II. The Chinese Side Has Scrupulously Honored the Phase One Economic and Trade Agreement

As a major country that takes its responsibilities seriously, China has scrupulously fulfilled its obligations in the Phase One Economic and Trade Agreement (hereinafter referred to as the Agreement) by protecting intellectual property, increasing imports, and providing greater market access, which has created a favorable business environment geared to investors of all countries including US companies, for them to share the benefits of China's economic development.

1. China Has Continued to Strengthen Intellectual Property Protection

Innovation is the number one driving force behind development. To protect intellectual property is to protect innovation. As part of its efforts to honor its obligations in the Agreement, China has adopted multiple measures to protect business secrets and pharmaceutical intellectual property, punish cyber infringement, and strengthen intellectual property law enforcement.

Strengthening the protection of business secrets. In September 2020, the Supreme People's Court issued the Regulations on the Application of Laws on Civil Cases of Infringement of Business Secrets; the Supreme People's Court and the Supreme People's Procuratorate issued the Interpretations to the Application of Laws on Criminal Cases of Intellectual Property Infringement (III); and the Supreme People's Procuratorate and the Ministry of Public Security issued the Decision on Revising the Regulations on the Registration and Prosecution of Criminal Cases Under the Jurisdiction of Public Security Organs. In December 2020, the National People's Congress (NPC) passed the amendments to the Criminal Law. These documents defined the scope of prohibited acts that constitute infringement of business secrets, the act of theft of business secrets, the application of temporary bans involving theft of business secrets, and the adjustment of the rules on starting criminal investigations.

Improving the system for protection of pharmaceutical-related intellectual property. In October 2020, the NPC Standing Committee deliberated and passed a decision to amend the Patent Law, with additional stipulations as to the mechanism for early resolution of pharmaceutical patent disputes, and patent term extension (PTE) for inventions. In July 2021, the National Medical Products Administration and the China National Intellectual Property Administration (CNIPA) jointly issued the Implementation Measures for the Early Resolution Mechanism for Pharmaceutical Patent Disputes (Trial), the CNIPA released the Administrative Adjudication Measures for the Early Resolution Mechanism for Pharmaceutical Patent Disputes, and the Supreme People's Court issued the Regulations on the Application of Laws on Civil Cases of Patent Disputes Involving Pharmaceuticals Applying for Registration, which help establish the early resolution mechanism for pharmaceutical patent disputes and ensure the effective implementation of relevant measures. In December 2023, the State Council issued the decision to amend the Rules for the Implementation of the Patent Law. In conjunction with this, the CNIPA completed changes to the Patent Review Guide. They further detailed the provisions for PTE for inventions. In addition, the CNIPA also refined provisions for late submission of laboratory data in the 2021 amendments to the Patent Review Guide.

Improving the protection of trademarks and geographical indications. In April 2019, the NPC Standing Committee passed a decision to amend the Trademark Law, which added provisions to regulate malicious trademark registration, and increased the penalties for infringement of exclusive trademark rights, thereby substantially raising the legal penalties for those who counterfeit registered trademarks. Subsequently, the CNIPA formulated and issued the Provisions on Regulating Applications for Trademark Registration, the Criteria for Determining Trademark Infringement, and the Criteria for Judging Trademark General Violations. These measures aimed to combat vexatious trademark registration applications. In December 2023, the CNIPA formulated and released the Measures for the Protection of Geographical Indication Products, and the Regulations on the Registration and Management of Collective Trademarks and Certification Trademarks, further refining the legal framework for protecting geographical indications.

Actively promoting intellectual property exchanges and cooperation with the US. Efforts have been made to expand mutually beneficial and pragmatic cooperation with the US intellectual property authorities in various technical areas including intellectual property reviews, expert exchanges, and public awareness through mechanisms such as consultative work plans and the signing of MoUs. A proactive and open approach has been maintained in communication with American enterprises, with attentive consideration given to their opinions and suggestions regarding China's intellectual property system, and great coordination made to address their reasonable concerns about intellectual property in China.

Launching a stronger fight against cyber infringement. In September 2020, the Supreme People's Court issued the Decision on the Trial of Civil Intellectual Property Cases Involving E-commerce Platforms and the Reply to the Application of Laws on Cyber Intellectual Property Infringement Disputes, which provided provisions on the effectiveness of instant takedown, notice, and counter-notice. In November 2020, the NPC Standing Committee adopted the amendments to the Copyright Law, with additional provisions on civil assistance to copyright infringement. In August 2021, the State Administration for Market Regulation published the draft Decision on Revising the Electronic Commerce Law of the People's Republic of China to solicit public feedback, which carried articles related to the procedures for notice and takedown and relevant penalties.

Strengthening intellectual property-related law enforcement. In August 2020, the State Administration for Market Regulation and some other government departments issued the Decision on Strengthening the Destruction of Infringed and Counterfeit Goods, and the State Council revised the Provisions on Reference of Suspected Criminal Cases by Administrative Law-enforcement Bodies. Both documents required that administrative law-enforcement bodies transfer suspected criminal cases involving intellectual property rights to the public security bodies.

China has strengthened law enforcement against intellectual property infringement and counterfeit goods. In 2024, its market supervision departments launched special initiatives dedicated to intellectual property protection involving key fields, key products, and key markets. They investigated nearly 675,000 cases, including 43,900 cases of trademark infringement and counterfeit patent, and conducted about 88,000 law enforcement activities targeting key markets prone to frequent infringement and counterfeit goods. The General Administration of Customs of China has reinforced its law enforcement on intellectual property protection, utilizing targeted campaigns to maintain a robust stance against infringements in import and export. In 2024, this resulted in the detention of 41,600 shipments suspected of intellectual property violations, totaling 81.6 million items.

2. China Has Prohibited Forced Technology Transfer

China opposes forced technology transfer in any form. It considers mutually beneficial cooperation to be a basic value in international technological cooperation, encourages and respects transfer and licensing of technology by Chinese and foreign enterprises on voluntary terms and under market principles, provides an enabling market environment for Chinese and foreign technology holders to receive benefits from transfer and licensing of technology, and provides support for global scientific and technological progress and international economic and trade development.

The US side has described it as "forced technology transfer" when foreign-invested ventures and Chinese enterprises contract voluntarily to seek technological cooperation and share commercial returns from the Chinese market. That does not tally with reality on the ground.

Imposing legal prohibitions on forced technology transfer. The Foreign Investment Law, promulgated in March 2019, states, "No administrative department or its staff member shall force any transfer of technology by administrative means." The Administrative License Law, promulgated with revisions in April 2019, states, "An administrative agency and its staff shall not directly or indirectly require transfer of technology in the process of issuance of an administrative license." The Regulations for the Implementation of the Foreign Investment Law, promulgated in December 2019, specifies that forced technology transfer in any form must be prohibited. 

Strengthening confidentiality obligations for administrative departments and staff. Chinese laws have definite stipulations that administrative departments and their staff must keep confidential any business secrets of foreign investors or foreign-funded enterprises that they get to know while performing their duties.

The Foreign Investment Law states, "Administrative departments and their staff shall keep confidential any business secrets of foreign investors or foreign-funded enterprises that they get to know during the performance of their duties and shall not divulge or illegally provide to others the secrets." It also states that when a staff member of an administrative department "divulges or illegally provides to others any business secret he or she gets to know during the performance of duties, a penalty will be imposed upon him or her in accordance with the law; if a crime is constituted, he or she will be held criminally liable". Similar stipulations are found in the Administrative License Law.

Opening the market wider with greater investment access. China has continued to improve its market environment, granted foreign investment greater access, and offered greater options and freedom for foreign enterprises to invest in China, which has created favorable conditions for foreign enterprises to conduct technological cooperation with Chinese partners on a voluntary basis and under market principles.

China has introduced a management system based on pre-establishment national treatment and a negative list and replaced the old practice of case by case approval for the establishment and modification of foreign-invested businesses with the new practice of convenient and efficient information reporting. It has rolled out a series of measures to encourage foreign investment and improve the environment for foreign investment.

In 2024, the General Office of the CPC Central Committee and the General Office of the State Council issued the Decision on Improving the Market Access System, requiring coordination and alignment of policies on domestic and foreign investment access and granting national treatment while not reducing the access opportunities of existing business entities. China has refined the market access system, optimized the market access environment, and improved the efficiency of market access.

3. China Has Granted Greater Access to Food and Agricultural Products

Agricultural products constitute an important part of bilateral trade and involve extensive market entities on both sides. China honored the Agreement and increased its purchase of agricultural products despite the difficulties brought by Covid-19. In November 2020, the US government released a report, confirming that US exports of agricultural products to China had returned to normal. The 2020 evaluation report published by the US Department of Agriculture (USDA) and Office of the United States Trade Representative also hailed the Agreement as a historic step for American agriculture.

In line with the Agreement, since February 2020, China has removed import restrictions for specific US agricultural products, and conditionally resumed trade in US beef, poultry, and dairy products. In accordance with specified conditions, China has:

•  conditionally lifted the ban on beef and beef products from cattle 30 months of age and older and allowed more than 600 US enterprises to export beef products to China; 

•  removed the import limits on US pet food containing ruminant ingredients, poultry, and poultry products and allowed the import of US pet food containing ruminant ingredients and poultry products that meet China's legal and regulatory requirements; 

•  allowed more than 300 US enterprises to export infant formula, pasteurized milk, and other dairy products to China; 

•  completed the approval process for US dairy permeate powder and allowed the import of US dairy permeate powder; 

•  permitted, through the signing of inspection and quarantine agreements, the import of eight US products - processing potatoes, avocados, nectarines, blueberries, barley, alfalfa pellets and hay blocks, almond kernel pellets, and timothy hay.

4. China Has Expanded Market Access to Financial Services

China's voluntary opening policies have benefited financial institutions from all countries including the US, and a number of US financial institutions have obtained access and commenced operations in China. JPMorgan and Goldman Sachs have established wholly foreign-funded securities companies in China, and Morgan Stanley has gained 94 percent of its joint-venture securities company in China. JPMorgan Futures and Morgan Stanley Futures are both wholly foreign-owned futures companies. BlackRock, Fidelity, Neuberger Berman, JPMorgan, Morgan Stanley, and Alliance Bernstein have been allowed to establish wholly foreign-owned fund management companies in China. Standard & Poor's, Fitch, and other international rating companies have commenced operations in China. American Express and MasterCard have both set up joint ventures in China, which started operation upon receiving their bank card clearing license.

China has so far adopted more than 50 measures on voluntary opening up of the financial sector and greatly eased the market access limits on foreign investment in financial services.

- Removing all equity shareholding limits on foreign investment. In 2018, China removed the foreign equity caps in Chinese-funded banks and financial asset management companies, giving equal treatment to domestic investment and foreign investment regarding equity shareholdings.

The Methods for Management of Foreign-funded Securities Companies, Methods for Management of Foreign-funded Futures Companies, and Methods for Management of Foreign-funded Insurance Companies have been amended, allowing as much as 51 percent ownership to foreign investment in the sectors of securities, fund management, futures, and life insurance, and no cap was set from the year 2020 on. Foreign investments are allowed to supply credit checking, credit rating, and payment services, and enjoy national treatment.

- Greatly expanding the business scope of foreign investment. Foreign banks are allowed to provide RMB business upon their inauguration in China. There is no separate limit on the business scope of foreign-funded securities companies and insurance agencies, with equal treatment for domestic and foreign companies. Foreign-funded enterprises are allowed to provide insurance agency and insurance appraisal services. The requirements for professional qualifications of foreign-funded agencies have been relaxed when they apply to become main underwriters of the debt financing instruments for non-financial enterprises and to provide fund custody services.

- Relaxing the requirements for the qualifications of foreign shareholders. China has eliminated the previous requirements that foreign banks must have US$10 billion of total assets if they are to open legal person banks in China and have US$20 billion of total assets if they are to set up branches in China, and the requirements that foreign insurance agencies must have two years of representative office presence in China and 30 years of insurance business operations if they are to enter the Chinese market. It no longer demands that joint venture securities firms must have at least one securities company as their shareholder in China.

5. China Has Maintained Basic Stability in the RMB Exchange Rate at an Adaptive, Balanced Level

China safeguards multilateralism and respects multilateral consensus. It has honored its multilateral commitments and refrained from competitive devaluation. It has also honored the Agreement and put in place a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.

Carrying out market-based exchange rate reform. China has constantly improved the market-based RMB exchange rate formation regime. China holds that the exchange rate should be mainly determined by market demand and supply, and refrains from routine intervention in foreign exchange. 

It has expanded the exchange rate band in an orderly manner to increase the flexibility of the RMB exchange rate. The daily floating exchange range of RMB to US dollar in the inter-bank spot foreign exchange market gradually grew from 0.3 percent in 2007 to 2 percent.

It has worked to make the central parity rate regular and market-based. It takes the major participating banks in the foreign exchange market as the quoting banks, and gives full consideration to the closing price of the previous day in the inter-bank foreign exchange market before offering its quotation, to the demand and supply conditions in the foreign exchange market, and to the exchange rate movement of the major currencies.

Promoting the growth of the foreign exchange market. China has adopted a number of measures to facilitate the investment and financing of foreign-related enterprises and individuals in cross-border trade, provided more products in the foreign exchange market, increased participating entities in the market, advanced the opening of the foreign exchange market, and improved relevant infrastructure. A multi-tiered foreign exchange market with comprehensive functions is therefore taking shape, and the diverse foreign exchange needs of the market entities can be satisfied.

China's inter-bank foreign exchange market now has more than 40 tradable currencies, involving forwards, foreign exchange swaps, currency swaps, options, and other mainstream products in the international foreign exchange market. The inter-bank foreign exchange market reported a trading volume of US$41.14 trillion in 2024. The foreign exchange market has more resilience, and the market players have greater adaptability to the two-way fluctuation in the RMB exchange rate. In 2024, the proportion of enterprises using forward exchanges, options, and other foreign exchange derivatives to hedge exchange rate risks reached 27 percent.

Maintaining a clear and transparent policy stance on the exchange rate. Through holding press conferences and releasing minutes of regular meetings of the monetary policy committee and the Implementation Report of the Monetary Policies, China has made public its monetary policy stance. It has followed good international practice and regularly publicized the balance sheet of its central bank, foreign exchange reserves, balance sheet of international receipts and payments, and international investment positions to increase the transparency of its exchange rate policy.

Making notable progress in market-based RMB exchange rate reform. The RMB exchange rate has become more market-based, the exchange rate has greater flexibility, and two-way fluctuation has become a norm. The RMB exchange rate has remained generally stable at an adaptive, balanced level, and China has kept a basic balance of international payment.

Since 2020, the China Foreign Exchange Trade System, which is responsible for measuring the exchange rate of the RMB to a basket of currencies, has reported an RMB exchange rate index of around 100, which is quite strong among the major currencies in the world and shows no competitive devaluation. The annual fluctuation of the RMB exchange rate remains at 3 percent to 4 percent, similar to the fluctuation changes of major global currencies. This plays a sound role of an automatic stabilizer to the macro economy and the international balance of payments. In 2024, China's current account surplus represented 2.2 percent of its GDP, which is within the range generally recognized as reasonable.

6. China Has Actively Expanded the Scale of Trade 

China has proactively addressed issues in the implementation of the Agreement based on domestic market needs, commercial principles, and WTO rules. It supports Chinese enterprises in expanding imports from the US. The procurement obligations under the Agreement expired naturally at the end of 2021.

Exempting eligible US products from additional tariffs. On application from domestic enterprises, for a certain period China has exempted eligible US imports from additional tariffs imposed in response to US Section 301 measures, based on market and commercial principles. These measures have facilitated imports from the US for relevant enterprises. For instance, by incorporating oil, gas, and coal into the eligible commodity exemption application range, China has enabled companies to import these energy products from the US. In 2020 and 2021, China's imports of American energy-related products, denominated in US dollars, increased by 144.5 percent and 114.7 percent.

Making significant progress in expanding imports from the US. According to Chinese statistics, while China's overall imports of goods denominated in US dollars decreased by 0.6 percent year on year in 2020, imports from the US saw an increase of 10.1 percent. In 2021, imports of goods from the US rose by 31.9 percent year on year, outpacing the overall import growth of 30 percent. The proportion of US goods in China's total imports increased from 5.9 percent in 2019 to 6.7 percent in 2021. According to US statistics, while US overall exports of goods declined by 13.4 percent in 2020, exports to China grew by 15.9 percent. In 2021, exports of goods to China also achieved a strong growth rate of 21.9 percent. The proportion of US goods exports to China increased from 6.5 percent in 2019 to 8.6 percent in 2021.

China's performance of its obligations under the Agreement has encountered multiple obstacles caused by the US. Limited US production capacity hindered exports to China. In 2020, Boeing's aircraft production was only about 40 percent of its 2019 output, which significantly impacted deliveries to China. In 2019, adverse weather conditions during the growing and harvesting seasons in the US led to significant issues with excessive levels of ergot and vomitoxin in wheat. As a result, the quantity of wheat meeting Chinese food safety and quarantine standards was limited, which negatively impacted US wheat exports to China in 2020.

Inadequate infrastructure has contributed to elevated transport costs. For instance, most US ports in the Gulf of Mexico cannot directly accommodate very large crude carriers of 300,000 tonnes and need medium-sized oil tankers (100,000 to 200,000 tonnes) for transshipment and refueling. This results in US crude oil transport costs to China tripling those from the Middle East, weakening its international price competitiveness.

The limited competitiveness of certain US products in terms of price and safety reduced the willingness of China's enterprises to import them on a market-driven basis. US soybeans are at a price disadvantage compared to South American soybeans; US beef is significantly more expensive (roughly 50 percent higher than South American beef); US rice can hardly compete with Southeast Asian rice in terms of quality, appearance, taste, and price. In February 2020, the import price of US rice was about RMB3,000 higher than Thai rice per tonne, and RMB3,500 higher than Vietnamese rice per tonne. In another example, in 2018 and 2019, Boeing's main aircraft model, the 737 MAX, was involved in multiple major accidents. In response, most countries worldwide, including China and the US, grounded the aircraft model, dealing a significant blow to the aviation trade.

The US side has caused the disruption of China-US international logistics. Ports and other infrastructure in the US were already in a tight balance. With the impact of Covid-19, various supply chain links such as railways, ports and container trucks struggled to adapt, leading to severe congestion at major US ports and blockages in the inland transport network, resulting in a significant buildup of goods. According to the global major container port operation data released by the Shanghai Shipping Exchange, in 2021, the average duration of container vessel port stays at the Ports of Los Angeles and Long Beach (including both anchorage dwell time and quay operations) was 11.1 days and 10.6 days, (compared with 4.3 days and 4.7 days before the pandemic), while the average duration at Shanghai Port and Shenzhen Port in China during the same period was only 2.96 days and 2.33 days.

7. China Has Maintained Pragmatic Communication with the US Regarding Agreement Issues

In 2020 and 2021, China maintained close communication with the US at all levels on bilateral economic and trade relations and specific issues regarding the implementation of the Agreement, and efficiently advanced implementation work, fully demonstrating China's commitment to fulfilling the Agreement. During this period, neither side initiated the dispute resolution mechanism. In accordance with the stipulations of the Agreement, in terms of high-level communication, six phone calls were conducted between China and the US to exchange views on macroeconomic issues, bilateral economic and trade relations, and multilateral and bilateral cooperation, with the aim of assessing the overall implementation of the Agreement. In terms of daily work, the two sides held five vice-ministerial quarterly meetings and 14 monthly meetings and consultations at the director-general level, dealing with implementation of the Agreement, particularly related to matters such as expanding trade, trade of food and agricultural products, intellectual property rights, and financial services. They also maintained regular communication through working-level talks and email exchanges to address issues of mutual concern.

In line with its provisions, the Agreement officially came into effect on February 15, 2020. Meanwhile, China provided a public comment period of over 45 days for all the proposed measures, fully accommodating both domestic and international feedback, and appropriately addressing the reasonable concerns and requests of all parties.