"China has failed in some notable areas to fulfill the promises it made nine years ago when it joined the World Trade Organization," said Dan Slane, chairman of the U.S.-China Economic and Security Review Commission.

Calling the U.S. trade deficit with China a "drag," the commission said the Chinese government keeps the yuan, its currency, undervalued against the dollar to favor its exports to the United States.

The commission also accused China of preventing foreign companies from selling products to state-owned companies through its "indigenous innovation" policy.

A member of the WTO since 2001, China introduced this policy in 2006 to prevent its dependence on foreign technology by promoting the commercialization of products developed by local companies.

Questioning China's motivation to adopt market-based decisions, Slane encouraged the Chinese government to revalue its currency.

The commission also urged Congress to develop "new tools" that will address China's protectionist policy and currency undervaluation.

The impact of China's military agenda on American national security was also at the center of the report.

"It's not just about economics," said committee Vice Chairwoman Carolyn Bartholomew.

Bartholomew said that in recent years China has increasingly modernized its military, expanding its range of action well beyond its borders.

"As a result of China's improved offensive air and missile capabilities, the Chinese military has strengthened its capacity to threaten U.S. forces and bases in the region," she said.

Bartholomew said that involves five of the six military bases the United States has in East Asia.

China's growing presence in the region, in particular in the South and East China Sea, is increasingly affecting its relations with neighboring countries, according to the commission.

For example, while China's relations with Taiwan have significantly improved from an economic standpoint, for Bartholomew, its "continued military buildup" across from the island is causing increasing concerns.

U.S. national security, the commission found, is also threatened by China's "malicious" computer activities.

Bartholomew said that Chinese individuals and organizations continue to penetrate American computer systems and networks with increasing sophistication and "some level" of state support.

The commission reported that, in April, China Telecom, a state-owned Chinese telecommunications firm, hijacked massive volumes of Internet traffic for about 18 minutes, including e-mail communications to and from U.S. military and government sites such as the U.S. Senate, the office of the U.S. Secretary of Defense and the U.S. Department of Commerce.

The commission recommended that Congress issue a periodical report on Internet attacks on U.S. federal agencies and plan measures to mitigate such actions.

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