 years after China
joined the World Trade Organization.
RMB is short for renminbi, also known as the yuan.
The Chinese authorities are laying the groundwork for
internationalization of the currency via bilateral arrangements
with foreign companies and financial centers, particulary Hong
Kong, the report said.
Goldman Sachs representatives told commissioners that Hong
Kong had been tapped to be China's offshore currency platform
"because Beijing would be able to fully control the terms of the
market," the report said. Hong Kong was returned by Britain to
Chinese sovereignty in 1997.
More mainland-based financial institutions will be able to
issue RMB-denominated bonds in Hong Kong under plans outlined by
Li Keqiang, China's likely next premier, during an August visit
to the financial center, the commission said.
It urged the U.S. Congress to mandate a comprehensive White
House National Security Council review "to determine the need
for changes to address the increasingly complicated and serious
challenges posed by China to U.S. international and domestic
The commission was created in 2000 to monitor national
security implications of bilateral trade with China and to make
recommendations for congressional action.
William Reinsch, this year's chairman, said he did not
expect the yuan to "supercede" the dollar in coming years unless
Beijing floats its currency and removes capital controls.
However, "certainly what they're doing in Hong Kong suggests
an impending challenge," Reinsch, president of the National
Foreign Trade Council, a private U.S. business group, said in a
telephone interview with Reuters.
On the security side, the commission accused Beijing of
continued and growing malicious cyber activities, including
facilitating industrial espionage and compromising U.S. and
foreign government computer systems.
At least two U.S. environment-monitoring satellites were
interfered with four or more times in 2007 and 2008 via a ground
station in Norway, and China's military is a prime suspect, the
China's embassy in Washington said it was "obvious that the
commission is entrusted with the mission of vilifying China's
image and spreading China threat theory by patching up
unwarranted allegations against China."
"We urge the commission to stop issuing such reports for the
good of increasing mutual trust between our two countries while
China will continue to play a responsible role in both the
realistic and the virtual worlds," Wang Baodong, the embassy
spokesman, said by email.
The command responsible for U.S. military space operations
lacks enough data to determine who interfered with the U.S.
"What I have seen is inconclusive," Air Force General Robert
Kehler, commander of the U.S. Strategic Command, said in a
teleconference from Omaha, Nebraska, home to the military outfit
that conducts U.S. space and cyberspace operations.
The commission said the anomalous events had not actually
been traced to China, but "the techniques appear consistent with
authoritative Chinese military writings" that have advocated
disabling satellite control facilities in any conflict.
The commission's overarching concern, Reinsch said in a
prepared statement, is that China's integration into the world
trading system "increasingly seems to be lagging as China's
policies focus on short-term gains rather than long term
Dollar-denominated financial instruments dwarf their
yuan-denominated counterparts in terms of new issuances. But the
RMB markets have made remarkable progress in less than a year to
achieve 11 percent of the daily trading volume of
dollar-denominated markets, the report said.
Still, trade in yuan accounts for a mere 0.3 percent of the
$4 trillion changing hands daily in international currency
markets, the commission said, with the U.S. dollar making up one
side of 85 percent of all trades.