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Address by Ambassador Zhou Wenzhong At the Center for National Policy(10/15/08)

China-US Economic Relations:

Opportunities and Challenges

Address by Ambassador Zhou Wenzhong

At the Center for National Policy

(Oct. 8, 2008)

Executive Director Jennifer Collins Foley,

Ladies and Gentlemen,

It is a pleasure to be invited to the Center for National Policy. Thank you all for your interest in China’s economic development and the economic cooperation and trade between China and the United States.

Back in 1972, when President Nixon first visited China, China-US trade was next to nothing. In 2007, China-US trade hit a new record of 302.08 billion dollars, which was over 120 times as much as the trade volume of 1979, the year our countries established diplomatic relationship. Now, China is America’s second largest trading partner and vice versa. China is also a major and fastest growing export market for the United States.

l From 2000 to 2007, US total goods export increased by 44%. Its export to China alone grew by 301% in the same period. China has been America’s fastest growing export market for 6 years in a row.

l US actual investment in China had exceeded 57 billion US dollars, funding a total of 55,000 projects. At the same time, direct investment from China in the United States also continues to increase.

Economic cooperation and trade between our two countries is a win-win story. The United States has brought capital, technology and management expertise, and created job opportunities for China. China has also contributed to the US economy. According to the estimation, about 4 to 8 million job opportunities in the United States are related to trade with China. The quality and affordable products from China saved American consumers roughly 600 billion dollars in the past decade.

US companies in China realized over 80 billion dollars sales in the domestic market in 2006. With the total profit of 10 billion dollars, the return on investment ratio is 17%. A survey by US-China Business Council published in October 2007 showed that 83% of the US companies find their China-based operations profitable, and two thirds indicated their China-based operations had an equal or higher profitability rate than the company’s global rate.

Investment is an effective substitute for export. 70% of the manufactured products from US invested facilities in China are sold locally. Producing inside China and supplying Chinese domestic market directly has become an important feature of US economic cooperation with China. There are almost 1000 McDonald’s restaurants in China, selling over 1 million hamburgers a day. KFC had over 1,800 restaurants in China. That’s one fourth of the total KFC stores worldwide. Coca-Cola sold 1.1 billion cases of its famous drinks, almost one case for every Chinese. These are but a few stories of how the United States is benefiting from doing business with China. In the first 7 months of this year, our trade total already reached 189 billion dollars, showing a strong growth of 13.2%.

Handle Well the Economic Issues and Challenges

Given the fast development, the sheer volume and the extensive scope of our trade and economic cooperation, problems and frictions are hardly avoidable. I know that issues like trade deficit, IPR protection, hi-tech export, product safety and job transfer are attracting a lot of attention here. Meanwhile, the protectionist sentiments and the tendency to politicize trade issues are also causes of concern to many Chinese.

One must not lose sight of the dominant feature in the economic and trade ties between our two countries, namely, mutual benefit. To address the issues and reduce frictions, we have established bilateral mechanisms such as the Strategic Economic Dialogue, the Joint Commission on Commerce and Trade, the Joint Economic Commission and the Joint Science and Technology Commission, to name a few of the more than 60 dialogue mechanisms between us. We should give full play to these mechanisms and seek to address trade issues through good-will, consultation and dialogues on an equal footing.

Last month, China and the United States held the 19th Session of the Joint Commission on Commerce and Trade (JCCT). In June, the 4th Round of the Strategic Economic Dialogue (SED), which was an initiative of President Hu Jintao and President Bush, was held in Annapolis. At both events, almost half of China’s cabinet members and a large number of US cabinet members participated. During the meetings, the two sides discussed a whole range of issues, from bilateral trade, investment, environmental protection, energy to macro-economic management, innovation, sub-prime crisis, climate change, food supply, IPR protection to currency issues. Through intensive meetings and discussions, the two sides achieved a host of important outcomes. A number of agreements and contracts were signed, including the 10-Year Framework for Cooperation on Energy and Environment. The two sides agreed to launch talks on a mutual investment protection agreement. China and the United States also agreed to enhance their cooperation on issues such as energy shortage and pollution. Concrete measures have been agreed on to address the issue of product safety, including an agreement on sending FDA personnel to U.S. Embassy in China. The above mentioned agreements and actions have provided fresh impetus to the development of China-US economic and trade relations.

China attaches great importance to US concerns. We are ready to import more from the United States, effectively protect IPR, improve the investment environment and push for further reform of the currency exchange rate formulation mechanism according to the principles of independent initiative, controllability and gradual progress.

The US side should meet us half way. We hope the US side will relax the hi-tech export control against China. China is still under strict US export control regime. This is a significant speed bump for US export to China because it creates difficulties for China to import more from the US.

In 2001, 18% of China’s imported hi-tech products were from the United States. But in 2006, the US share dropped to 9%. Of the 7.2-billion-dollar machine tools China imported in 2006, 34% were from Japan and only 8% were from the United States. In China’s total import of integrated circuit, which was valued at 105.6 billion dollars, the US share was only 6%. It is the same situation with mobile telecommunication equipment and semiconductor imported by China. US products accounted for only 0.2% of the former and 3% of the latter. These statistics show that the US export control policy is costing the US side enormous business opportunities.

We hope the US side will also avoid politicizing trade issues to suit election needs. Trade protectionism is counterproductive. We should all stand up against protectionist practice because it not only undermines China’s interest but also hurts US economy and the global economy.

Some people accuse China of taking away American jobs. As a matter of fact, with the labor intensive production moving to other parts of the world, the United States is bound to import relevant products, whether they are from China or not. In the meantime, the United States is moving on to hi-tech industries and service industries. This is a result of international division of labor in the process of globalization.

Opportunities for Bilateral Economic Relations

In the coming two decades, China is expected to maintain relatively rapid growth because China is still in the process of accelerated industrialization and urbanization with continuously improving market system, expanding IT network and increasing integration with the rest of the world. These will act as strong driving forces for sustained economic growth in China.

China has a distinctive market advantage. While consumption, investment and export are the three biggest forces behind China’s economic growth, consumption overtook investment for the first time to become the number one contributor in 2007. Consumption in China had been growing at an average annual rate of 13.1% for the past 5 years, making China the fastest growing consumer market in the world. We are the biggest market for cell phone, domestic tourism and broad band network, the second biggest market for gold jewelry and automobiles, and the third biggest market for luxurious goods and medical services. It is expected that, by 2020, China’s consumer market will have grown to over 30 trillion RMB yuan.

China boasts well educated man power. The steady supply of labor force is not China’s only advantage. There is also a rich reserve of highly qualified man power. Most of the 20 million newly added labor force every year have received vocational training. China’s universities enroll 5 million students each year.

China has continuously improved its infrastructure. With 54,000 kilometers of highway, 78,000 kilometers of railroad operational mileage, 6.4 billion tons of port handling capacity and over 920 million telephone subscribers, China has dramatically improved its transportation, telecommunication and other infrastructure facilities. This creates better condition for upgrading China’s economic cooperation with the world.

China offers a favorable policy environment. Economic reform will continue and the scope of opening-up will further expand. The government will ensure the consistency and stability of policies regarding foreign investment, and complete and improve the foreign investment legal framework and increase its openness and transparency so as to protect the legitimate rights and interests of foreign investors in China. There will also be measures to further reduce administrative approval procedures, increase government efficiency and accelerate the establishment of a modern market system that is unified and open and facilitates competition in good order.

China will continue to expand domestic demand, save energy and reduce emission. Our goal is to quadruple the per capita GDP of the year 2000 by 2020 on the basis of better economic structure, higher economic return, lower energy consumption and greater protection of the environment. China’s per capita GDP was 2,456 US dollars in 2007, and the target for 2020 is 3,500 US dollars.

China will stay open to the world. In 2007, China’s total external trade was 2.17 trillion US dollars and our import was over 955 billion dollars. In the first quarter of 2008, import had been growing especially fast at 28.6%, which was over 10 percentage points faster than the previous year. The total import for 2008 will hopefully cross the 1 trillion US dollar line, and by 2010, China’s import is expected to exceed 1.2 trillion.

China will also continue to welcome foreign investment and use it more efficiently. We encourage the hi-tech and service industries to develop faster and will further open up banking, insurance, securities, distribution and accounting to foreign businesses. There are broad prospects for cooperation in nuclear energy, natural gas, energy-saving technologies, renewable, clean and new energy technologies, service sector and environmental protection. We are ready to work vigorously to provide diverse options of cooperation and facilitate and support small and medium sized companies from both our countries to do business together.

We are also clearly aware of the domestic difficulties that lie ahead. China’s total population is 1.3 billion. So, although we are among the front runners in the world in economic aggregate, our per capita GDP still trails behind the 100th place. Urban-rural discrepancy and regional imbalance are serious developmental issues, and underdevelopment remains the reality in many rural areas, especially in western China. Over 10 million people still live below the poverty line. These basic facts define China as a developing country, where productivity remains low, and further development is constrained by the shortages of resources and energy and environment consequences. The socialist market economy, democracy and rule of law need further improvements, and certain outstanding social issues await solutions. China’s road to modernization will be a long one and our tasks will be arduous.

Ladies and Gentlemen,

Through its fast growth, reform and opening up, China is offering rare opportunities for business cooperation with the United States. To translate the opportunities into real economic gains, people from China and the United States should work together.

China and the United States are the twin engines of the global economy, contributing as high as 40% of the world economic growth. In every sense, we are now in the same boat. China sincerely hopes the temporary difficulties facing the US economy will soon be overcome.

Ensuring the stability of China-US relationship is our responsibility to the world. I hope that our two countries, as stakeholders and constructive partners, will work together to bring prosperity to the peoples of China and the United States as well as to the world at large.


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